Labor is preparing to back the second stage of the Morrison government’s tax cuts to lock in the benefits for low- and middle-income earners.
But it will block an “offensive” flat tax rate of 30 cents in the dollar for the majority of workers.
The New Daily has confirmed that Labor’s shadow cabinet on Tuesday canvassed a compromise plan to extend bipartisan support to the Morrison government’s planned tax cuts scheduled for 2022.
It has not yet been considered by the ALP caucus.
These new measures include increasing the top threshold of the 19 per cent tax bracket from $41,000 to $45,000 and increasing the low-income tax offset from $645 to $700.
However, Labor’s shadow cabinet is resolute in blocking a promised tax cut in 2024 designed to slash the 32.5 cent tax rate down to 30 cents for 94 per cent of taxpayers, including workers earning six figures.
Labor sources told The New Daily that shadow treasury spokesman Jim Chalmers said it would be “offensive” for Labor to support a flat tax rate of 30 per cent for workers earning six figures.
He was backed by the former treasury spokesman Chris Bowen in the shadow cabinet discussions.
The olive branch on Stage 2 of the tax cuts will put the pressure on Prime Minister Scott Morrison to “split the bill” when Parliament returns in July and not delay the $1080 tax offset promised to workers for the current financial year.
Ten million Australian workers could face delays on the promised $1080 tax return bonus unless the tax brinkmanship in the Senate can be resolved. That’s because the Prime Minister is arguing the reforms are “a package” that cannot be split.
But by refusing to back the tax cuts scheduled for 2024, a political stalemate could still result if the Prime Minister refuses to accept the compromise.
Labor has already pledged its support during the election for the $1080 tax offset for all workers earning under $130,000.
Earlier, Dr Chalmers would not detail the shadow cabinet discussions.
“What we have said is it’s disappointing the government won’t split the bill because if they did split the bill, we would enthusiastically pass the first tranche of tax cuts which favour people on low and middle incomes,” Dr Chalmers said.
Shadow Treasurer @JEChalmers talks to @PatsKarvelas about today’s Shadow Cabinet meeting, tax cuts, franking credits and negative gearing on #AfternoonBriefing #auspol (2/2) pic.twitter.com/Dzli9GOGMP
— ABC News (@abcnews) June 4, 2019
“They’ve already broken a promise to have that in place from July 1. We know from (The New Daily‘s) story today that they broke that promise intentionally. They knew when they made the promise that they were going to break it.
“If the government was prepared to split out the first tranche, we would pass it enthusiastically. We’ve said that for some time.”
The new tax relief measures Labor will consider backing are designed to preserve the tax relief from the larger low- and middle-income tax offset.
The Prime Minister has pledged to do this by increasing the top threshold of the 19 per cent tax bracket from $41,000 to $45,000 and increasing the low-income tax offset from $645 to $700.
The changes are designed to boost existing tax cuts previously legislated by Parliament including increasing the $37,000 threshold to $41,000 and the low-income tax offset from $445 to $645 from July 1, 2022.
It is also designed to boost the increase to the top threshold of the 32.5 per cent tax bracket from $90,000 to $120,000 from July 1, 2022, which was also legislated last year.
According to the budget papers, these tax cuts are will reduce tax revenue by $19.5 billion over the forward estimates period, comprising: $3.5 billion in 2019-20; $3.7 billion in 2020-21; $3.8 billion in 2021-22; and $8.6 billion in 2022-23.
The Stage 3 tax cuts Labor will continue to block relate to reducing the 32.5 per cent marginal tax rate to 30 per cent in 2024.
According to the budget papers, this measure is designed to more closely align the middle tax bracket of the personal income tax system with corporate tax rates.
Under previously legislated tax cuts, an entire tax bracket – the 37 per cent tax bracket – will be abolished in 2024.
The combination of this measure and the government’s additional pledge to drop the 32.5 cent tax rate to 30 cents in 2024-25 is designed to ensure around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less.