Treasurer Scott Morrison. Labor seeking amendments to stages two and three of income tax cut plan
Treasurer Scott Morrison. Labor seeking amendments to stages two and three of income tax cut plan

No tax cuts for low income earners

LOW income earners won't get July 1 personal tax cuts following the Opposition's strategic decision to oppose the full Government package of reductions.

The Labor decision also means duelling tax policies will dominate the five by-elections to be held on July 28 and the federal general election expected in the first half of next year.

The Labor Caucus today decided to demand legislation for the Government's three-step income tax package be split so it could vote down the second and third stages benefiting higher income earners.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison have firmly declared no sections will be hived off, saying it's all the legislation or nothing.

The Greens want to block the entire package but would consider allowing the first stage through.

When the crossbench is counted the Government is still three or four votes short of countering Labor and Green rejection of the full proposal.

The package, complete or shrunk, would have to be passed this week or next, before Parliament's long Winter break, if lower income earners were to get tax relief worth up to $530 a year.

The first stage of the Government plan would see eligibility for the Low and Middle Income Tax Offset - which effectively makes the first $20,000 in earnings tax free - available to those earning between $20,200 and $125,000.

The Government calculates this would save taxpayers up to $530 a year.

Stage two would see the top threshold of the 32.5 per cent tax bracket moved from $87,000 to $90,000. The threshold would then shift from $90,000 to $120,000 in 2022- 23.

The contentious third stage in 2024-25 would see the top threshold for the 32.5 per cent tax bracket increase to $200,000, eradicating the 37 per cent tax bracket entirely.

This could mean those on incomes from $41,000 to $200,000 would have same marginal tax rate of 32.5 per cent.

The higher marginal rate, for those earning more than $200,000, would be 45 per cent