PM Defends Backflip on Tax Cuts for High Income Earners, Cites COVID Response


The PM acknowledged the decision would be controversial.

“The right decision, not the easy decision.”

That’s the way Prime Minister Anthony Albanese described the government’s decision to abandon its long-held commitment to deliver the original stage three tax cuts and instead legislate for a package that will provide more money to low- and middle-income earners.

Speaking at the National Press Club on Jan. 25, the prime minister said: “Cost of living remains our number one priority. I understand people are under financial pressure.”

Citing the pandemic, the “first recession in three decades,” and Russia’s invasion of Ukraine as the major causes of global inflation and damaged supply chains, he said everything the government had done had been about managing those challenges.

He compared the current cost of living crisis to COVID-19.

“Just as the health crisis of the pandemic meant the government had a responsibility to change economic policy through measures such as Job Keeper, the cost of living pressures facing Australians on low and middle incomes [needs] a plan that responds to the real challenges that people are facing today.”

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He said the government’s aim was “helping Australians here and now in a way that also builds for the long term,” with “no one held back, no one left behind.”

Progress to Date ‘Not Enough’

“I understand that the progress we’ve made together is not enough. I recognise—as Treasury analysis confirms—‘working households have experienced the fastest rise in their cost of living’,” he said.

Nonetheless, there were signs the economy was improving.

“Last year is the first year since monthly records began where unemployment stayed below four percent for every single month … Around 650,000 jobs created since we came into government more than any first-term government in Australian history … wages are growing at their fastest rate in almost 15 years, including two consecutive quarters of real wages growth” along with “delivering the first surplus in 15 years, and a second one a possibility.”

Commissioned advice from the Treasury allowed the government to arrive at a tax package that was “broadly revenue-neutral.”

The tax package would not add pressure on labour supply, and had no implications on the Reserve Bank’s inflation forecasts, Mr. Albanese emphasised. However, he warned that the release of the advice “shouldn’t be seen as a precedent.”

Labor’s plan meant a “tax cut for every single Australian taxpayer—all 13.6 million taxpayers. A plan for middle Australia.”

The Details

The prime minister confirmed that the lowest rate of tax would drop from 19 cents down to 16 cents on earnings under $45,000 and above $18,001.

That meant “an early educator or an aged care worker or cleaner earning $50,000 will receive a tax cut worth over $900 a year.” This would also “provide meaningful help for parents returning to work, particularly women with young children.”

The second tax rate remains the same, and will be cut from 32.5 percent down to 30 percent, but it will now apply up to $135,000.

The 37 percent rate will now be retained, and will apply from $135,000, up to $190,000.

“The threshold for the top tax rate of 45 percent will also be increased. It will now kick in at $190,000, up from $180,000,” the prime minister announced, adding, “I note that this is the first increase in the threshold for the top marginal rate since 2008. And that others occupied that position [government] for almost a decade and it did not shift one bit.”

However, he pointed out that high-income earners are still in line to pay less tax. “Someone earning over $190,000, such as politicians, they’ll still get a substantial tax cut of over $4,500.”

He said a person on the average wage—$73,000—will now get a tax cut of more than $1,500 a year, “more than double what they would have got under the plan put forward by Scott Morrison.”

Under the previously legislated cuts, the tax system would have been simplified into four brackets.

Those earning up to $18,200 paid no tax, those earning between $18,201 to $45,000 paid 19 percent.

While those making $45,001 to $200,000 would be taxed 30 percent, and everyone above $200,000 would be taxed 45 percent.

Government Has Been ‘Upfront’

Journalists repeatedly asked the prime minister whether he expected the government to survive an about-face to its previous policy—held for more than four years and taken into the election—of sticking with the original stage three cuts.

They pointed out that every other prime minister who broke a promise went on to lose the subsequent election: Paul Keating’s L-A-W tax cuts, Tony Abbott’s cuts to health and the ABC, Julia Gillard’s carbon tax, and Kevin Rudd’s carbon pollution reduction scheme.

Mr. Albanese responded that the government was being “very upfront with the Australian people” and that “when economic circumstances have changed, it is the responsible thing to do to change our policy.”

Asked if he was using the impact of COVID-19 as an excuse, he argued that the impact of the pandemic has been “much greater than what was anticipated.

The other thing that wasn’t envisaged in 2022 … that the Russian war on Ukraine and the invasion would be ongoing over such a long period of time. No one during that [2022 election] campaign was saying that there would be the number of interest rate increases that would occur, and interest rate increases have an impact on middle Australia.

Cabinet Only Decided on Tuesday

“I want to be known as a prime minister who had the ticker to say what was needed and to set about doing it, even as I recognise that this would be controversial,” he said.

Put to him that even in recent interviews he was stating the government would follow the Coalition’s tax plan, the prime minister admitted it was “not an easy call.”

“We changed our position on Tuesday in the cabinet. We can’t say, ‘Yeah, we’re aware of the cost of living, we’re just sorry but I’m not in a position to do anything about it.’ I’m the prime minister. I am in a position to do something about it. We are doing something about it and it’s the right thing to do.”

Mr. Albanese also announced that the ACCC will begin a 12-month inquiry into pricing in the supermarket industry. It will look at the impact of online shopping and loyalty programs on competition in the industry, as well as examining the difference between the prices received by farmers and producers and those paid by consumers at the check out. “But for me,” he said, “it’s simple as supermarkets should be charging Australians at the checkout less.”


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