The 10-year cost of keeping the planned Stage 3 tax cuts in place has ballooned by $11 billion to $254 billion, Treasurer Jim Chalmers has confirmed, while playing down speculation the Labor government will move to scrap the measures in next week’s federal budget.
Speaking to ABC RN Thursday morning, Chalmers said a recent analysis of government expenditure has expanded the projected decade-long cost of those tax breaks from the previous $253 billion figure.
“We’re expecting that equivalent 10-year cost to be about $254 billion,” he said.
“And I think the forward estimates cost from memory is about $41 billion, which is just the update on those already legislated tax cuts.”
The Stage 3 tax cuts form the latest stage of the former Morrison government’s income tax overhaul, which eventually passed into law with Labor’s blessing.
The third and final stage will eliminate the 37% marginal tax bracket, which currently applies to earnings between $120,001-$180,000.
Today’s 32.5% tax bracket, covering every dollar earned between $45,001-$120,000, will also change.
Under the Stage 3 tweaks, the marginal rate will lower to 30%, while the upper earning bound will grow to $200,000.
While workers earning $60,000 a year could expect a $400 annual tax cut thanks to the changes, the benefits drastically ramp up for high-income earners: a worker on $200,000 a year could face a $9000 tax break.
The cuts were originally formulated by the Morrison government as a way to stimulate the economy from its pre-pandemic state.
But given mounting fears of a sustained economic downturn across leading economies, Chalmers has faced pressure from the Greens and think-tanks like The Australia Institute to scrap the Stage 3 cuts, which apply to income earned in the 23-24 financial year.
Doing so could enable the government to fund more of its big-picture projects, currently subject to what Chalmers has described as “difficult decisions”.
Chalmers today deflected those calls, despite the $11 billion cost update.
“These tax cuts make an impact on the budget, but I think the point we’ve been making is they come in in a couple of year’s time,” he said.
“We’ve got more pressing priorities. The budget is not going to be about those tax cuts.”
The federal budget will instead focus on “responsible” cost of living relief in an inflationary environment, targeted investments, and other attempts to unwind what Chalmers described as a “legacy of waste and rorts” inherited from the Coalition government.
Resilient commodity prices will shine through in the October 25 budget, Chalmers said, with more significant deficits expected down the line.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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