The stage three tax cuts will cost much more than expected and carve upwards of one-quarter of a trillion dollars from the budget over ten years.
Treasurer Jim Chalmers confirmed estimates have shown the tax cuts would cost $254 billion over 10 years, $11b more than the $243.5b previously forecasted by the budget office.
The government had come under pressure to scrap the stage three tax cuts, which will effectively abolish the 37 per cent marginal tax bracket, but Labor promised to keep them at the election.
Dr Chalmers said there would not be a new item in the federal budget when it is handed down on Tuesday on the tax cuts, indicating the cuts had already been legislated.
The Greens said the discovery that the tax changes would cost an extra $11b should be the nail in the policy's coffin.
"Next week's budget will be a statement of this government's priorities. It is still not too late to scrap the stage three tax cuts and invest in genuine, immediate cost of living relief," Greens senator Nick McKim said.
ACT independent senator David Pocock has also called for the stage three tax cuts to be ditched, but the opposition says scrapping the cuts will constitute a broken election promise.
Shadow treasurer Angus Taylor said the upgraded stage three tax cuts costings were a product of people paying more tax.
"It proves the impacts of bracket creep are very real and are hitting Australian households to the tune of billions of dollars."
He said the easiest way to combat bracket creep was to eliminate a tax bracket.
H&R Block tax expert Mark Chapman said the government was unlikely to ditch the tax cuts in the October budget.
"The tax cuts aren't due to come into effect until 1 July 2024 so the treasurer has time on his side," he said.
But with the low and middle income tax offset due to end in 2022, he said low- and middle-income earners will have their $1500 tax offset abolished during a cost of living crisis.
"Expect something to take its place - maybe not the tax offset, but some measure to take the sting out of the hit that low- and middle-income earners are otherwise going to face, possibly paid for by a 'high income earners' levy," Mr Chapman said.
Such a levy would put an extra one to two per cent on the top rate of income and could be used to pay for cost of living relief for low- and middle-income earners, he explained.
In an interview on Thursday, Dr Chalmers also confirmed the budget would include an extra $6.4 billion on measures that were previously unfunded but still were needed, such as health and COVID-related programs.
He said the additional spending was a result of the previous government "booby-trapping" the budget with unavoidable spending.
But Mr Dutton said Labor backed the coalition's COVID-19 response measures when in opposition.
"Labor supported every dollar of that and they promised, and they advocated at the time for another $80 billion of spending," Mr Dutton told Sydney radio 2GB.
Mr Taylor also called on the government to stick with the coalition's tax-to-GDP ratio cap of 23.9 per cent, noting that the cap had won support from the Business Council of Australia.
On Thursday, the business group called for "fiscal guardrails" to bring debt under control, including capping spending growth at two per cent annually and a tax-to-GDP cap of 23.9 per cent.
The treasurer has previously dismissed tax-to-GDP ratios as arbitrary.
