Labor attacked by former RBA governor Bernie Fraser for sticking to ‘dodgy’ stage-three tax cuts

<span>Photograph: Mick Tsikas/AAP</span>
Photograph: Mick Tsikas/AAP

The former governor of the Reserve Bank, Bernie Fraser, has criticised the Labor government for sticking to the “very dodgy” stage-three tax cuts, arguing they should be repealed to allow for spending on social programs.

Condemning the tax cut package as “unfair and unwarranted”, Fraser said Labor in opposition had only supported the measure as part of its “small target strategy to gain political power for the party” and it now ought to be reconsidered.

“There is no honour in the government standing by what in truth is really a very dodgy commitment and hardly an unbreakable one in current circumstances,” Fraser told the Australia Institute’s revenue summit in Canberra on Thursday.

What are the stage-three tax cuts worth?

The cuts are worth $243bn over 10 years.

What would change?

If the stage-three tax cuts are enacted, the $120,000 to $180,000 tax bracket will be removed, and the top tax bracket threshold will increase from $180,000 to $200,000.

The marginal tax rate for those earning between $45,000 and $200,000 will drop to 30%. That's down from 32.5% for those earning $45,000 to $120,000, and down from 37% for those earning $120,000 to $180,000.

When do they come into effect?

The cuts were legislated in 2019 with the support of Labor, and are due to come into effect on 1 July 2024.

“I think the more honourable course for Labor would be to use the power it now has in government following the election … to promote the interests of the people of Australia and bring those interests back to the fore.

“And that means taking steps to repeal stage three and to get on with the real commitment of the government … which is building a fairer and healthier and happier country for all its citizens.”

Fraser, who was also head of treasury under the Hawke government, said that while the tax package had been “unfair and unwarranted” from its introduction, the events since made it more unjustifiable.

“It’s even more unfair and more unwarranted now, given what’s happened in the short intervening period of the last three years or so,” he said, pointing to the falling real wages of lower income groups and the impact of Covid policies on more vulnerable groups in the community.

Related: Liberal moderate Bridget Archer says Labor right to be questioning stage-three tax cuts

“Many of those billions of dollars [of stage three] will flow to really relatively well-off Australians, rather than become part of the critical funding that’s required to fund the commendable programs that Labor has in mind that will help and promote the wellbeing of all Australians,” he said.

He added that the government’s “ambitious” spending program on aged care, childcare and the National Disability Insurance Scheme would be “extremely expensive”.

Unions have ramped up pressure on the government to scrap the tax policy, but the opposition’s deputy leader, Sussan Ley, accused Labor of wanting to demonise those “on a good income”. This was despite the moderate Liberal backbencher Bridget Archer supporting calls for the government to reassess the $243bn tax cuts in light of changing circumstances.

The debate over the fate of the stage-three tax cuts, which were legislated with Labor’s support in 2019, comes as the government considers whether to amend the multibillion-dollar package ahead of the 25 October budget.

Under the tax package, the $120,000-to-$180,000 tax bracket will be scrapped, the top tax bracket threshold will rise from $180,000 to $200,000, and a 30% tax rate will be put in place for those earning between $45,000 and $200,000 – down from 32.5%.

Ley emphasised that the package would provide tax relief for people earning $45,000 as well as those on $200,000, saying this was a “core part of these tax cuts.”

“Labor wants to disproportionately focus on and demonise those earning a good income,” she said. “It’s a return to the class war rhetoric we saw in 2019. And if they want to stand around in Sydney, where I’m standing now, and tell people that they earn too much to deserve the tax relief they were promised ... they should say that.”

The treasurer, Jim Chalmers, said economic conditions had deteriorated in recent weeks, and said the mixed views within the Labor caucus on how to proceed were “inevitable” given the magnitude of the policy.

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“It’s not a big surprise to me that on an issue as big as this there’ll be a range of views,” Chalmers said.

He reiterated that the government’s position on stage-three tax cuts had not changed, but said the government would be looking to deliver a budget that took into account the worsening economic outlook.

“We need to make sure we’re building our buffers to the extent that we can against what might come at us over the course of the next couple of years,” he said.

When asked how her constituents would view a broken promise on the tax cuts in her western Sydney seat of Greenway, the communications minister, Michelle Rowland, said voters in her electorate expected “a sustainable and responsible budget”.

The skills minister, Brendan O’Connor, said while it was right for the government to be “looking at these issues”, he suggested it was not a pressing concern.

“I think we need to consider these things, but let’s remember that stage-three tax cuts are not until almost two years away and we have to consider the immediate matters before us and deal with them now,” he told ABC radio.