The Abbott government has begun the public sales pitch for a temporary personal income tax increase, arguing it is the only way for higher income earners to share the “immediate” budget pain while longer term “structural” savings take effect.
The government is likely to immediately rule out some of the most contentious recommendations from its commission of audit report, to be released later on Thursday, but other of its 86 recommendations, including deep cuts to the public service and cuts and changes to family payments, are to be included in the 13 May budget.
The report is understood not to recommend the temporary tax hike, which appears set to be included in the budget. The government sees it as the best way to ensure those on higher incomes share the immediate pain.
“What the commission of audit is recommending is structural reform of the budget and structural savings … They will build over time, however structural savings start low and build over time, and there is a need for an immediate special effort … so the decisions we are considering is how to make sure the immediate special effort is spread fairly across the whole community,” the finance minister, Mathias Cormann, said.
Cormann told the ABC’s AM program the only way to spread short-term pain beyond lower income earners who receive government payments was “sensible, well targeted, time-limited adjustments through the tax system” which would target high income earners. He said that by opposing such a measure Labor was suggesting that only those on a low income should be hit.
The commission’s report, which runs to over 900 pages, concentrates on longer term measures to bridge the widening gap between forecast spending and revenue over coming years, so the budget can reach a surplus of 1% of GDP by 2024.
Some of the more far-reaching recommendations about ending duplication of federal and state government activities in health, education and Indigenous services are likely to be referred to a white paper on federal state relations.
But there is still widespread anger within the Coalition, and in the business community, about the plan being finalised by the government to temporarily increase personal tax, possibly with a 1% hike to earning after $80,000 and a 2% hike after $180,000.
Many remain unconvinced. In his online newsletter Your Weekly Dose of Common Sense, South Australian senator Cory Bernardi refers to the “mooted new income tax levy to help repair the national budget”, saying he has no inside knowledge of the plan, but had “always believed that a government should lower taxes – not increase them”.
He describes increasing taxes as a “folly” and says “a conservative government should be taking less tax from people and expecting them to be more self-reliant. Taking more of their weekly wage will only act as a disincentive or make it even more unaffordable for people to do the right thing.”
Many backbenchers are warning the plan will have dire electoral consequences.
The commission was headed by Business Council of Australia president, Tony Shepherd, and the other commissioners included former Howard government minister Amanda Vanstone, former federal public servant Peter Boxall of the New South Wales Independent Regulatory and Pricing Tribunal, former treasury secretary Tony Cole and former Western Australian senior bureaucrat Robert Fisher.
Labor has criticised the timing of the release of the report, so close to the budget and so long after it was received by government.
“This report should have been released weeks and weeks ago,” the shadow treasurer, Chris Bowen, said.