Labor has agreed to support the government in abolishing a $3bn tax cut.
The cut, essentially an increase in the tax-free threshold, was due to take effect from July 1 and had been part of Labor’s compensation package for the carbon tax.
It would have boosted the tax free threshold from $18,200 to $19,400 and been worth more than $200 a year for people earning between $22,000 and $37,000, with smaller benefits flowing to those earning up to $60,000.
The Abbott government has been trying to repeal the tax cut since the 2014 budget, but had been blocked in the Senate.
The shadow treasurer, Chris Bowen, defended Labor’s backdown on the tax cut, telling reporters on Saturday it was no longer appropriate given the state of the federal budget.
“This wasn’t an easy decision for the Labor party,” he said. “But given this is the government’s position not to have these tax cuts, and given the state of the budget deficit, the responsible thing for Labor to do is to give its support.”
Bowen also told the Australian Financial Review that since the government had budgeted for the tax cut to be dumped, keeping it would cause an even bigger budget deficit than the $35bn forecast.
As a result of the deal, about 10 million taxpayers would not receive a weekly tax reduction of $2 or less, the finance minister Mathias Cormann said on Saturday.
“The budget position is now improving, we are now on a believable pathway back to surplus,” he told reporters in Perth.
He urged the opposition to embrace bipartisanship. “We call on Bill Shorten and Chris Bowen not to stop here. Keep looking at the measures we’ve put forward to repair the budget mess you left behind.”
Opposition frontbencher Matt Thistlethwaite said Labor was taking a fiscally responsible approach by backing down.
“The budget’s in a dire position, the budget deficit in the government’s own budget papers increases from $17.1bn to $35bn over the forward estimates, even with this $3bn saving being banked,” he told Sky News on Saturday morning.
“This is a saving that we believe is in the interests of Australia and that’s why we’ve agreed to it.”
Searching for savings at the end of its term in government, Labor said it was indefinitely deferring the already legislated changes because the floating carbon price was forecast to be far lower than originally calculated and families did not need as much compensation.
It booked $1.5bn in savings in the 2013-14 budget from repealing the tax cuts but did not get around to actually changing the legislation. It then blocked the Coalition’s first attempt to repeal the tax cut in July 2014.
At the time the opposition leader, Bill Shorten, said the ALP opposed the repeal on the grounds that “the budget has hurt low-income people enough”.
With Australian Associated Press
