Joe Hockey warns interest rates will rise if budget cuts and tax hikes not passed by Senate

Updated

The Federal Government has warned interest rates will rise if billions of dollars in budget cuts and tax hikes are not passed by the Senate.

The Opposition and minor parties have said they will oppose many of the measures announced in last week's federal budget.

Prime Minister Tony Abbott has accused Labor of being "fiscal vandals", and Treasurer Joe Hockey says the Opposition is standing in the way of $40 billion worth of savings, including measures it introduced while in government.

Mr Hockey has cited reports that one global credit rating agency says that without budget cuts, Australia's AAA rating will be at risk.

"It is an early warning from [ratings agency] Standard & Poor's that they are looking closely at the passage of legislation through the Senate," he said.

"If there were to be a downgrading of Australia's sovereign credit rating, it would have an impact on every household that borrows money, either through a mortgage or credit card.

"I would say to Bill Shorten, I say to the independents in the Senate, think very carefully about your actions because ultimately if you decide to turn down savings and you offer no sensible or credible alternative, it will have an impact on every household in Australia through higher interest rates and higher taxes down the track."

However S&P analyst Craig Michaels says his agency has not issued a warning over the budget and nor does he see any great urgency in returning the budget to surplus.

He says "at this point" S&P believes the Government is on track to improve the budget in the medium-term.

"Public debt is still quite low and we think it will still peak well below 30 per cent of GDP," Mr Michaels told The World Today.

"And given that backdrop, that gives the Government a little bit of wriggle room on getting its budget back to balance."

Opposition Leader Bill Shorten says if Australia's credit rating is downgraded, it will happen on the Coalition's watch.

"If Tony Abbott squanders our AAA rating, then it's on his head. He's the man in charge," Mr Shorten said.

LNP senator calls for review of GST design

But the Government's apparent efforts to refocus the budget debate on its political opponents has been hampered by statements from one of its own.

Former frontbencher and Queensland LNP senator Ian Macdonald has bought into the debate about raising the GST, triggered by last week's budget cut of $80 billion in Commonwealth funding to the states for schools and hospitals.

State and territory leaders have accused Mr Abbott of trying to wedge them into pushing for a hike to the tax, which is collected by the Commonwealth and distributed to the states.

Senator Macdonald thinks the tax should be broadened to include fresh food, a move that would reap $6.2 billion in the first year, according to Treasury figures.

He says the Government should go back to the first proposal put by the Howard government in 1998.

"There wasn't much that was excluded in the original proposal. I think we should go back to that," he said.

While some of his predecessors have called for changes to the GST, Victorian Premier Denis Napthine has ruled out supporting either increasing the tax or applying it more broadly.

And both Mr Abbott and Mr Hockey have dismissed the comments as speculation.

"We said we are not going to change the GST. If there are to be any tax changes along those lines, they will go to the Australian people at the next election," Mr Hockey said.

The Prime Minister said it was a "hypothetical question", adding that "what the states do is their business".

"I'm just not going to speculate on the GST," he said.

"The GST is a tax which belongs to the states, and obviously it's perfectly within the bounds of possibility for the states to want to discuss the GST as part of the Federation White Paper process."

Senator Macdonald has also taken a swipe at his Government's budget strategy.

"I wish there had been a little extra consultation, not just with the backbench but with Australians generally, before some of these proposals came forward," he said.

"It is a tough job. We have got to pay off Labor's $600 billion, but are we doing it in the best way? I have my doubts."

He says some of the selected leaks in the lead-up to the budget backfired.

"I can't believe how bad the strategy was," he said. "For example, the Commission of Audit being released a week before - people thought that was the budget and it will take a long time to get to the truth of the matter.

"The selected leaks which, as is usual, very often didn't turn out to be the actuality, I think were wrong, and so I just don't know who was in charge of that strategy but it didn't seem to be a very good one."

Yesterday Mr Hockey acknowledged that people had been contacting his office with concerns about welfare payments and were not "familiar with all the information".

He said the Government had to "focus on explaining what the program is".

Topics: budget, government-and-politics, federal-parliament, money-and-monetary-policy, tax, federal-government, federal---state-issues, australia

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