Treasurer’s wild concession on tax cuts

Treasurer Jim Chalmers has been quizzed about the stage three tax cuts .Picture: NCA NewsWire / Glenn Campbell

Jim Chalmers has conceded wealthier Australians will benefit the most from the stage three tax cuts but suggested the policy will protect people on lower incomes from bracket creep.

The Albanese government has not made any changes to the contentious policy which will mean people earning between $45,000 and $200,000 pay no more than 30 cents in the dollar in tax from July next year.

Labor promised before the election to keep the tax cuts in place and didn’t touch them in its second budget, with the government now seemingly strengthening its resolve against calls to amend or scrap them.

The Treasurer repeated on Sunday that the government’s position on the personal income tax cuts hadn’t changed, saying the policy hadn’t featured in the budget because it had “other priorities”.

“It hasn’t been a priority in the context of these budget deliberations because we found other ways to make meaningful changes in the budget, help people through difficult times and invest in their future,” he told ABC’s Insiders program.

Treasurer Jim Chalmers appeared on ABC’s Insiders program after handing down his second budget. Picture: NCA NewsWire / Glenn Campbell

Asked why the government wanted to keep the stage three cuts, Dr Chalmers said: “We have said in principle that returning bracket creep is a worthy objective of governments of both political persuasions, frankly.”

“We have always said when we can afford to give tax relief, particularly to low and middle-income earners that’s a worthy objective as well … These tax cuts kick in at $45,000.”

Dr Chalmers conceded people earning over $200,000 a year — who stand to receive a $9000 annual tax cut under stage three — would benefit the most from the policy.

“Yes, I understand the structure of the tax cuts,” he said.

“It hasn’t been a focus of this budget. They don’t come in for more than a year now. There are other things we want to do in the interim.”

AUSTRALIA - NewsWire Photos - General view editorial generic stock photo of Australian cash money currency. Picture: NCA NewsWire / Nicholas Eagar
The stage three tax cuts will benefit higher paid Australians. Picture: NCA NewsWire / Nicholas Eagar

The third tranche of cuts legislated by the Morrison government with Labor’s support in 2018 will scrap the 37 per cent marginal tax bracket and lowers the 32.5 per cent marginal tax rate to 30 per cent.

It also increases the threshold for the 45 per cent marginal tax rate, so people earning between $45,000 and $200,000 will pay the same 30 per cent tax rate.

The cost of the stage three tax cuts has continued to grow — they are now forecast to cost the government $69bn over the next four years.

The policy has been criticised by the Greens, other progressives and some economists who say it will worsen inequity at a time when many workers are struggling and government spending is tight.

But people on the other side of the debate say the cuts are necessary to protect workers, including those on middle-incomes, from bracket creep, in which a greater proportion of one’s income is taxed at a higher rate.

With the inflation crisis prompting fresh calls for a rethink of the policy, the Grattan Institute has proposed redesigning the cuts to make them less generous to the highest income earners.

The economic think tank says the government should retain the 37-cent tax bracket in order to reduce the size of the cuts for high-income earners and save about $8bn a year.