Australians will miss out on a modest tax cut next month after Labor agreed to support the Abbott government in scrapping it, saving the budget $3 billion.

The Coalition has been trying to dump the legislated tax cut – a remnant of Labor's carbon tax compensation package – since the 2014 budget, arguing it was unaffordable.

Shadow treasurer Chris Bowen. Credit:Alex Ellinghausen

Labor and the crossbenchers seemed intent on frustrating the government's plan. But now shadow treasurer Chris Bowen says Labor has had a change of heart.

"This wasn't an easy decision for the Labor Party," Mr Bowen told reporters in Sydney on Saturday.