The Opposition has openly endorsed the government’s changes to stage three tax cuts, which make them more accommodating to middle Australia, after weeks of criticism.
Opposition Leader Peter Dutton announced on Tuesday that the Liberals and Nationals will vote in favour of the overhaul, while simultaneously criticising the Prime Minister for reneging on his initial commitment to refrain from altering the tax cuts as originally legislated.
In a statement on Tuesday, Treasurer Jim Chalmers confirmed that the Albanese government has introduced legislation to implement its cost‑of‑living tax cuts for middle Australia.
“This legislation is all about delivering a tax cut for every taxpayer, and more tax relief for more people to help with the cost of living,” Mr Chalmers said.
“The Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024 will deliver a tax cut to every taxpayer and bigger tax cuts to more Australians in a way that doesn’t add to inflation or burden the budget.”
The tax cut changes will see the 19 per cent tax rate reduced to 16 per cent (for incomes between $18,200 and $45,000), the 32.5 per cent tax rate reduced to 30 per cent (for incomes between $45,000 and $135,000), the threshold above which the 37 per cent tax rate applies increase from $120,000 to $135,000, and the threshold above which the 45 per cent tax rate applies increase from $180,000 to $190,000.
“The legislation means all 13.6 million taxpayers will receive a tax cut – 2.9 million more than would have benefited from Scott Morrison’s plan from five years ago – and 11.5 million taxpayers (84 per cent of taxpayers) will receive a bigger tax cut,” the Treasurer said.
The Coalition, for its part, said it not going to stand in the way of providing support to Australians who are doing it tough.
But in his speech, Mr Dutton clarified that: “We’re supporting this change – not to support the Prime Minister’s lie, but to support those families who need help now, because Labor has made decisions that have made it much harder for those families.”
While economists are fairly confident that the tax cut changes won’t impact inflation or influence the Reserve Bank’s future decision, AMP’s Shane Oliver said this week that these changes have reversed Australia’s progress in tax reform.
“To boost productivity growth, we need to reform our tax system,” Dr Oliver said.
In a recent analysis of the tax system, he judged that the initial stage three tax cuts were a positive step towards reform, which has been unravelled by the changes.
Last month, the International Monetary Fund (IMF) stated it sees merit in “comprehensive tax reform” and highlighted that rebalancing the tax system from direct to indirect taxes, while addressing regressive impacts, would promote greater efficiency.
“Comprehensive tax reforms remain indispensable to long-term fiscal sustainability and productivity,” the fund said.
“High reliance on direct taxation is amplifying challenges of financing health and aged care as population ageing lowers the share of workers and declining productivity growth puts a drag on wages.”
Referencing the government’s 2023 Intergenerational Report, the IMF also underscored the growing dependence on bracket creep in the absence of tax reforms.
“Addressing these challenges heads on will avoid costly delays in tax reforms needed for sustained and shared prosperity.”
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
