Typical Australian workers would receive additional financial relief of around $250 and rising to $1000 per year, under a bold Opposition plan to “end the inflation tax” by indexing income taxation brackets to keep up with the cost of living.

In his first formal Budget reply since becoming Opposition Leader, Angus Taylor will detail the expensive pledge as One Nation claims credit for another Coalition policy of cutting welfare for migrants, which critics have called “racist dog whistling”.

Under a future Coalition government, the indexation of income tax would be introduced in two stages, starting with the lower brackets, in a policy that would cost tens of billions of dollars.

The Coalition is hailing its proposal as the “biggest tax reform in a generation: a plan to stop Australians being pushed into higher taxes simply because prices have gone up.”

In the first stage of the policy around 85 per cent of Australian taxpayers would be protected from the inflation tax, with the Opposition estimating a typical worker would receive about $250 per year in the initial year, rising to around $1000 a year by year four.

The Coalition believes the plan would especially help younger Australians who are moving up the pay ladder faster, getting promoted, changing jobs and working hard to get ahead.

Economists estimate that indexing tax brackets, either to inflation or the 2.5 per cent midpoint of the Reserve Bank’s inflation target, would cost the budget billions a year, which would compound over time.

“This is good policy, but my rough estimate is that it would cost around $12 billion in the year 2031/2032 alone — but the precise figure can’t be known until the full details are released,” independent economist Chris Richardson told The Nightly.

On Thursday morning Shadow Finance Minister Claire Chandler indicated the Opposition Leader would provide details of how the policy would be costed and offset in his speech to Parliament.

In Tuesday’s budget Treasurer Jim Chalmers revealed the next round of tax cuts would be a one-off measure for all salary earners, under a $250-a year Working Australians Tax Offset.

In his Budget reply, Mr Taylor will also unveil an updated migration crackdown flagged by the Coalition which would prevent non-citizens, including permanent residents from accessing welfare, and explicitly link net migration to housing.

“A Coalition Government will pledge to restore common sense to housing and migration, build more homes, bring down building costs and scrap Labor’s failed housing bureaucracies,” a statement from Mr Taylor’s office said ahead of the speech.

“The Coalition’s plan will put one simple principle at the heart of housing and migration policy: Australia should only bring in as many people as it can house.

“Under the pledge, net overseas migration will be capped each year at the number of new homes completed in Australia.

“The pledge will be backed by a housing supply package to get more homes built, faster and cheaper.”

Ahead of Thursday night’s Budget reply speech, Pauline Hanson claimed credit for the Opposition’s latest hardline policy on migration, claiming her party’s popularity has “dragged the Coalition kicking and screaming to finally back the Australian people”.

In a statement Senator Hanson said following the Coalition’s “wipe-out” in last weekend’s Farrer by election, it is finally seeing the light and duplicating strong policies from One Nation.

“I don’t employ policy experts to write Coalition policy, but after the data breach in Parliament House it’s not hard to imagine why their Budget reply is replete with One Nation policies,” Senator Hanson said referencing a recent leak of her policies.

“While they’ve been telling everyone that One Nation has no policies, they’ve been reading them very carefully because they’re desperate for some good ideas. I’m pleased they’ve seen some light at last.

On Thursday Labor MP Jerome Laxale, who represents the ethnically diverse Sydney electorate of Bennelong, described Angus Taylor’s Budget speech as “one long disgusting dog whistle”.

Speaking to the ABC, he said the policy was designed to chase voters lost to One Nation as shown in the Farrer by-election and insisted it would be the “death of the Liberal party” and what they stood for.

“I see this toxic migration debate, more as a signal to one nation voters than it is based in reality” and “we don’t have a migration problem, we’ve got an infrastructure problem. We have policy problems, let’s deal with those”.

Greens Senator Mehreen Faruqui also derided the Opposition Leader’s policy as “outright racist dog whistling”, claiming it was billionaires and corporations who were to blame for Australia’s “cost of living” crisis.

“Migrants are not the problem in this country. Migrants are not causing the housing crisis. Migrants are not causing the cost-of-living crisis,” Senator Faruqui told reporters.

“It is the billionaires and the corporations who give dirty donations to both the major parties that are the cause of this crisis and Angus Taylor, nor Anthony Albanese, are willing to do anything about this.”

During Question time on Thursday, Home Affairs Minister Tony Burke also took aim at the Opposition’s contentious migration proposals.

“If they’re opposed to doing anything on backpackers, opposed to do anything on students, for family visas, it’s already the case that for a parent visa, which you can’t apply for until you’re 67, it’s a 33 year wait.”

“The only thing left that they will attack will be the skills that we need,” Mr Burke told Parliament.