The Albanese government is set to break a key election promise after federal cabinet signed off on an overhaul of the stage three tax cuts.
Under the changes, low and middle income earners are expected to benefit, while high-income earners will get less than previously expected, with savings set to be re-directed to less affluent taxpayers.
Cabinet met on Tuesday and approved the updated tax plan which is expected to slash the tax rates between $18,200 and $135,000, from July 1.
It is understood the 37 per cent rate – which was to be abolished under the Morrison-era tax plan – will remain, but will instead kick in at $135,000.
The top marginal tax rate of 45 per cent will also remain, but will apply at an expected $190,000 rather than the legislated $200,000.
The stage three tax cuts were legislated by the Morrison government in 2019 and endorsed by the Albanese government.
The changes, as legislated by the Morrison government, would have abolished the 37 per cent bracket on income earned between $120,000 and $180,000.
Instead, a 30 per cent tax rate would have applied to all earnings between $45,000 and $200,000, and the threshold for the top 45 per cent would have kicked in at $200,000 up from $180,000.
But the government, under pressure over the cost of living and criticism of the generosity of the three tax cuts to higher earners, has backed away from the package.
The Treasurer’s office refused to comment on Tuesday evening.
It is understood the changes will not affect the budget bottom line.
In his only media appearance on Tuesday, Prime Minister Anthony Albanese said people were “hyperventilating” over the rumours, after having previously promised government would stick to the tax plan before the election.
“I support tax cuts and everyone will be getting a tax cut,” the Prime Minister told Sydney Radio.
It is expected the changes will be rubber stamped by Labor MPs on Wednesday at an urgent cost of living talks meeting Mr Albanese called last Saturday.
Coalition slams changes but crossbench support key
With support from the Greens, who have called for the tax cuts to be scrapped, the government is unlikely to face major hurdles to pass legislation through the parliament to update the tax package.
But the Coalition has gone on the attack over the government’s “broken promise” and said it would staunchly oppose any amendment to the already-legislated tax package.
Speaking on Sky News, shadow treasurer Angus Taylor said “moving away from any aspect of the stage three tax cuts, would be the mother of all broken promises.”
“The Treasurer and Prime Minister have committed to these tax reforms over 100 times between them,” Mr Taylor declared.
“If they break this promise, it’s right up there. But you know, it’s not beyond Albanese to break promises.”
Before Tuesday’s cabinet meeting, key Senate crossbencher David Pocock said the tax cuts should be altered from their initial form.
“This is a tough one for the government but I’m really concerned that you continue with these [tax cuts] and we’re then going to have to find other money to deal with cost of living,” Mr Pocock said.
“The stage three tax cuts in their current form are poorly designed and I think it’s the wrong policy for the current economic environment.”
Bosses, unions at odds over stage three
On Tuesday, a coalition of business groups warned any amendment would “undeniably dent the government’s credibility”.
In a joint statement, the Business Council of Australia, the Australian Chamber of Commerce and Industry, the Australian Industry Group and the Minerals Council of Australia declared that “tinkering at the edges would mean a promise has been broken”.
Addressing the criticism that the tax cuts are unfair, the organisations said it was important to view the tax cuts as part of a package, rather than in isolation.
“It is easily forgotten that the first and second stages of the 2018 reform package were skewed towards lower- and middle-income taxpayers and that the full package is much more balanced,” they said.
But the Australian Council of Trade Union called on the government to ditch the tax cuts in their entirety, citing the benefits high income earners received from them.
“The government should ditch the stage three tax cuts,” ACTU secretary Sally McManus said. “We need more help for people who are really feeling cost of living pressures and these tax cuts primarily help those who need it the least.”