Opposition backs initial tax cuts for low income earners, but likely not later stages aimed at higher earners

Labor has signalled it is unlikely to support stage two of the Turnbull government income tax cuts ahead of definitive deliberation by the shadow cabinet on the $143bn budget package on Monday evening.



As the treasurer conceded that the Australian Tax Office could allow some of the tax cuts to be delivered retrospectively in the event of a parliamentary logjam on the package, the shadow treasurer, Chris Bowen, gave a broad hint that stage two of the plan was unlikely to win Labor’s backing.

• Sign up to receive the top stories every morning

The income tax cut package is the focal point of the final parliamentary sitting fortnight before the winter break. The Turnbull government is locked in a game of parliamentary brinkmanship – insisting that the Senate must deal with the budget initiatives as a whole even though the last stage of the tax plan won’t take effect for two election cycles.

Labor, which supports the tax relief for low and middle income earners proposed in stage one, is poised to resolve its position on stage two of the package and also work out its options for trying to split the bill into component parts in the Senate once the debate gets under way.

Speaking before the shadow cabinet and caucus deliberations, Bowen told reporters he remained “very concerned about the long-term fiscal drag caused by the government’s apparent addiction to tax cuts into the future, which aren’t funded” and he pointed explicitly to “the high cost of stages two and three”.

Despite declaring regularly that the bill should not be split, Morrison told reporters on Monday it was possible that the ATO could deliver the tax cuts where there was clear major party in-principle agreement but no final parliamentary resolution of the package.

Every Senate player, apart from the Greens, supports the first stage of the tax cut package which applies to low and middle income earners. Asked whether the tax cuts could start on 1 July in the event parliament hadn’t passed the necessary legislation this session, Morrison replied: “Yes, potentially.”

'Significant day for democracy' as 'Mediscare' bill passes - as it happened Read more

The Greens are still on the fence about the looming Senate debate. The party discussed its position on Monday but is waiting on a definitive position from Labor before resolving whether or not to join tactical skirmishes in the Senate to try and split the package.

Without the Greens, there is no prospect of splitting the package. There are internal differences about how to proceed.

The independent South Australian senator Tim Storer supports splitting the package and the two Centre Alliance senators, Stirling Griff and Rex Patrick also have an open mind.

The government may yet be able to run the gauntlet and get the package passed courtesy of yes votes from the crossbench, with the two One Nation votes critical to any successful resolution for the Coalition.

Senate sources say Hanson is signalling privately that she is completely opposed to stage three of the package, which delivers a significant windfall to high income earners, but has an open mind on stage one and two of the package.