This article is more than 2 years old

This article is more than 2 years old

Labor has signalled it will support tax cuts for low and middle-income earners while reserving its position on the rest of the budget centrepiece, as the Turnbull government prepares to introduce legislation giving effect to its seven-year plan.

A blockbuster political Wednesday will see the Turnbull government bring forward legislation for its budget centrepiece, and the high court will hand down its long-awaited verdict on the eligibility of the Labor senator Katy Gallagher to sit in parliament – a decision that could trigger a string of byelections.

After handing down the budget on Tuesday night, and launching into the hard sell, the treasurer, Scott Morrison, declared the Coalition’s tax plan would hit parliament as one package on Wednesday morning despite some elements of it not taking effect until 2024 – which is at least two federal election cycles away.

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Morrison said on Tuesday night the government’s tax reform measures were a “whole plan” and a “package” – setting up a political fight that will likely roll until the next federal election.

“It’s a plan that stays together, it’s not designed to be broken apart, it’s a package deal,” the treasurer said.

The treasurer also emphasised that low and middle-income earners would see tax relief before big corporations, with the Coalition persisting with its tax cut for Australia’s largest firms in Tuesday night’s statement despite lacking the requisite parliamentary support.

Labor has signalled it will support the first phase of the seven-year, $140bn tax plan, which will give 4.4 million taxpayers with incomes between $48,000 and $90,000 a $530 cash rebate.

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But the opposition has reserved its position on the more controversial element of the package, a move towards a flatter tax structure.

The Coalition proposes to axe the 37% bracket so workers on incomes between $41,000 and $200,000 would be taxed at the same marginal rate – delivering a significant windfall for high-income earners.

The shadow treasurer, Chris Bowen, said the tax cuts for low and middle-income earners were justified because of sluggish wages growth.

But he said it was a “hoax” for the government to suggest it could fundamentally overhaul the tax system in 2024 when it was unclear what the prevailing economic circumstances would be.

“They would make a significant change to the tax system, they want to legislate that now when we don’t know what the financial circumstances will be in 2024,” Bowen told the ABC on Tuesday night.

“There is not even a cost of that particular measure in the budget papers. This government is saying vote for us, sign up, we should sign up for something in 2024, two elections away, keep voting for us and we will give you a tax cut”.

The Turnbull government has made it plain that it wants a political contest with Labor where it paints the opposition as a risky, high-taxing, big-spending alternative, and it hopes to use Tuesday night’s economic statement to reboot its political fortunes.

The budget sets up the Coalition’s election pitch, with the government able to go to the polls anytime after August, but the political landscape for the next several months could be cluttered by the last vestige of the dual citizenship imbroglio depending on the high court’s ruling in the Gallagher case.

Quick guide 2018 budget at a glance Show Hide • Tax cuts for middle low and middle income earners with most saving between $200 and $530 a year on their tax bill through a tax offset • Ambition for a flat tax rate by 2024 of 32.5% for everyone earning between $41,000 and $200,000 • $4.5bn earmarked for roads, but major public transport projects will have to wait years for the lion's share of funding announced in the budget. $24.5 billion has been directed to new commitments, but only $4bn of that is being spent in the next four years • The controversial robodebt electronic debt recovery is to continue • Newly arrived migrants will have to wait another year to receive welfare assistance, while refugees will see their wait for Newstart doubled to 26 weeks • Superannuation funds to be banned from charging exit fees and fees for accounts under $3,000 will be limited to 3% • ABC to have its funding cut by $83.7 million over three years. Meanwhile a Captain Cook statue in Scott Morrison’s electorate is to be built at a cost of $25m • ‘Black’ economy is under the spotlight with government planning to claw back revenue it is losing to illegal tobacco. Home Affairs estimates it can earn $3.6 billion from a crackdown • Pensioners will be able to earn an additional $25 a week without reducing their pension. The pension loan scheme is also being expanded, which allows pensioners to use their homes as equity to boost their retirement incomes • $1.6bn is being spent to support an additional 14,000 additional high-level home care packages. A further $82.5m is being spent on mental health services for older Australians, including a $20m “loneliness” package, to help people “remain connected to their communities”. • New measures to help crack down on multinationals avoiding tax commitments. The government is also moving to add to previously announced measures to make sure income earned in Australia, can be taxed by Australia.

The high court’s decision could trigger a round of campaigning in several seats before the general election being called.

The income tax relief promised in the budget is funded by a massive increase in company tax revenue as the economy unwinds from the lingering effects of the global financial crisis. Company tax collections increased by $15bn or 22% in 2017-18 and the budget forecasts that receipts will grow solidly over the out years.

Income tax collections have also improved as the labour market has strengthened and are expected to grow strongly in the last two years of the four-year budget cycle, with Treasury forecasting a rebound in wages growth to 3.5% – which is optimistic at a time when wages growth has been stagnant.

Compared with the expectations in last year’s midyear economic forecast, forecasts for tax receipts have been revised up by $12bn over the four years to 2021-22, driven by parameter variations, while the government’s policy decisions are expected to decrease tax receipts by $13.9bn over the four-year cycle.

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Expenditure on government payments is forecast to equal 25.9% of GDP in 2018-19, which is just below the peak recorded during the stimulus rolled out by the Rudd government during the global financial crisis.

Spending falls to 24.7% of GDP at the end of the four-year cycle. Morrison, on the defensive about ballooning government outlays, said real expenditure growth remains below 2%, “the most restrained of any government in more than 50 years”.

Despite the massive outlays, the budget is forecast to return to balance in 2019-20, one year ahead of schedule, with a surplus of $11bn in 2020-21 and $16.6bn in 2021-22.