Wed Jan 24

Albanese tax plan will give average earner $1500 tax cut – more than double Morrison’s Stage 3

Written by: Michelle Grattan, Professorial Fellow, University of Canberra

A person on the average annual wage of $73,000 will get a tax cut of more than $1500 a year under Labor’s revamped tax policy – more than double the cut they’d have received under the Coalition’s legislated stage 3 plan.

In the government’s dramatic recalibration of stage 3, the proposed tax cut for those earning more than $200,000 will be slashed in half, from around $9000 to more than $4500.

At the other end of the income scale, all taxpayers will get a cut, rather than just those earning more than $45,000 as under the legislated stage 3.

Taxpayers earning less than $150,000 will get larger tax cuts under the government’s proposed plan compared with the Morrison one, while those earning more than $150,000 will get smaller cuts.

Amid political attacks over his broken promise – Anthony Albanese had repeatedly committed to delivering stage 3 as legislated by the Coalition – the Prime Minister will tell the National Press Club on Thursday, “When economic circumstances change, the right thing to do is change your economic policy. That’s what we are doing.”

Treasurer Jim Chalmers told the ABC on Wednesday night: “The many will benefit from this, rather than the few”.

The policy switch was endorsed at a brief caucus meeting late Wednesday.

“Our plan will more than double the benefit for Australians on the average income,” Albanese says in his Press Club speech, extracts of which were released ahead of delivery. .

“And it will look after low income earners and part-time workers as well.

"So someone working at Australia’s largest employer, Woolworths, earning $40,000 will now get a tax cut of over $650.

"Under Scott Morrison’s plan, they would have got nothing.”

Under the changes, the lowest rate of tax is reduced from 19 cents to 16 cents in the dollar. This will mean people will pay less tax on the first $45,000 they earn.

“This is a significant boost for the take-home pay of Australians on modest incomes and people working part-time,” Albanese says.

“An early educator, or an aged care worker or a cleaner earning $50,000, will receive a tax cut worth $929 a year”.

He says these tax cuts will help parents returning to work, especially women with young children. Business would also be assisted, by the boost in workforce participation.

Albanese says that with the focus “fairly and squarely […] on middle Australia”, the second tax rate, reducing from 32.5% to 30%, will now apply up to $135,000.

The government is retaining the 37% rate, which is scrapped in the Morrison stage 3 model, and that will now apply from $135,000 instead of $120,000 as at present. The top 45% rate will start from $190,000, up from the present $180,000 but down from the $200,000 legislated for stage 3.

Albanese says under the new plan a full-time worker earning $100,000 will get a cut of more than $2100 – “over $800 more for middle income earners because of our changes.”

For a family on he average household income – about $130,000 – with one partner earning $80,000 and the other $50,000, their combined tax cut will be more than $2600. This is $1600 more than under stage 3.

Albanese quotes Treasury as saying the government’s change is “broadly revenue neutral, will not add to inflationary pressures and will support labour supply”.

The proposed new rates will start from July 1, when stage 3 was due to begin. The changes will have to be legislated but the government has enough support from the crossbench in the Senate to be confident of passage.

Labor is rolling out an advertising campaign to sell the changes.

Albanese says in his speech: “This is the right decision for the right reasons – and we’ve made it the right way. It is the best way forward – because it is the best way to help Australians struggling with their cost of living without putting pressure on inflation.”

Chalmers on Thursday will release a Treasury analysis to back up the government’s case. The plan “will be better for middle Australia, better for cost-of-living pressures, better for women and workforce participation, better for nurses and teachers and truckies,” he said. The Treasury analysis would show the plan would be better for the economy, he added.

Shadow treasurer Angus Taylor said the Coalition was “absolutely locked down on supporting the stage 3 tax cut”. He called the government’s changes the “mother of all broken promises”.