Coalition trumpets cuts for low to middle-income earners, which Labor says would mean weaker surpluses in medium term

Scott Morrison has defended the Coalition’s plan to cut income taxes in Tuesday’s budget, conceding tax cuts won’t be “mammoth” but will provide “real relief” for Australians who have not had a pay rise.

Labor has warned that changes eroding the revenue base will mean weaker surpluses in the medium term, as it prepares to match “targeted tax relief” and promise larger surpluses by raising revenue in other areas.

On Sunday the treasurer told Channel Nine’s Today Show that the Turnbull government had flagged for months that its priority is “delivering tax relief for low to middle-income earners”.



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“They have been doing it tough, it’s been some time since they have had a decent pay rise,” he said.

Morrison said that low and middle-income earners “should be the first to whom we seek to provide tax relief”, leaving open the possibility that higher income earners will benefit from the income tax cut plan later on.

The federal budget is expected to show a dramatic improvement in revenues, with Deloitte Access Economics estimating that the company tax take has risen by $36.2bn since this time last year and income tax is $10.6bn higher.

Improved revenues have allowed the Coalition to ditch the planned $8bn Medicare levy increase and promise income tax cuts, but it is still unclear whether it will also bring forward the plan to return to surplus by 2020-21.

Asked why the government didn’t use increased revenue to pay down debt of $600bn, Morrison said “because you’ve got to run a strong economy” and pay for essential services.

But he said the government had set down “responsible, methodical path back to budget balance, which is what we have been doing, for five successive statements and it will be six on Tuesday night”.

Asked about concerns that the budget could only afford a “milkshake and sandwich” tax cut, Morrison replied: “I’m not going to pretend these would be mammoth tax cuts, they will be what is affordable.”

Morrison said that criticism was made of Howard-era income tax cuts at a time when they were cut more regularly, but “it’s been a long time since there has been real relief in this area”.

The treasurer said if the scale of income tax cuts were criticised it would be “very hard to say that the government is irresponsible at the same time”.

Asked why the Coalition planned changes that would permanently cut revenue, such as income tax cuts, Morrison said the government would “build the budget up to surplus” but must not do so by “taxing the economy, because that is like the snake eating itself from the tail ... It is a self-defeating exercise. It never ends well.”

Despite the Coalition delivering budget deficits since 2014, Morrison said it had reduced debt growth by two-thirds and delivered the “lowest rate of expenditure growth of any government in the last 50 years”.

The treasurer said increased spending had to be balanced by savings to pay for them and the government had set a “firm tax speed limit” of taxes not exceeding 23.9% of GDP.

“If you go above that tax speed limit you are putting jobs and the economy and essential services at risk.”

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The shadow treasurer, Chris Bowen, told the ABC’s Insiders program the tax cap meant that future generations would be forced to pay down debt.

Morrison again refused to commit to the target of surpluses equal to 1% of GDP over the medium term. He noted the current fiscal rule is to “return to that level as soon as possible” but did not rule out shifting the goal posts, saying only that the “fiscal rules haven’t changed”.

Bowen said on the government’s own figures they would not deliver a surplus of more than 0.5%. That would leave Australia vulnerable like a “cork bobbing around on the ocean of international economic uncertainty”, he said.

Bowen said the budget needed “strong, healthy, sustainable” surpluses not “razor-thin” ones that could be wiped out by revised forecasts or global downturns.

Labor has plans to raise revenue by reducing tax concessions, decreasing the capital gains tax discount, abolishing negative gearing and ending cash refunds for excess imputation credits.

“Because we’ve engaged in that difficult reform process which the government has ... refused to do, we can actually have budget repair and return to surplus and engage in tax reform, which benefits low and middle-income earners as well,” Bowen said.

He said that Labor recognised Newstart was too low but committed only to review it. The opposition is under internal pressure to commit at its national conference to increase Newstart.