The federal Labor Party is set to go to the next election vowing to leave untouched the stage three income tax cuts if it forms government, heading off a Coalition campaign to portray it as high taxing and anti-aspirational.
Following several days of conversations, Labor’s hierarchy has decided against trying to either unwind or amend the cuts if elected.
The decision is yet to be ratified by the caucus but sources said it was a safe bet it would remain unchanged.
The tax cuts have already been legislated to begin on July 1, 2024, and will cost an estimated $137 billion between then and the end of the decade. They will abolish the 37 per cent tax rate and apply a 30 per cent rate to all income between $45,000 and $200,000.
Labor supported the legislation for the tax cuts after the last election but, it argued, only because they were tied to the stage two tax cuts for low- and middle-income earners which began on July 1 last year.
It always reserved the right to take a different position to the next election, depending on the state of the economy.
With debt headed towards $1 trillion and the budget deficit above $100 billion, Labor mulled revoking the cuts altogether but gave more serious consideration to capping them so the 30 per cent rate would apply to incomes up to $180,000, instead of $200,000.
It calculated the latter option would save $80 billion which could be used variously to reduce debt and deficit and fund potential Labor election promises, such as a higher JobSeeker welfare payment.
Leader Anthony Albanese had always insisted Labor would not make a final decision on its position until closer to the election, but it was decided in May to make the decision during the parliamentary winter break and get it off the agenda.
Had Labor sought to amend the cuts, it would have faced a campaign by the Morrison government that it was for higher taxes and anti-aspirational, which were similar themes run against Labor at the 2019 election.
Labor went to the last election with a number of policies aimed at curbing tax breaks, such as negative gearing and cash refunds for excess franking credits. It also went to the election opposing the stage three tax cuts.
In May this year, after Labor refused to state its position, Prime Minister Scott Morrison gave notice of a similar campaign at the next election.
“If Labor wants to put taxes up, they need to tell you how many jobs it’s going to cost and how much it’s going to slow growth,” he said.
“They’re the ones who have to make the argument for change. We did at the last election, won an election and implemented it. It’s now law.
“If they want to put up taxes in the middle of a recovery from the worst recession since the Great Depression, they can make that case. This is the worst possible time.”
There was strong support among Labor’s right faction to leave the tax cuts alone, more so given they were already legislated and factored into the budget bottom line. Unravelling them had the added potential of a messy Senate battle post-election.
The decision to leave the cuts unchanged will rob the government of a key attack line come the election, while emboldening the Greens, who oppose the cuts altogether.
The Intergenerational Report released in late June by Treasury found that even with the stage three tax cuts factored in, personal income taxes would grow faster than other sources of revenue over the medium term, placing an increasingly larger burden on a smaller portion of workers.
Treasury projected the Coalition’s self-imposed tax-to-GDP ratio of 23.9 per cent would be reached in 2035-36 which, because of the impact of the pandemic, was four years later than forecast in the 2015 IGR.
This suggests that the stage three income tax cuts could be the last for a long while.