Australia will amend controversial legislated tax cuts by reducing the windfall for wealthy households to provide greater relief for low- and middle-income earners, Albanese said in a speech on Thursday. He added that a second consecutive budget surplus in the current fiscal year is “a possibility”.

“Fiscal policy is working with monetary policy, not against it. And so we have room in the budget to provide more support to Australians,” Albanese said in the address in Canberra. “These broader and better tax cuts are not the beginning of our actions on cost of living – and they will not be the end.”

The centre-left government’s tax adjustment is part of efforts to reverse its steady decline in opinion polls amid surging living costs from higher prices and rapid interest-rate increases. Under the new proposal, Albanese said every Australian taxpayer will receive a reduction.

While inflation is forecast to remain above the Reserve Bank’s 2-3% target for another year, Albanese cited the RBA governor as expecting the tax changes won’t have implications for its CPI outlook.

Under the original tax programme, known as Stage 3, the 32.5% and 37% tax brackets were to be scrapped and a 30% rate applied to incomes of between A$45,000 ($30,000) and A$200,000. The top tax bracket of 45% would then kick in after that, compared with the current threshold of A$180,000.

Under Albanese’s plan, the 37% tax rate will remain in place for those earning A$135,000 or more and the top 45% rate will apply from A$190,000, or between the existing and previously proposed levels.

In return, lower income earners will receive a larger benefit than originally planned. The bottom tax rate of 19% will be cut to 16% for incomes of up to A$45,000, with the 30% bracket then applying on earnings up to A$135,000.

Albanese also announced an increase in the low-income threshold where a healthcare levy applies, meaning 1.2 million low-income earners will either remain exempt or pay less.

“This is a plan for middle Australia that delivers for every Australian taxpayer, right up and down the income ladder,” he said. “Helping with the cost of living, nourishing aspiration — and boosting participation.”

Inflation in Australia remains higher than in many developed nations and while prices have eased from a December 2022 peak, they’re proving sticky. Surveys show surging living costs are among the most important issues to voters, with the price of food, energy and rent of particular concern.

In his speech on Thursday, Albanese cited advice from the Treasury that his tax changes are largely revenue neutral and will not add to inflation.

The Stage 3 tax cuts were the third in a series of revenue reforms legislated by the centre-right Coalition when it was in office. The first two rounds focused on low- and middle-income earners. Albanese promised to keep the tax changes ahead of the 2022 election, and repeatedly said after his victory that his position on the reforms hadn’t changed.

The opposition Liberal-National Coalition initially appeared to pledge to reverse Albanese’s adjustments if returned to office, however on Thursday Deputy Leader Sussan Ley denied any decision had been made.

Still, Shadow Treasurer Angus Taylor described Albanese’s decision as the “mother of all broken promises”, drawing the battle lines for the campaign to come.