Jim Chalmers has suggested Labor may never abolish the 37% tax bracket to enact the stage-three income tax cuts because future changes to fight bracket creep must maintain the “progressivity” of the system.
The treasurer made the comment indicating that Labor is unlikely to revive the former Coalition government’s stage-three plan even after economic circumstances improve on the Guardian’s Australian Politics podcast, to be published on Saturday.
The Albanese government will introduce its bill doubling tax relief for those on the average income while reducing cuts for high-income earners to parliament next week.
The Coalition has accused Labor of breaching an election commitment to implement the stage-three tax cuts but is yet to say how it will vote, while the Greens want more concessions for low-income earners and recipients of government payments.
Labor’s new tax cuts would give back $359bn over 10 years to Australians, providing gains to all taxpayers earning less than $146,486.
The proposal halves the benefit to people earning more than $190,000, slashing $4,500 from the dividend they would have received under the stage-three cuts, which create one tax bracket for all income between $45,000 and $200,000.
Asked if future efforts to return bracket creep to taxpayers would include abolishing the 37% tax rate – which will now apply on income from $135,000 to $190,000 – or increasing thresholds, Chalmers said: “First of all, I believe in a progressive tax system. And we need to make sure that any changes that are made to the tax system into the future maintain a sense of progressivity.”
Bracket creep refers to when taxpayers move into a higher tax bracket due to wage rises.
Asked if Labor had changed course not just due to economic circumstances but because stage-three cuts were never fair, Chalmers said the history was “pretty clear” that Labor had “tried to split off stage three” when Scott Morrison legislated it in mid-2019.
“We were unsuccessful in the Senate … But what we’ve tried to do in government is to recognise that there are other ways that we can help people who need the most help,” he said.
Chalmers said the Albanese government realised that to offer “bigger and broader” cost-of-living relief “without pushing up inflation, then we needed to use the tax system”.
“And that gave us an opportunity, I think, to come up with something which is not just more relief for people, but better reform for the economy too,” he said.
Chalmers accused the Liberals of “clutching at straws” for complaining that Labor’s package is $28bn less generous over 10 years, because this amounts to pretending “that the changes that we are making, in this year … will last for ever” without being amended.
“What that ignores is a government of either political persuasion at some point in the future, including in the next 10 years, might want to provide further tax relief, in a way that is consistent with their priorities,” he said.
Anthony Albanese has stared down calls from the Greens for further changes to the low-income threshold or a raise in jobseeker, telling reporters on Thursday the tax package would stand on its merits with no “horse trading”. The adequacy of government welfare payments would be considered separately, he said.
Asked about the adequacy of jobseeker, Chalmers said the government acknowledged “people are under pressure, including people on fixed incomes”.
“We [gave a] permanent increase to jobseeker, the biggest increase in rent assistance for some decades, cheaper medicines, and electricity bill relief targeted to people on modest and fixed incomes,” he said.
Jobseeker payments were up $107 a fortnight since Labor was elected while the maximum rate of commonwealth rent assistance was up $52, he said. Labor lifted the jobseeker payment $50 a fortnight through legislation, while the remaining increase occurred through automatic indexation linked to the inflation rate.
Chalmers said “the emphasis” now was on tax changes, but “obviously between now and May we consider what we can do in a responsible and affordable way”.
