Australian Labour vows tax cuts in tight poll race

Australia's opposition Labour unveiled a tax package yesterday favouring families and lower income voters in a bid to combat the government's strong economic record ahead of an election that polls say is too close to call.

Labour's long-awaited tax package - worth A$11.2 billion over three years - centred on the promise of an A$8 a week tax cut for people earning less than A$52,000 a year who missed out on tax cuts announced by the government in May.

The Australian economy, one of the industrialised world's strongest, remains the biggest issue in the early days of the campaign for the October 9 election, along with the government's support for the US-led Iraq war, security and the credibility of political leaders.

"This is a policy to take the financial pressure off Australian families. This is a policy to ease the squeeze on middle Australia," Labour leader Mark Latham told reporters.

Labour also pledged to raise the income threshold at which the top tax rate of 47 cents in the dollar cuts in to A$85,000 from A$80,000 from July 2006 and to simplify a family benefits scheme.

The Liberal/National coalition government cut income taxes in its May budget by A$14.7 billion over four years for people earning more than A$52,000 a year and forecast a A$2.4 billion surplus forecast for 2004/05.

The eight-year-old conservative government was re-elected in November 2001 on the back of its strong economic record and tough stance on illegal immigration.

Later yesterday, Treasurer Peter Costello trumpeted his government's economic record and attacked Labour's tax pledge.

"This is a policy to increase taxes and take away superannuation savings," Mr Costello told reporters in Sydney.

Television straw polls consistently show about two-thirds of Australians identify the economy as the issue that will decide how they vote and the news has been good, with gross domestic product up 4.1 per cent in the year through the second quarter.

But Prime Minister John Howard and Mr Costello have both said the government, seeking a fourth consecutive term in office, could not offer across-the-board tax cuts before the election.

The Treasury will release a pre-election Economic and Fiscal Outlook on Friday to update the May budget forecasts.

The Reserve Bank of Australia met yesterday but few economists believe there will be a move in interest rates before the election. However, many believe the key cash rate of 5.25 per cent will be raised after the poll regardless of who wins.

Two surveys released yesterday have the government and Labor tied on 50 per cent support on the important two-party preferred vote, when votes for unsuccessful minority parties are distributed to major parties and ultimately decide elections.

But on a primary vote basis, or the first count of votes, Mr Howard's government has a substantial lead with 46 per cent support in an ACNielsen poll and 45 per cent support in a Newspoll over Labour's 40 per cent in both.

"This is a desperately close election and we face the possibility of a hung parliament," Mr Howard told Australian radio yesterday, nine days into the six-week campaign.

Financial markets are concerned that a knife-edge election could result in a hung parliament, with neither side winning a majority. With independent members likely to be elected, Mr Howard or Mr Latham could form a minority government.

Mr Howard's coalition holds 82 seats in the 150-member parliament and would be out of office if it lost seven seats and the support of independents. Labour needs to win 12 seats to take office in its own right.

Mr Howard, 65, remains the nation's preferred prime minister with an 11 point lead over Latham in the ACNielsen poll and a 12 point lead in the Newspoll published in newspapers yesterday.