17 April 2024
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Why is Albo set to break his tax cut promises?

Peter Switzer
24 January 2024

The Albanese government has reinforced the old view that an election promise isn’t worth the hot air it’s ‘written’ on, with the Stage Three tax cuts to be substantially tweaked. Prime Minister Anthony Albanese will ‘fess up’ today at a National Press Club luncheon, where he’ll tell us about his tax cut changes, along with other measures meant to reduce the cost of living.
This is how The Australian saw the big decision made yesterday in Canberra to change the tax cut promises as a means to favour those Australians who are more likely to vote Labor in next year’s election. “The Prime Minister will put to a special caucus meeting on Wednesday his intention to abandon flattening the tax rate, which, under stage three, would have imposed a 30 per cent tax rate from July 1 on the earnings of all Australians on incomes between $45,000 and $200,000.”
So, to cut to the chase, here are the Stage Three tax cut changes:

1. The 37% tax bracket due to be abolished under stage three remains for workers earning $135,000 and above.
2. The top marginal tax rate of 45% is lifted to $190,000, below the $200,000 mark under stage three.
3. Workers earning less than $135,000 are likely to receive bigger tax cuts.
Labor will argue that the amount of the tax cuts remains the same but for workers earning less than $135,000 the reduced tax slug in the pay packet will be greater.
In simple terms, if you earn up to $150,000, you’ll be better off, as you get the bigger tax cuts on every dollar under $135,000 but if you earn more than $150,000, Albo has welched on his election undertaking to you.
That old promise killed the 37% tax bracket, while the 32.5% bracket shrunk to 30%. And you didn’t get hit with the 45% tax rate until $200,000, rather than the current $180,000. Undoubtedly this is a play for the middle class voter who the PM argues “is doing it really tough.”

Not surprisingly, business leaders argue these changes could reduce the chances of a soft economic landing, but the changes are better than what the ACTU boss, Sally McManus called for, which was a scrapping of all the tax cuts to favour much lower income Australians under the pump because of cost of living pressures.

Interestingly these changes have to be passed by both houses of parliament, as it changes existing legislation, and the Peter Dutton-led Opposition will oppose the new tax cuts. The Greens aren’t happy with the entire tax package, so the pressure will come back onto the cross bench to see these new tax cuts go into law.

Some time ago, the ATO calculated that if the top tax bracket didn’t go from $180,000 to $200,000, 1.2 million taxpayers would pay $2,640 more in tax than they would’ve if the old promises on tax cuts weren’t broken.
Interestingly, the big question will be what the RBA will think about these tax and other cost of living changes. If these changes add to inflation, it could delay interest rate cuts. On the other hand, if the changes are likely to reduce inflation, the rate cuts could be bigger and more numerous.

The latter scenario would be better for a PM being belted in the polls at the moment, ahead of the election in early 2025.

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