Labor backs down on support for $3b tax cut

Australians will miss out on an anticipated $3 billion tax cut next month after the opposition agreed to support the government's move to abolish it, with Shadow Treasurer Chris Bowen claiming fiscal responsibility overrode other concerns.

Labor has agreed to support the government in abolishing the cut which it now says is affordable.

The cut would have boosted the tax free threshold from $18,200 to $19,400 from July 1. It was the last remnant of Labor's carbon compensation package.

"This wasn't an easy decision for the Labor Party," Mr Bowen told reporters in Sydney.

"But given this is the government's position not to have these tax cuts, and given the state of the budget deficit, the responsible thing for Labor to do is to give its support."

Opposition frontbencher Matt Thistlethwaite said Labor was taking a fiscally responsible approach by backing down.

"The budget's in a dire position, the budget deficit in the government's own budget papers increases from $17.1 billion to $35 billion over the forward estimates, even with this $3 billion saving being banked," he told Sky News.

"This is a saving that we believe is in the interests of Australia and that's why we've agreed to it."