“Under the projected 23.6 per cent figure spending would need to be around $40 billion lower in 2029-30 than it would be if we assumed that spending stayed at 24.9 per cent of GDP - where it currently sits and the average over the two terms of the Coalition government,” she told the Financial Review.

“The budget would have to go back into deficit from 2024-25 to pay for those tax cuts, especially when we know the cost pressures from the ageing population are rising.”

Grattan's $40.1 billion estimate for the Coalition's assumed lower annual expenditure in 2029-30 is about $30 billion in today's dollars.

Spending cuts due to lower debt, more jobs

The government said the lower spending projections were realistic and based on reduced welfare bills due to jobs growth, and lower interest payments on debt as the budget moved into surplus.

Prime Minister Scott Morrison with Liberal Candidate for Chisholm, Gladys Liu, at her campaign launch held at Box Hill Golf Club in Melbourne on Monday. Dominic Lorrimer

Stages two and three of the tax cuts, which begin in 2022 and 2024 respectively, and which will culminate in a top marginal rate of 30 per cent rate for all income between $45,000 and $200,000, will cost a combined $290 billion over the decade.


Shadow treasurer Chris Bowen told a welfare sector breakfast yesterday that if the cuts were legislated and the budget then ran into trouble due say, to an international downturn, a Coalition government would cut health, education or welfare before it reneged on a legislated tax cut.

He said the tax cuts were "utterly unsustainable, unaffordable and irresponsible''.

"If you earn $125,000 or less, you’ll be equal or better off under Labor’s plan over the life of the next Parliament,'' he said of Labor's decision to match or better stage one of the tax cuts.

“Everything after that is on the never never."

Reckless and unsustainable: Labor

Mr Bowen said that if elected, Labor would consider further tax cuts for low and middle income earners to offset bracket creep, but on a budget-by-budget basis.

"A normal, prudent, small-c conservative Labor will argue a budgetary approach that you can consider tax relief for low and middle income earners in particular, that you can consider dealing with bracket creep when you have a clear line of sight of the economic circumstances,'' he said.

"The party which is more fiscally prudent and responsible is the party which refuses to commit to those tax cuts.'


"The Liberals' record here is deep cuts to schools and hospitals, so we know what they’ll do if these high income tax cuts start to really weigh on the budget in the future.”

The Coalition will increase the pressure on Labor today by releasing a series of cameos which show how workers will be better off in 2024-25 when all three stages are rolled out.

The leaders’ election moves over the campaign Financial Review

For example, an early childhood worker current earning $73,460 would be, based an 2 per cent wage increases, be earning $82,727 by 2024-25. Under the Coalition's tax cuts, the worker would be better off by $943 a year than he or she would be under Labor.

Workers better off by 2024-25: Treasurer

A public school principal earning $182,000 by 2024-25 would be $9000 a year better off while a NSW bricklayer earning $69,528 would be $613 better off.

“Anyone earning more than $40,000 will better off under our plan,' said Treasurer Josh Frydenberg.

“It means school teachers, nurses, bus drivers and emergency service workers right across the country will have more money in their pocket.”


“Our tax system will maintain its progressive nature under our reforms, with the top five per cent of the taxpayers paying around one third of all income tax.”

Finance Minister Mathias Cormann said the budget forecasts to fund the tax cuts were credible because the government had achieved average real term payments growth of 1.9 per cent, the lowest for any government in 50 years.

The government's falling spending projections are based on reduced welfare payments due to a strong labour market and lower interest costs as the budget moves into surplus and interest rates remain low.

Senator Cormann said there was no reason Coalition spending as a share of the economy would remain at the current 24.9 per cent.

“23.6 per cent would still be 0.5 percentage points higher than the equivalent figure in the last year of the Howard government," he said.

“It is an entirely reasonable projection based on Treasury and Finance advice.

“When we came into government, according to the National Commission of Audit, government expenditure as a share of GDP was headed for 26.5 per cent over the then medium term (2023-24) and rising.

“Importantly, Labor’s $387 billion in higher taxes would weaken growth into the future. A weaker economy combined with Labor’s proposals to increase spending would again dramatically increase payments as a proportion of GDP.”

Over the next four years, the Morrison government has projected real spending growth of just 1.3 per cent a year, compared to its average of just below 2 per cent for the past five years in office.

The Grattan analysis assumes nominal GDP grows in line with the budget forecasts and then 4.5 per cent a year beyond the four-year forward estimates.