Tony Abbott promised a government of no new taxes and no surprises.
But his government’s first budget, to be delivered on May 13, risks breaking both key election commitments.
The prime minister insists the proposed “deficit levy” on people earning $80,000 or more, which could remain in place for up to four years, is not a broken promise.
“If there was a permanent increase in taxation that would certainly be inconsistent with what was said during the election,” he says.
Abbott argues that bringing the budget back to surplus within the decade demands short-term pain for permanent and lasting gain.
READ MORE: Debt tax wouldn’t break promise: Abbott
While the idea of a tax hike on the highest income earners has found some support in the welfare sector, Labor leader Bill Shorten has seized on it as a “deceit tax”.
“It is clear to most reasonable Australians that the Abbott government said one thing in opposition and is now doing something else in government,” he says.
Business groups have been quick to remind Abbott and Treasurer Joe Hockey of a line both men have used frequently: “You can’t tax your way to prosperity.”
Income tax rises have a habit of dampening private sector demand, especially at a time when the economy needs a kick-along and the jobless rate is unimpressive.
It’s not as if there are no other options to get the budget under control.
The $5.5 billion paid parental leave scheme is widely seen, even within coalition ranks, as a gold-plated scheme the nation can’t afford at present.
Labor points to the unnecessary $8.8 billion given to the Reserve Bank to bolster its holdings and other post-election spending which has effectively doubled the deficit.
The Greens suggest trimming some of the billions of dollars in diesel fuel subsidies given to foreign-owned mining companies or a modest levy on bank profits.
Then there are the bigger and bolder options of broadening the base or raising the rate of the GST, winding back capital gains tax concessions or axing generous tax breaks for the highest earning superannuants.
However, Abbott has made a rod for the government’s own back by promising before the election not to touch super or the GST.
Thursday’s release of the national commission of audit report will help Abbott underline the severity of the economic and fiscal challenge ahead.
It may also give the government some political cover as Hockey and Abbott reject some of the audit report’s more extreme measures to deal with debt and deficit, as John Howard did after his audit in 1997.
As a sweetener, the prime minister, in a speech on Monday, held out hope of income tax cuts within five years if the budget-repaid job goes to plan.
But the coalition has much explaining to do if it wants to avoid the “broken promises” hole into which the former Rudd and Gillard Labor government collapsed.
– AAP
