The stage three tax cuts do not seem as easy for Labor to get rid of as some may have thought.

There was mounting speculation on Tuesday the government was preparing to perform surgery on the unpopular tax cut especially favourable to high-income earners.

But so far MPs have only gone on record as backing the tax cuts.

Whether the predicted change is realised could have implications for Treasurer Jim Chalmers’ promise to deliver a “sustainable” budget.

Changed conditions

Dr Chalmers tamped down on speculation and said the tax cuts were still government policy on Tuesday.

The tax cuts have already been legislated and will kick in from 2024 at a total cost to the budget of $234 billion over a decade.

The Australian Financial Review reported the government was canvassing support for making them less favourable to those on high incomes.

Some Labor sources were keenly watching to see what reaction it would produce.

On Wednesday four Labor MPs have now declared for keeping the tax cuts which they say will hurt the party’s reputation for honesty.

Andrew Leigh said the government needed to be known as keeping its promises because voters were becoming disillusioned with politics.

“It’s important for the integrity of the democracy,” he said on Tuesday.

Three others spoke out in News Corp: Dr Mike Freelander and Meryl Swanson and Helen Polley.

Difficult history

Former prime minister Scott Morrison welded the tax cuts benefiting high-income earners with those that would have provided a cut to the poorest workers – and dared the Labor opposition to vote against them.

This week has seemingly shown that cutting taxes for the wealthy is not an idea that is especially popular among Australians – 60 per cent said they would rather money go to health and education while only 15 per cent said the opposite, according to an Australia Institute poll.

Prime Minister Anthony Albanese said it was bad of Mr Morrison to have asked Labor to vote on the economy when he could not know what will have changed in the economy in the intervening period.

The COVID pandemic and the associated $1 trillion in debt and a widening structural deficit are now among changed circumstances.

Reform required

Dr Chalmers named Britain as a “cautionary tale” on Tuesday in a warning about a country that has pursued debt-funded tax cuts at a time of economic stress.

The UK has just dumped a policy that would have handed a tax cut to the wealthy – but only after it went quite close to dumping the prime minister who came with them.

Against the backdrop of inflation, growing public dependence on food banks and worsening global conditions the policy was described as  “the shortest suicide note in political history”. 

“We do need to ensure that spending in the budget, particularly in these uncertain global times, is geared toward what’s affordable and sustainable and responsible and sufficiently targeted,” Dr Chalmers said.

“I think that’s one of the lessons from the UK.”

That seems to be a reference to revenue not keeping up with a growth in expenditure, a structural deficit that will only get worse.