Albanese unveils plan to overhaul stage three tax cuts

The Prime Minister will brand his change in tack as "a plan for middle Australia", in a landmark speech at the National Press Club on Thursday.

"This is the right decision, for the right reasons - and we've made it the right way," he will say.

"It is the best way forward."

The latest changes, due to come into effect on July 1, will provide the largest cuts for those on the lowest tax tier, and retain the 37 per cent tax bracket.

The new system means earnings up to $45,000 will now be taxed at 16 per cent rather than 19 per cent. The ceiling for the second tax bracket will be shifted from $120,000 to $135,000, and the tax rate will drop from 32.5 per cent to 30 per cent.

The 37 per cent tax rate, which the stage three cuts would have scrapped, will remain. It will apply to earnings of more than $135,000 to $190,000.

Under the Coalition's stage three tax cuts, everyone earning more than $45,000 to $200,000, would have been taxed at 30 per cent.

But under Labor's plans, the ceiling for the highest tax bracket, taxed at 45 per cent, will lift to $190,000 - from $180,000 under the current system.

The Prime Minister will also announce an increase to the low income threshold for the Medicare levy.

Labor's tax revamp will mean backtracking on an election promise to uphold the former Coalition government's stage three tax cuts.

The current tax system:

The stage three tax cuts:

Albanese's overhaul:

Mr Albanese will say the plan is the right way to respond to changed economic circumstances on Thursday, citing advice provided by the Treasury that unanticipated global events have driven up inflation.

"This option is broadly revenue neutral, will not add to inflationary pressures and will support labour supply," he will quote from the Treasury advice.

The issue will be politically fraught for Labor, with the Coalition lashing out at the broken election promise.

But under increasing pressure to deal with the cost-of-living crisis hitting voters hard, the government has judged now to be the time to strike.

"Some would say that we should stay the course, even if it means going to the wrong destination," Mr Albanese will say.

"To them I say, we are choosing a better way forward given the changed circumstances.

"We are doing the right thing, for the right reasons. With a plan that delivers a tax cut for every taxpayer."

The Prime Minister began the week hinting heavily at relief measures to come as Labor sought to gain back ground from the Coalition on the poignant issue.

A recent poll undertaken by Redbridge Group found that cost of living dominated voter priorities, especially those under significant financial stress like mortgage holders and those in the outer suburbs.

Just a third of voters thought the Albanese government was focused on the right issues, Redbridge found.