Budget 2018: Scott Morrison to introduce plan to scrap middle tax bracket in Parliament

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The bill to flatten the tax system so that only 6 per cent of taxpayers face the top rate will hit Parliament today.

Key points: Scott Morrison says the Government is delivering on its promise to give a tax cut to lower and middle-income earners before big companies

Chris Bowen refuses to say if Labor will vote for it

Welfare groups slammed the budget as a missed opportunity to invest in Australia's most needy

Treasurer Scott Morrison will introduce the centrepiece of his third budget, which is to scrap a middle tax bracket.

His plan would leave 94 per cent of taxpayers on the lowest or middle rate and only those earning more than $200,000 would pay the top tax rate.

It will cost $140 billion over 10 years.

Mr Morrison said it was evidence the Government is delivering on its promise to give a tax cut to lower and middle-income earners before big companies.

"The economy is improving and all Australians should share in that," he said.

But the plan could struggle to be implemented beyond the first round of modest tax cuts, which start from this July.

The ambitious plan to scrap the middle tax bracket would mean someone earning $199,000 a year would be paying the same top tax rate as someone earning $42,000 a year.

It would be a dramatic flattening of the structure of the tax system.

Shadow treasurer Chris Bowen has refused to say if Labor would vote for it, which could set up an election battle waged over personal income tax cuts.

Mr Bowen has backed the first round of tax cuts which deliver up to $200 a year for low-income earners and up to $530 extra for those on middle incomes.

"We know middle class and working class people are struggling with the cost of living — this is overdue relief, but it doesn't make up for Turnbull's cost of living increases and cuts to penalty rates," Mr Bowen said.

Mr Morrison has insisted the entire seven years of tax cuts would be in one piece of legislation, declaring it a "complete package".

"We're going to legislate the whole plan, and I won't be giving Bill Shorten or Chris Bowen a leave pass to tax people more," he said.

"The plan will go into the Parliament and we will seek to have it legislated as soon as possible."

'Budget doesn't even bring home the two-minute noodles'

The Greens say they would vote against that package.

"We have a progressive tax system in Australia but now we have a fight ahead of us to keep it," Greens leader Richard Di Natale said.

He called the Government's tax strategy a "10-year plan to help millionaires and multinationals dodge their tax".

Independent crossbench Senator Tim Storer has questioned the Government's move to flatten the tax system.

He said he supports the first round of tax cuts to help low and middle-income earners, but he is not convinced by the rest of the plan.

"I question the move towards a less progressive tax rate in the seven-year period, Senator Storer said, indicating he thought the Government should focus instead on reducing debt.

The St Vincent de Paul Society's chief executive officer, John Falzon, attacked the plan to flatten the tax rates.

He argued that cutting income tax and company taxes erodes the progressive nature of the system and will "punch a massive hole in government revenue".

"If you're locked out of a job, or locked into an insecure job, tonight's budget doesn't even bring home the two-minute noodles," Dr Falzon said.

"It does, however, bring home the caviar for the corporates."

The first round of tax cuts, which will give most workers hundreds of dollars in cash in their tax return, could lead to a boom in spending.

That would improve economic growth, but Mr Morrison says that has not been included when calculating future growth in gross domestic product (GDP).

"We're not making any assumptions about that," he said.

Foreign aid, Newstart ignored

Welfare groups have slammed the budget as a missed opportunity to invest in some of Australia's most needy.

Among the budget measures ignored is the Newstart unemployment benefit, which economists, social groups and business groups had called on to be lifted.

It currently equates to around $40 per day.

ACTU president Sally McManus said she hoped Labor's budget reply speech on Thursday would include a commitment to raise the benefit.

Foreign aid has taken another hit, as the Coalition decided to extend its freeze on the aid budget's growth.

"This is incredibly disappointing when we think that overseas aid is less than 1 per cent of the overall government spend," Oxfam's Helen Szoke said.

"It's just been treated like taking money out of a bank, without regard to our role and responsibilities across the world."

Economists have cautioned the Government on expecting the good economic times to roll on.

"Scott Morrison stuck his hand under the sofa and found an additional $35 billion since December last year," PwC chief economist Jeremy Thorpe said.

"He spent $15 billion of it, but he saved $15 billion of it, and on that basis the Government's claiming budget repair.

"But in fact, this is a lost opportunity to really address and further advance the paying down of debt, to save that burden on our future generations."

Topics: federal-government, government-and-politics, budget, foreign-aid, welfare, australia

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