Budget fallout: Next tax war will be over rival income tax cuts

Rival tax plans have drawn new battle lines ahead of the next election as the Coalition wages war on Labor’s property investor tax hikes and plots an automatic ongoing cut to income tax, rivalling Jim Chalmers’ plan to expand his new tax offset.

Prime Minister Anthony Albanese spent Wednesday defending his decision to break election promises and claw back tax breaks on negative gearing, capital gains and trusts, a move that will yield about $100 billion over 10 years.

Angus Taylor will on Thursday night try to revive his stocks and outline an alternative to One Nation in his budget reply speech, which will include a well-flagged proposal to receive only as many migrants as there are new houses built.

The under-pressure opposition leader is considering a tax pledge, as reported earlier this week, which may include pegging marginal tax rates to inflation or wage growth to reduce bracket creep.

Several shadow ministers spoke about the need to return bracket creep on Wednesday. Taylor was still weighing up indexation with colleagues, with final decisions to be made on Thursday.

The treasurer rejected the possibility of indexing future tax cuts as he brushed off repeated questions about broken promises and acknowledged his economic agenda was contentious. He argued that expanding the new $250 Working Australians Tax Offset could provide relief closer to the next election, due in 2028.

Sources familiar with Labor’s plans said the offset could be increased and targeted to workers in middle-income brackets, similar to the US’s earned income tax credit.

Chalmers said the offset gave the government “another piece of architecture” to provide sporadic tax cuts when it was affordable.

“If we want to target very specifically future tax relief for working people, we’ve got the architecture to do that now,” he said in a speech that also sought to deflect critics’ claims he was going after wealthier Boomers.

“This is a new development in our tax system. It’s a genuine reform. What it does is effectively lift the tax-free threshold for people who work for a living.”

Promising a bold policy that will reward workers, Taylor said that “mass migration” – a term his shadow treasurer declined to endorse on Sunday – put pressure on “rents, house prices and on every young Australian trying to get ahead”.

Under Taylor’s plan, the housing minister of the day would report on the number of homes complected. The next year’s migration targets would then be set to match. Taylor’s policy document suggested migration would have been 400,000 lower since Labor came to office, from 1.8 million to 1.4 million.

Chalmers suggested that linking the housing market with migration was an offensive “dog whistle”.

Opposition sources acknowledged that more than one person lived in each house and therefore equalising completions with the net overseas migration rate may go beyond what was needed in any one year. But the idea is to restrict certain visa classes severely in the near term to reduce the housing shortage as quickly as possible before relaxing controls in later years.

Taylor and his shadow ministers pledged to fight Labor’s overhaul of negative gearing, capital gains taxes, and the use of trusts to split income. They hinted the opposition would repeal the policies in the unlikely scenario it wins the next election, but doing so would create a $100 billion black hole over 10-year budget estimates.

“We’ll repeal these measures if necessary,” shadow treasurer Tim Wilson said.

“It won’t get more Australians into buying their own first home, but it will whack new taxes on the aspiration and dreams of young Australians who want to simply get ahead.”

Indexing tax brackets is expensive, but the policy would be welcomed by reform-minded experts and could be worth the cost for an opposition looking to re-establish its economic bona fides.

Chalmers’ extra taxes on capital gains revived the traditional brawl between the Coalition and Labor on tax and aspiration, injecting new energy into a downbeat opposition as government MPs talked up social justice after years of being accused of being too timid.

Albanese said Taylor would repeat the mistake Peter Dutton made before the last election and vow to repeal new tax cuts, even though the opposition leader has already indicated he would support the offset while fighting the property tax hikes.

“These geniuses are going to go to an election saying that they will repeal young Australians getting a fair go,” Albanese said.

The prime minister was defiant in question time when asked if he was depriving younger people of investment rules that he had used to build up wealth and buy multiple investment properties.

“I have had access to home ownership, and I had it in my 20s,” Albanese said in a raucous parliamentary session. “And I had it because my mother, who lived in the one public housing, said to me, ‘When you get a chance in life, own your own home.’

“It’s the aspiration that’s drilled in the working-class people, working-class people who want the next generation to be better off than they are. I’m proud that I work hard. I’m proud of what I’ve achieved.”

Albanese and Taylor had heated words with each other when the prime minister sat down after concluding his answer, in a sign of renewed tension over policy and personal attacks following a Labor’s boldest budget to date.

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