Stage 3 shake-up examined by Labor in June 2022, FOI release shows

Amendments to the later overhauled stage 3 tax cuts were examined by the federal government as early as June 2022, correspondence between Treasury and Treasurer Jim Chalmers’ office has revealed.

A two-page ministerial submission, released under freedom of information laws, shows Treasury officials presented three separate options to amend the tax package in July 2022 following a request from the Treasurer’s office weeks after Labor won the 2022 election.

While the government ultimately did not pursue any of three options, it had staunchly denied claims that it was seeking to alter the tax package until it finally amended them earlier this year.

Asked by Greens Leader Adam Bandt in late July 2022 regarding changes to stage 3, Dr Chalmers said the tax cuts were “already in the budget” and the government did “not intend to change that”.

Under the Morrison-era iteration of the stage 3 tax cuts, which were legislated in 2019 and subsequently endorsed by then-Albanese-led opposition at the 2022 election, a 30 per cent taxation rate would have applied to all earnings between $45,001 and $200,000 from July 1 2024.

The release follows a protracted freedom of information battle between former South Australian senator Rex Patrick and Treasury officials who argued against the document’s release.

According to the Treasury document, the first option considered would have retained the previous 32.5 per cent rate on earnings between $45,001 and $200,000, saving $27.1bn over the four-year forward estimates period through to 2025-26.

The second option would have retained the 37 per cent tax bracket, applying to earnings between $120,001 and $200,000, saving $16.8bn in outlays.

A third maintained the 45 per cent rate for earnings above $180,000, a saving worth $5.4bn over the forward estimates.

Responding to the revelation, a spokesperson for the Treasurer said the departmental advice formed part of its efforts to evaluate expenditure and revenue-raising measures after it came to government.

“As the Treasurer has said publicly multiple times in the past, when we came to government, we ran the ruler over the entire budget because that was the right and responsible thing to do,” they said.

“After inheriting a budget heaving with a trillion dollars of Liberal Party debt, it was important for us to know how much key policies cost.”

But shadow treasurer Angus Taylor branded the act as an “egregious breach of trust”.

“The way Labor has gone about this – by robbing Peter to pay Paul – and lying to Australians about it is unacceptable,” he said.

However, despite receiving the costings in July 2022, it wasn’t until 18 months later that Labor proceeded with the tax shake-up, providing additional relief to low and middle-income earners while slashing the benefits for approximately one million taxpayers that earnt more than $150,000.

Instead, the Albanese government’s overhaul lowered the rate on incomes up to $45,000 to 16 per cent – down from 19 per cent – and lowered the rate on incomes between $45,001 to $135,000 to 30 per cent – down from 32.5 per cent.

Additionally, the 37 per cent tax bracket was retained between $135,001 and $190,000, after which the top marginal tax rate will then kick in at $190,001 at a 45 per cent rate.

The tweaked tax package will come at a cost of $8.4bn in the four years to mid-2026, according to Parliamentary Budget Office analysis.