More people in jobs, and wages growth have helped drive up the cost of stage three tax cuts by $11 billion, with the Liberal party warning the government is preparing to take away tax relief from millions of working Australians.
Treasurer Jim Chalmers said on Thursday the latest Treasury costing of the policy had grown from $243 billion to $254 billion by 2032-2033, a move likely to resurrect the political debate over the fairness of the income tax relief for workers on higher incomes.
Treasurer Jim Chalmers has revealed the cost of the stage three tax cuts has grown by $11 billion.Credit:Alex Ellinghausen
“It’s been pretty clear to everyone, including all sides of this conversation over the last few weeks, that these tax cuts make an impact on the budget. But I think the point that we’ve been making is that they come in in a couple of years’ time,” Chalmers said on Radio National.
The stage three tax cuts, which come into effect on July 1, 2024, will eliminate the 37 per cent marginal tax rate for those earning over $120,000. They will also reduce the 32.5 per cent tax rate to 30 per cent for people earning between $45,000 and $200,000.
Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics, said the new forecast would be influenced by an upgrade in the outlook for how much would be collected in income tax.
“It could be a stronger assumption that they now have for the number of people that will be employed. It could also be a stronger assumption for wages growth. They’re the fundamentals for the amount of income tax receivable by the government,” he said.
“It’s clearly not a story of a change in the nature of the tax cuts or the way they operate. It’s just a function of the economy being in better shape than was previously anticipated.”
Jobs data published by the Australian Bureau of Statistics on Thursday showed the unemployment rate remained at 3.5 per cent in September, and the participation rate also remained steady at 66.6 per cent.
Shadow treasurer Angus Taylor said the comments from Chalmers were “frankly bizarre”, as the updated figures showed people were being affected by bracket creep.
“With inflation, this tax relief is needed more now than it has ever been. The easiest way to tackle bracket creep is to eliminate a bracket,” Taylor said.
“This isn’t a cost to the budget, it is legislated tax relief that this Labor government wants to take away from hard-working Australians.”
Chalmers said next week’s budget would not be about stage three tax cuts, but would focus on cost-of-living relief, targeted investment, and unwinding waste and rorts.
Prime Minister Anthony Albanese then rebuffed talk of an overhaul of the tax cuts for workers earning more than $45,000 a year.
Greens economics spokesman Nick McKim said the new cost estimate was further confirmation the cuts should be scrapped.
“$254 billion is a staggering amount of money that would be far better spent putting mental and dental health into Medicare, wiping student debt and making childcare free,” he said.
Chalmers will deliver his first budget on Tuesday and has been preparing the ground for a difficult set of figures due to international difficulties and what he said were booby traps set by the former Coalition government.
“Our predecessors more or less booby-trapped the budget with a bunch of spending, some billions of dollars in spending, which is unavoidable [and] which we’ve had to find room for,” Chalmers said on Thursday.
This masthead reported on Thursday that preliminary work by the government’s audit of programs and promised savings had uncovered $6.4 billion in extra spending that would have to be shoehorned into the budget to ensure continued services such as aged care and COVID vaccine booster shots.
Opposition Leader Peter Dutton said the previous government made economic decisions that would have taken the budget back into surplus, had it not been for the pandemic.
Speaking on 2GB radio, he said it was the Coalition’s economic management that now meant the country would avoid recession.
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