Finance minister denies revenue lost from tax cuts will lead to budget deficits in an economic downturn

This article is more than 1 year old

This article is more than 1 year old

Mathias Cormann has said there is no chance the government will split its $158bn income tax package, hardening the Coalition’s stance on its central election commitment.

Labor is mulling its position on the seven-year plan which analysis has shown would benefit the wealthy after first providing tax cuts for low- and middle-income earners.

Before the election, the opposition said it did not support parts two and three of the plan, but has since left the door open to supporting the second stage, which would lift income thresholds for the 19% and 32.5% tax brackets in 2022-23. It is unlikely to support the third tranche, which would greatly flatten the tax scales in 2023-24.

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Appearing on the ABC’s Insiders program, Cormann was asked about the wisdom of locking in tax cuts well beyond this term of parliament, given the economic outlook then could be vastly different.

The finance minister “completely “reject[ed]” the suggestion that the revenue lost from tax cuts would lead to budget deficits in an economic downturn.

In fact, Cormann claimed the “economic headwinds we may face from time to time” were the reason the government needed to “ensure we are in the strongest position domestically here”.

“That’s why we do need to ensure we provide income tax relief to ensure Australians don’t go backwards,” he said. “If we didn’t go what we were proposing to do, Australians would be going backwards.”

Asked if there was any chance the government would put the third stage of tax cuts to parliament separately, he replied: “No, none.”

“This is again a groundhog argument,” he said. “This is precisely the conversation that Bill Shorten was pursuing back in 2018 and we rejected it then and rejected it now. We have put forward a holistic plan.

“We’re prioritising low- and middle-income earners but we are addressing bracket creep, and we’re also simplifying the tax system,” Cormann added.

The Coalition’s position sets up a likely battle in the Senate with Labor, unless it can convince the crossbench to come on board. Centre Alliance has indicated it may support the whole package, if the government guaranteed public services were not affected.

Ahead of the potential deadlock, Scott Morrison has already sought to accuse Labor of impeding its ability to provide tax cuts for low- and middle-income earners.

In turn, Labor has claimed the government has broken an election promise, after the Coalition conceded its tax cuts would not be ready by 1 July, as it had claimed. That stage of the package is worth a total $1,080 for people earning between $50,000 and $80,000.

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The new Labor leader, Anthony Albanese, has not revealed the opposition’s position on the tax cuts, saying he first needs to “consult with colleagues”.

“People are entitled to have input,” he said. “I will lead a democratic process and one that recognises that people are entitled to have that input. We’ll do that. I’ve said very clearly at the same time though, that the tax cuts on 1 July, if the prime minister wants parliament to resume very quickly, it can, in my view, in time for those tax cuts to pass.”

The third part of the government’s tax plan, to be implemented in 2024-25, would scrap the 37% tax bracket and lower the 32.5% marginal rate to 30%, which would be paid by people on incomes between $45,000 and $200,000.

Analysis shows this would cost $95bn over five years, with the bottom 20% of taxpayers to get only 0.2% of the benefit of the proposed cut.

Albanese will announce the opposition’s shadow ministry on Sunday.