Workers could receive a few hundred dollars in their pocket in a surprise tax handout in next week’s federal budget, despite warnings that stimulus could drive up inflation and risk further interest rate rises.
This masthead reported on Tuesday that households could be treated with tax relief to offset revenue-raising tweaks to negative gearing, the capital gains tax discount and family trusts, whose distributions are likely to be taxed at a minimum rate of 30 per cent.
The Australian reported that Treasurer Jim Chalmers was working on an “earned income offset” of between $200 to $300, which would be a one-off credit for income earned from salaries rather than passive income from investments.
On the same day the Reserve Bank was expected to raise interest rates to take the heat off the economy, Prime Minister Anthony Albanese ducked repeated questions about the one-off tax offset proposal.
He described questions on the tax move as a “hypothetical which hasn’t been announced”, but did not downplay the idea.
Indicating he was planning new cost-of-living relief, Albanese said the budget would include a focus on “looking after people” who were under financial stress and dealing with higher fuel prices.
The budget to be handed down next Tuesday has been framed by Albanese and Chalmers as Labor’s most important and ambitious since it came to power in 2022.
Albanese is planning to re-adopt nearly all of the tax agenda that Bill Shorten took to the 2019 election, which he lost to Scott Morrison in a fight over the breadth of Labor’s plans to tax asset-owners more heavily to reduce inequality. The only measure Labor has not re-adopted is Shorten’s plan to change taxes on franking credits.
Before the last election, Albanese explicitly ruled out future changes to negative gearing, which allows investors to deduct rental property losses from their taxable income. Labor is planning to pare back the concession but allow it to be used for new homes to spur housing supply, as it gambles on a younger and financially stressed electorate backing major changes to make the housing market fairer.
Asked if he had broken trust with voters, Albanese told reporters in Brisbane that Australians would judge his budget policies on their merit.
“People will see the budget there, and people will make their own mind up about the decisions that we have made,” Albanese said on Tuesday.
“But we have made decisions across the board on savings. You’ll see expenditures; you’ll see us work through a budget that is consistent with Labor principles and consistent with strengthening the economy. But also looking after people on the way through.”
Weighing against the case for tax cuts is the need to take money out of the economy to tame inflation, which was above the Reserve Bank’s target range even before the war in Iran broke out.
Any changes would add to a tax cut, worth $5 per week at most, announced in last year’s budget and beginning in July. The government might argue that a $200-300 boost would not be large enough to significantly fuel inflation, and economists are likely to suggest that a one-off tax credit would not amount to structural reform of Australia’s over-reliance on personal taxes.
Chalmers and Finance Minister Katy Gallagher announced on Monday that Labor would bank windfall revenue upgrades, pitching the budget as “very responsible”. Labor has spent at near record levels, fuelling criticism that it has added to inflation.
As more details emerge about Labor’s plans to tax asset owners, the Coalition has criticised elements of the government’s agenda.
Opposition Leader Angus Taylor said the potential tax offset was poor policy, but did not commit to voting against it. Chalmers wedged the opposition into opposing tax cuts at the last election, hurting the Coalition’s traditional position of being the party of lower taxes.
Taylor said on Tuesday: “We need more than a Band-Aid on a bullet wound. We need a government that deals with the underlying source of the problem, which is rising inflation, rising interest rates, inflation that is higher than any other country in the world.”
Shadow treasurer Tim Wilson said the opposition wanted to see the details of the tax offset, “but we know the consequences”.
“The [International Monetary Fund] has said if you go down this path, it will fuel inflation. It will give with one hand and then take even worse and harder with another,” Wilson told Nine’s Today program.
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Paul Sakkal is Chief Political Correspondent. He previously covered Victorian politics and won a Walkley award and the 2025 Press Gallery Journalist of the Year. Contact him securely on Signal @paulsakkal.14.Connect via X or email.From our partners
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