Treasurer Jim Chalmers has heightened concerns about the $243 billion cost of the stage three tax cuts for workers on higher incomes while cabinet ministers put the plans under the spotlight after financial turmoil forced a rethink on similar cuts in the United Kingdom.
Vowing to put economic priorities ahead of politics, Chalmers said the government had not changed its tax policy but warned the “storm clouds” in the global economy were a major factor in looming decisions on tax and spending.
The ferocious response from the financial markets to the UK policy, which forced British Prime Minister Liz Truss to drop the tax cuts less than a week after they were unveiled, was discussed in an expenditure review committee meeting of federal cabinet ministers on Tuesday.
“What we have seen play out in the United Kingdom is not irrelevant to us,” Chalmers said when asked about the parallel between the British and Australian tax cuts.
“It is not irrelevant to us because it is a cautionary tale about what can happen if you get your policy settings out of whack in a way that does not suit the economic conditions and particularly the
global economic conditions.”
But there is no consensus in federal cabinet on whether to change the stage three tax cuts because Labor voted for them in 2021 and promised to keep them when it campaigned at this year’s election, leading some ministers to believe it is now too late to reconsider them.
The stage three tax cuts are legislated to begin in July 2024, which means the government could reconsider them at any budget before that date. The changes abolish the 37 per cent tax rate and apply a 30 per cent rate to all income between $45,000 and $200,000.
One option for the government is to limit the benefits of the cuts to workers on lower incomes, such as by capping the upper income threshold at a lower level.
Environment Minister Tanya Plibersek acknowledged the history of the policy in an interview with ABC Radio National on Tuesday morning when she also warned about the possibility of a global recession.
“We did go to the last election committing to continue with those [tax cuts],” she said. “Our real focus for reforming our tax system is to make sure that large companies and multinationals are paying their share of tax.”
Chalmers said the political consequences would not be the priority because the government would make the decision that was best for the economy.
“I see budgets as an opportunity to take the right decisions for the right reasons and I will always put the right economic outcome above a political outcome,” he said.
“I will take a difficult decision if it is necessary, working with my colleagues, because these are difficult times and people should expect a solid budget, they should expect a considered budget, one that takes the right decisions for the right reasons, for the future of our economy, but most importantly for the future of our people.
“It is no use pretending the global situation has not deteriorated, there is no use pretending that rising inflation is not punching a hole in the family budget, there is no use pretending that we do not have these big five areas of persistent structural pressure on the budget.
“And my job and the government’s job is to take the right decision, even if it is difficult, to put the economics before the politics and let the political cards fall where they may and that is what people can expect from me, not just in the budget but beyond that as well.”
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