Labor says it’s looking for ways to ease cost of living pressures. Just don’t mention the stage three tax cuts

Come 1 July, Australian taxpayers will have $20bn more to spend, a pulse of demand in the economy that will keep interest rates higher than they otherwise would be. That is courtesy of the controversial stage three tax cuts that are legislated and, it seems, unlikely to be delayed or modified by the federal government.

The prime minister, Anthony Albanese, used his first media conference of 2024 to declare he had ordered the Treasury and finance departments to conjure ideas about easing cost of living pressures without stoking inflation. Tinkering with the tax cuts, though, is not among them even if Treasury had reportedly provided advice about options for change.

Sign up for a weekly email featuring our best reads A spokesperson for Jim Chalmers did not disclose the contents of the assessments, only telling Guardian Australia it was “not unusual or controversial for the treasurer to be updated on the costs of upcoming changes to the budget”. Earlier in the week, Chalmers told ABC’s 7.30 that “we take into consideration everything that’s already been legislated, everything that’s already in train, and we work out what we need to do elsewhere in order to manage this inflation challenge”.

The stage three tax cuts are bad economic policy – and a dumb political strategy, too | Greg Jericho Read more But should the government be panning “elsewhere” when there’s a nugget as big as stage three? The Reserve Bank of Australia has factored in the injection of about 1% of gross domestic product into the economy.

“I’m not going to cast comments on the government’s stage three tax cut,” Michele Bullock, its new governor, said at her last main public speech in 2023. “But they’re already in our inflation [forecasts] and therefore already in our thinking about monetary policy.” Adam Boyton, head of Australian economics at ANZ, said the government’s repeated commitment to keep the stage three cuts meant there was little value in examining alternatives.

“[T]he softness in the economy we expect over the first half of this year, the improvement in the budget position revealed in the [mid year economic and fiscal outlook] – with the prospect of more to come – and the impact of bracket creep on household incomes would mean that if [stage three] never existed, the federal government would probably be cutting taxes in the coming budget in any event.” Gareth Aird, Boyton’s counterpart at Commonwealth Bank, said one challenge in estimating the impact of any policy change was that those on higher incomes would have a lower propensity to spend all the tax cut compared with those earning less.

“We haven’t done any of that work as it would all be speculative,” Aird said. “The bigger picture is that stage three is structural reform and not cyclical policy,” he said, with effects of the medium to long term. “In many respects it’s simply an adjustment for a long period of bracket creep that has seen the tax paid by households as a share of household income hit a record high.” “The economy has slowed quite materially, inflation is falling and unemployment is slowly rising off very low levels,” Aird said.

“With monetary policy quite restrictive and the lags still in play, we don’t think stage three as currently legislated will fend off RBA policy easing later this year.” Still, calls for modifications or even the scrapping of the tax cut are likely to continue right up until their implementation.

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For more information see our Privacy Policy . We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply. after newsletter promotion Cassandra Goldie, chief executive of the Australian Council of Social Service, said scrapping the cut would free up funds to deliver “a properly targeted cost of living package” rather than handing back $9,000 a year to those on the highest incomes.

“We must provide financial relief to people who are struggling the most to feed, house and cool themselves,” Goldie said. “We cannot keep forcing some people into homelessness and hunger, while we go ahead with the plan to spend billions in tax cuts for the wealthiest in the country.” Australia’s inflation falls further than expected as prices rise at slowest pace in almost two years Read more Greg Jericho, a Guardian columnist and economist with The Australia Institute who crunched the numbers for its recent stage three tax cut report , said the policy’s implementation would “definitely not improve the chances of a rate cut”.

“[S]hould the RBA raise rates after the introduction of stage three it would be very difficult to argue the stage three cuts were not a factor,” he said. Jericho said changes to the cuts could still be done in the May budget. “The Labor government knows the policy is bad – the statements made by the ALP when in opposition criticising stage three remain strong criticisms now of their own policy,” he said.

“Even now, the prime minister and treasurer do not defend the actual policy, rather they fall back on talk about keeping promises.” “[O]ur polling suggests 70% of Labor supporters would favour either scrapping or amending the stage three cuts,” Jericho said, adding 66% of Coalition voters agree.

“Changing stage three is a prime opportunity for Labor to demonstrate the type of economy and society it wants to lead, not just be the caretakers for Liberal party ideas.”.