The government is highlighting a looming $2.2bn cut to personal income tax even though it wants to repeal it, and Labor is refusing to overturn the tax reduction even though it said it would do so when it was in government.



The topsy turvy tax debate centres on a tax cut due to take effect from 1 July this year that was legislated as the second part of family compensation for Labor’s carbon pricing scheme.

If not repealed by the 1 July start date, the increase in the tax-free threshold from $18,200 to $19,400 and changes to the low-income tax offset will add up to a tax cut worth more than $200 a year for people earning between $22,000 and $37,000, with smaller benefits flowing to those earning up to $60,000.

Searching for savings at the end of its term in government, Labor said it was indefinitely deferring the already legislated changes because the floating carbon price was forecast to be far lower than originally calculated and families did not need as much compensation.

It booked $1.5bn in savings in the 2013-14 budget from repealing the tax cuts but did not get around to actually changing the legislation.

The Coalition argues the tax cut is now definitely not needed because the carbon tax has been abolished. It tried to repeal the cut last July but the move was blocked in the Senate by crossbenchers, the Greens and Labor. And because the budget now includes an additional year of the tax cut the cost of the failure to repeal is now $2.2bn.

Speaking on 3AW on Monday, the treasurer, Joe Hockey, said he wanted to “give families a bit of a break with cost of living”. Asked whether family tax relief was possible this year, he pointed to the measure he would prefer to abolish, saying: “There is a scheduled tax cut that is still on the books to kick in this year and that is a change in the threshold that is a legacy from the carbon tax.”

A spokesman for Hockey confirmed it was still government policy to repeal the tax cut. The repeal legislation – now rejected twice by the Senate – has gone back to the House of Representatives.

And despite Labor’s own previous intention to repeal the cut and its insistence that it will nominate alternative budget savings to those it is opposing in the Senate, a spokesman for the opposition leader, Bill Shorten, said the ALP would now continue to oppose the repeal – on the grounds that “the budget has hurt low-income people enough”.

In last year’s Senate vote the Palmer United party senators, Jacqui Lambie, the Motoring Enthusiast party senator, Ricky Muir, the Family First senator, Bob Day, the Liberal Democrat senator, David Leyonhjelm, and the independent Nick Xenophon all voted with Labor and the Greens to keep the tax cuts. Victoria’s one-time Democratic Labour party senator – now an independent – John Madigan supported the government’s move to abolish it.