Labor will vote against the Coalition's full $158 billion, 10-year tax plan, leaving the Morrison government dependent on the Senate crossbench to get its signature package through Parliament.
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The opposition will instead ask the Coalition to split the package and accelerate part of stage two of the cuts to deliver a $1350 benefit to workers in July, $300 more than originally planned by the government.
But it remains strongly opposed to stage three, which will cost $95 billion when it is implemented from 2024. It has asked the government to defer debate on that stage of the tax cuts, which will see one flat rate of 30 in the dollar applied to income between $40,000 and $200,000.
Labor leader Anthony Albanese said it was "economically irresponsible to pass legislation which won't occur until the next election or potentially the one after that".
"This is Labor leading from opposition but being prepared to partner with the government to have constructive outcomes in the national interest," he said.
The decision from shadow cabinet follows weeks of internal debate about Labor's position on the policy.
To take it off the agenda, opposition MPs Peter Khalil and Joel Fitzgibbon urged shadow cabinet to support the full package if the Coalition refused to split it. The Coalition has said it has no intention of splitting the package.
Shadow cabinet dismissed that suggestion when it met in Melbourne on Monday morning.
"We are saying stage one we support, stage two we would support," Mr Albanese said.
"Stage three should be deferred because it is in the never-never. There's no rush - if [Scott Morrison] gets elected in 2024 he can implement it."
Shadow treasurer Jim Chalmers said it was "unfortunate" that the government's highest priority was stage three of the tax cuts, which do not come into force for another five years.
"If the government comes at this solution that we're proposing, we are prepared to get stages one and two through the Parliament quickly if they agree to defer consideration of stage three to a subsequent sitting of the Parliament," he said.
Mr Albanese said bringing forward part of stage two at the cost of $3.7 billion would stimulate a sagging economy. Labor has proposed accelerating the increase of the 37 per cent threshold from $90,000 to $120,000, due to start in 2022, to July this year.
The government forecast a surplus of $7.1 billion in 2019-20. Bringing part of stage two forward would cut that in half.
Mr Albanese also urged the government to bring forward infrastructure investment to get the economy moving across Sydney, Melbourne and south-east Queensland.
He cited the Melbourne Metro and Link Field Road in Brisbane's northern suburbs as examples of projects that could have "shovels on the ground".
"We know that projects like that are necessary now and we think that a bring-forward of the government's proposed infrastructure investment would assist the economy, create jobs right now [and] help to boost productivity into the future," he said.
- SMH/The Age