The federal government is seeking to head off amendments to its stage-three tax cut package, releasing data claiming that possible Coalition changes would “smash the budget” by almost $40bn.
Jim Chalmers’ office has released the estimate, saying the combination of Labor’s low- and middle-income tax cuts with the restoration of money taken from high-income earners – a compromise some believe the Coalition will attempt – would cost the budget $39bn.
The Coalition has backtracked from its initial opposition to Labor’s tax package and the suggestion it could promise to repeal the cuts after the next election. The opposition’s new starting point is that no Australian should get less than they were promised under stage three.
Labor’s new tax cuts would give back $359bn over 10 years to Australians, providing gains to all taxpayers earning less than $146,486, doubling tax relief for those on the average income, including gains of $804 for middle-income earners.
The proposal halves the benefit to people earning more than $190,000, slashing $4,500 from the dividend they would have received under stage-three cuts.
On Tuesday the shadow treasurer, Angus Taylor, said the Coalition would “go forward to the next election with lower, simpler taxes”, raising the prospect it could continue to advocate for a flat tax bracket on income between $45,000 and $200,000, the central plank of stage three.
According to the treasurer’s office analysis, reimposing the old stage three while retaining Labor’s plan to reduce the tax rate from 19% to 16% on income below $45,000 would cost an extra $38.9bn over four years.
Over 10 years, that promise would cost the budget an extra $120.9bn, adding about a third again to the cost of Labor’s $359bn 10-year tax plan.
The biggest tax cut under Labor’s plan goes to workers earning $135,000, who will pocket an extra $1,100, but under a restored stage three the biggest boost would go to those earning $200,000.
Chalmers said: “If Peter Dutton and the Coalition go down this road they will smash the budget, blow out the deficits, rack up more debt to give to the highest income earners, and risk upward pressure on inflation.”
On Wednesday Taylor said that if the government were able to manage the economy it would not “have to divide Australians” and “everyone gets the opportunity to get ahead”.
Taylor said the Coalition would not state its final position until it had seen the legislation, and it didn’t know what concessions the “grimy Greens” would win from Labor.
“What we do believe in is lower, simpler, fairer taxes,” he told reporters. “We’ve been fighting for that … for two elections, indeed, stage-one, two and three tax cuts which gave tax cuts right across … the sweep of tax brackets in Australia.”
Labor is heaping pressure on the Coalition to pass its tax plan to avoid negotiations with the Greens, releasing data showing about 85% of taxpayers in Liberal and National electorates will be better off under Labor’s plan than stage three, or 3.4 million people out of a total of 4 million.
MPs targeted by the government insist they are not feeling the heat. The Nationals member for Hinkler, Keith Pitt, said Labor was in no position to “wedge” backbenchers because “they took money off people in the first place”.
“The point I make locally is that 51,000 people lost the low- and middle-income tax offset [in my electorate],” Pitt told Guardian Australia, adding: “The treasurer wants a round of applause for giving back less than he took off people in the first place.”
The low- and middle-income earner tax offsets were announced as a temporary measure in 2018 but extended by the Coalition during the pandemic. The Coalition’s final budget in 2022 did not propose to further extend the offset, which Labor then allowed to lapse after it won the election.
On Wednesday the independent MP Allegra Spender said she supported reducing taxes on working people “across the board” but “you need tax reform to pay for this”.
“I don’t think you can just say we cut, cut, cut – and I think that is the problem with the original tax policy,” she told the National Press Club.
“It was all sugar, it’s all like, ‘Here have the money’ – but we’re not dealing with that reform.”
Richard Denniss, the director of the Australia Institute thinktank, said the “everybody leaves with a prize” approach “certainly wouldn’t be good for the budget deficit and in this climate it probably would be inflationary”.
