Tax cut debate erupts after Jim Chalmers' $254 billion revelation

It comes as one leading economist has warned that dumping the package entirely would be "silly" as he recommended pursuing other areas to address an emerging budget problem, including reforming the petroleum resources rent tax and curbing spending on the fast-growing NDIS.

Just days out from the federal budget, Treasurer Jim Chalmers sparked another round of debate on the legislated tax cuts after revealing the package was now estimated to cost $254 billion over 10 years.

That was roughly $11 billion more that the $243 billion estimate from the Parliamentary Budget Office, which critics of the plan had been using to argue for it to be abandoned.

The final tranche of the Coalition government's income tax package, which passed with Labor's support in 2019, is due to start in July 2024.

It would scrap the 37 per cent income tax bracket, the 32.5 per cent bracket would drop to 30 per cent and the threshold for the top rung would rise from $180,000 to $200,000.

The Greens, teal independents, economists and some unions have been urging the Albanese government to dump or amend the tax cut package, arguing the quarter of a trillion dollars could be better spent elsewhere given the state of the federal budget.

Labor publicly flirted with the idea of making some changes, which would have seen it break an election promise to keep the tax cuts.

Prime Minister Anthony Albanese ultimately ended the speculation with confirmation that the government's position had not changed.

Mr Albanese reaffirmed that position on Thursday.

But his Treasurer's comments have reignited the debate, adding pressure to the government ahead of next Tuesday's federal budget.

Greens economic justice spokesman Nick McKim said sticking with the tax cuts would be a "slap in the face" to people struggling to make ends meet.

"$254 billion is a staggering amount of money that would be far better spent putting mental and dental health into Medicare, wiping student debt and making childcare free," Senator McKim said.

ACT senator David Pocock, who has been calling for a re-think of the package, said it made "no sense" to be handing billions of dollars in tax breaks to high-income earners at the same time as Australians were living in poverty.

Deloitte Access Economics partner Chris Richardson said the argument that the tax cuts were unfair had been overcooked during a public debate which he described as ill-informed and "pretty terrible".

Mr Richardson said dumping the entire package would be a "silly thing to do". But he has suggested one change - keeping the 37 per cent bracket.

That would save the budget about $9 billion a year, he said.

Mr Richardson said making changes to the stage three tax cuts would not be his first priority for addressing the much larger problem of how to fund increasingly expensive programs, including in defence and social services.

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The veteran economist said changes should be made to the petroleum resources rent tax to extract more revenue from resource companies, in particular gas exporters.

He said the so-called PRRT was a much better option than the "sticky-tape" solution of a windfall profits tax, which research this week revealed could have generated up to $40 million in revenue for the government as as exports boomed amid Russia's invasion of Ukraine.

Mr Richardson suggested there would need to be a "very difficult, but very necessary conversation" about how to control spending on the NDIS.

It was revealed this week that the scheme had suffered another $8.8 billion budget blowout and was now forecast to cost $50 billion in 2025-26.

"Australia absolutely needs an NDIS but we are not getting the value for money from that, that we should," he said.

Australia Institute executive director Richard Denniss agreed that a broader revenue debate was needed, but said that conversation couldn't ignore the "elephant in the room".

"The stage three tax cuts are the biggest elephant in Australian tax history," Dr Denniss said.

Dr Denniss said the tax cuts were being retained for political rather than economic reasons.

Opposition treasury spokesman Angus Taylor described Dr Chalmers' comments on Thursday as "frankly bizarre", as he accused his adversary of trying to find ways to break Labor's "ironclad" commitment to the tax cuts.

"If the budget impact of the personal income tax plan has gone up it is because people are paying more tax," he said.

"It proves the impacts of bracket creep are very real and are hitting Australian households to the tune of billions of dollars.

"With inflation this tax relief is needed more now than it has ever been."

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