Labor tucks away $77b war chest for further tax cuts
Andrew Brown, Zac de Silva and Jacob Shteyman |
Tax changes in the budget give the government scope to direct more relief to workers in future, raising the prospect of a 2028 pre-election sweetener.
While higher taxes on assets will be returned to workers via tax cuts in the short term, Treasury predicts the budget changes will deliver the government a $77 billion war chest over the 10 years to 2036/37.
With a federal election scheduled for 2028, it opens the door for more tax cuts in coming years through addressing bracket creep, where workers’ wages are eaten up by inflation as they are pushed into a higher tax bracket.
The novel “Working Australians Tax Offset” included in the budget offers a new way for governments to return bracket creep solely to people who earn an income via labour, rather than through assets, Treasurer Jim Chalmers said.
“My ambition when it comes to future tax reform is to try and provide more tax relief for working people,” he told the National Press Club on Wednesday.
“We set up this architecture to make that easier on the income tax side for workers and so I would intend to make the most of that at some future point.
“I suspect that successive governments after us would do that too.”
Dr Chalmers said the government decided to backflip on assurances not to touch negative gearing and the capital gains tax discount because the status quo was doing more damage to marginalise young Australians than a broken promise would.
The changes would rebalance the tax burden so it was shared more fairly between income from assets – typically relied upon by wealthier, older, Australians – and labour, which younger Australians have a greater reliance on, he said.
Prime Minister Anthony Albanese said winding back negative gearing and capital gains tax breaks would not curb ambition for future generations.
“They can invest in a new build, though, and what they’ll be doing is not just helping to build their own portfolio, they’ll be helping to build homes that other young people will be able to move into and rent,” he told Seven’s Sunrise program on Wednesday.
The coalition has attacked Labor for misleading voters, after the prime minister pledged during the 2025 election to not tinker with negative gearing.
The prime minister conceded there would be a large-scale campaign against the move.
“We’re doing something about it, that’s the point. You’re elected to govern, to make hard decisions,” he said.
“I knew there’d be a bit of blowback on this,” he said, adding “but gee, it’s the right thing to do”.
The $250 a year wage earners tax offset won’t hit pockets until mid-2028, but Dr Chalmers said more immediate relief would be coming through from July, with the previous year’s top-up tax cuts and a $1000 instant tax deduction.
The treasurer said it would take time for the full extent of the negative gearing changes to become clear.
Gains on properties built before 1985 – which have previously been exempt from CGT – will start being taxed from July 2027 at the inflation-adjusted rate.
A 30 per cent minimum tax will also be imposed in discretionary trusts, which are often used by wealthy families to split income between family members and minimise tax.
Together, the changes to investment taxes will rake in an extra $8 billion, to be spent on the new offset for all workers and further relief for businesses and startups.
Opposition Leader Angus Taylor said while the coalition supported measures on small business, the tax changes were a broken promise.
“We think there’s different savings. We think there’s much better places to save rather than hitting Australians with higher taxes,” he told ABC Radio.
“The budget papers show that the changes around negative gearing, capital gains and the trusts will dampen investment.”
AAP