Anthony Albanese says $95bn cost of third stage of plan cannot be justified in a soft economy

The Coalition has dismissed Labor’s calls to negotiate over its $158 billion tax cut package, setting up a showdown over the government’s economic agenda when parliament resumes next week.

As Labor called on the government to bring forward some of its proposed tax cuts and boost infrastructure spending to fend off a looming downturn, the government warned that the opposition had failed to learn the lessons of the election by standing in the way of tax relief for all workers.

Following a meeting of shadow cabinet in Melbourne on Monday morning, Labor leader Anthony Albanese said the party had resolved to support stage one of the government’s plan to give a tax cut to low and middle income earners, but would stay “firm” in its opposition to the final stage that would reduce the tax rate from 32.5 cents in the dollar to 30 cents for people earning between $45,000 and $200,000.

“What we have determined this morning to do is to propose a negotiating position to the government which would bring forward tax cuts faster for those who need it, and importantly those who will spend it, to stimulate demand in the economy,” Albanese said.

“What we know right now is that the economy needs stimulus. And what we’re looking for here is solutions rather than arguments.”

Albanese called for “shovel ready” infrastructure projects to be brought forward, and called for the already legislated measure to lift the threshold for the 37 cent tax rate from $90,000 to $120,000 – which it had pledged to repeal had it won the election – to start this year.

Under the coalition’s plan, the threshold change would come into effect in July 2022. Labor said bringing this forward to 2019-20 would cost $3.7bn and provide an immediate boost of $1350 for those earning more than $90,000.

Albanese said that if the government agreed to its proposed rejig of the tax package and deferred the third stage, then Labor would “facilitate” passage of the first two stages.

But its demand for the government to respond to its “constructive approach” ahead of the legislation being introduced next week, was immediately shot down by Finance Minister, Mathias Cormann, who said the government would not split the bill.

“Labor have still not learnt the lessons from the election,” he said.

“Our plan prioritises low and middle income earners, takes the bracket creep monkey off people’s back, is economically necessary and fiscally responsible and, importantly, it is what Australians voted for.”

Labor’s decision to “stand firm” against stage three of the package comes despite public calls from senior frontbencher Joel Fitzgibbon and backbencher Peter Khalil to back the coalition’s full tax plan in full.

“My starting point is that you can’t deny the punters a tax cut from opposition particularly so soon after an election where we had our backsides kicked,” Fitzgibbon told ABC Radio National on Monday morning ahead of the meeting.

“We can’t afford to give our political opponents the opportunity to blame us for a bad economy, an economy which has gone bad on their watch.”

But Albanese said the shadow cabinet had decided the $95bn cost of the third tranche, due to come into effect in 2024-25, could not be justified in a soft economy.

“We think that stage three - at a cost of some $95 billion down the track ... is really a triumph of hope over economic reality.”

“What we are doing is standing firm with regard to our position on stage three. But we’re also saying very clearly that we are prepared to act in the national economic interest and that’s what we’re doing by having faster tax cuts and concentrating them in the area where people will spend them because of the nature of what happens when you give someone on a lower or middle income a tax cut as opposed to a higher income.”

He said there was a range of road and rail packages that could be brought forward because “they’re ready to go right now”, naming the Melbourne metro project and Linkfield Road in Brisbane’s north as possible contenders.

“We’re prepared to sit down with the government and identify projects, some of which were committed to by both sides of politics during the election campaign.”

“We know that projects like that are necessary now and we think that a bring-forward of the government’s proposed infrastructure investment would assist the economy, create jobs right now, help to boost productivity into the future.”

Shadow treasurer Jim Chalmers said the government had “no idea” how to turn the economy around, saying Labor was concerned about weak consumption and low wage growth.

“We have got a problem with consumption and we have got a problem with productivity, and what we are proposing today is a plan, a solution, or at least something that would help turn around those issues in the economy which are leading to the slowest growth for the 10 years since the global financial crisis.”

The Coalition has repeatedly ruled out splitting the tax package as demanded by Labor, and is negotiating with the crossbench to try to pass the three stage plan without the support of Labor.

The Opposition has not said whether it will block the passage of the legislation if its votes are needed for it to come into effect.

Speaking in Perth on Monday, Prime Minister Scott Morrison said tax relief was needed to help boost consumer sentiment.

“Labor’s internal conniptions about supporting the Government’s plan to simply let Australians keep more of what they earn exposes Labor’s deep mistrust of Australians to do what’s best for them with their own money,” he said.

“Our proposed tax relief doesn’t just have a strong political mandate. It has a compelling policy rational.”