EMMA ALBERICI, PRESENTER: The Joint Standing Committee on Electoral Matters has recommended an overhaul of the Senate voting system to stop the kind of preference deals at the last election that saw some microparties win seats with a tiny slice of the primary vote. It's a dangerous agenda for the Government to potentially pursue, given the message it sends to those microparties whose vote Tony Abbott will rely on to get tomorrow's Budget through the Senate. Two of the new people the Coalition will negotiate with after July are senators-elect David Leyonhjelm, the Liberal Democrat representing New South Wales, and in South Australia, Family First's Bob Day. They joined me earlier this evening.

Good evening, gentlemen and welcome to Lateline.

DAVID LEYONHJELM, SENATOR-ELECT, LIBERAL DEMOCRATIC PARTY: Thank you.

EMMA ALBERICI: We'll talk shortly about the proposed Senate voting reforms, but first, I want to discuss the Budget. How important is it for the Government to keep the promises it made to the Australian public before the election? David Leyonhjelm.

DAVID LEYONHJELM: I'm not too concerned about whether the Government keeps its promises. Some of those promises shouldn't have been made in the first place. The voters will decide whether keeping promises is as important as all that, as some of the commentators are saying. My point really is that what's in the Budget is most important. We have a problem with expenditure. It's way out of step with revenue and what we're doing is building up debt for future generations to pay for. So, the taxpayers of tomorrow will be paying for today's debt if we don't bring it under control.

EMMA ALBERICI: Bob Day, is there a difference, in your view, between Julia Gillard breaking a pledge not to introduce a carbon price and Tony Abbott committing not to increase taxes without going back to the voters?

BOD DAY, SENATOR-ELECT, FAMILY FIRST: Well I don't think he needs to break any promises to fix what needs to be fixed. There is no doubt that the Government was bequeathed a - quite a financial mess which they need to fix, but they can do that without breaking any promises. What I'd be hoping for and looking for in the Budget tomorrow, four things: number one, an unequivocal commitment to significant tax reform. Secondly, the key objectives of what that reform should look like. Thirdly, a broad timetable of tax reform. And fourthly, they should take the first steps towards that. I think that's the main game for the Budget tomorrow night.

EMMA ALBERICI: OK. Well David Leyonhjelm, writing in today's Financial Review, you've expressed disappointment with the Coalition government delay in delivering a budget surplus. If it is, as you say, possible to do so quicker, why aren't they doing that?

DAVID LEYONHJELM: Political reasons mainly. It's seen as hard-hearted to cut middle-class welfare and middle class are a lot of voters. There's a large number of people who are receiving welfare who also pay taxes and they think that's their right to receive that. The problem for the Government is convincing them that they don't have a right to do it, that welfare is primarily for poor people. It's poor people who need to be looked after and people who are not poor should be looking after themselves more than they are. So, it's a political problem. The Government is aware of it, I think. It's just whether they've got the courage to attack it.

EMMA ALBERICI: Is the paid parental leave scheme, adjusted as it will be tomorrow in the Budget, still too generous in your view?

DAVID LEYONHJELM: Absolutely. Actually, if it was up to me, I would roll paid parental leave for public servants into their salary packages as well. It's part of their remuneration. It's like having a car or an extra generous super scheme or something like that.

EMMA ALBERICI: And not give it to the private sector at all?

DAVID LEYONHJELM: Yes - well, it's up to the employers. It's between the employees and the employers to negotiate. If people want paid parental leave in their package, no problem; it's their choice, but it shouldn't be mandated by the Government.

EMMA ALBERICI: And not funded by the Government?

DAVID LEYONHJELM: Exactly. Or the taxpayers. The Government doesn't really fund anything; it's the taxpayers who do it all.

EMMA ALBERICI: Bob Day, do you agree?

BOD DAY: Yes, I do. I agree with David on that one. This system of high tax, high welfare is costly and inefficient. A lot of people in the workplace simply can't access paid parental leave. At Family First, we believe all mothers should be treated equally. It doesn't matter whether you've given up your career to become a full-time mother. They're all doing the same. It used to be the adage of equal pay for equal work. Once a mother is caring for her newborn baby, they're all doing the same work. There should be certainly some equality there. And once we've established that all mothers should be treated equally, then you can start to talk about what kinds of benefits that they should receive.

EMMA ALBERICI: So just to be clear, you'd both reject the paid parental leave scheme when it comes to the Senate?

DAVID LEYONHJELM: Yes, I agree with Bob.

BOD DAY: Yes, I agree, yes.

EMMA ALBERICI: So, the Palmer United Party has today announced that its senators won't support the proposed deficit levy because they don't think the Australian economy is in such bad shape as to require such an emergency tax. What do you think, Bob Day?

BOD DAY: Well, look, the evidence is in from the around the world that raising taxes does not raise revenue. It's fairly clear that if they want to raise more revenue, then they should lower the tax rate. It then boosts incentives, it avoids - tax avoidance and tax planning. It encourages enterprise. If they want to raise more revenue, then they should lower the tax rates. And, not only that, they should align both company and personal tax rates, and then when they start working towards the alignment and lowering the tax rates - if ever there was a country that was ideally suited for lower tax rates and huge revenues, then it's Australia.

EMMA ALBERICI: David Leyonhjelm, what do you make of the deficit tax?

DAVID LEYONHJELM: It's an increase in taxes and we don't like any increase in taxes. We think Australia is already taxed too much. I agree with Bob. The best way to get prosperity going, to solve the budget problem, is to lower taxes. In my alternative Budget today, which was published in one of the newspapers, that included a reduction in the top marginal rates of tax. That was quite deliberate because it's an incentive to people to work, earn more, save more, invest more - that's good for the economy and it's also a compensation for taking away some of the middle class welfare.

EMMA ALBERICI: I'll ask this of both of you: have you had much to do at all with Clive Palmer and has he tried to negotiate a bloc voting arrangement with you at all? David Leyonhjelm.

DAVID LEYONHJELM: No. I've spoken to Clive Palmer two or three times in relation to preferences. That's it. No other discussions with him.

EMMA ALBERICI: Bob Day.

BOD DAY: Yes, I've met with Clive and the other PUP senators. We got on very well. We talked about how we might approach this job. We're all committed to certainly - to do two things: number one, represent the states from where we're from. We're senators, we represent our states - that's our number one objective. Secondly, to promote the policies of our various parties. We all want to do a good job. We're all brand new at this. But we think it's time that everyday Australians from everyday walks of life can add their contribution towards the political debate here.

EMMA ALBERICI: Is the budget in crisis to the extent that might actually justify the Government's proposed emergency debt or deficit levy? The Greens certainly don't think so and neither does Clive Palmer. Bob Day, what do you think?

BOD DAY: Well, this is again the paradox. I fully accept that they have been bequeathed quite a problem which needs to be fixed, but what they don't seem to understand is how best to address that financial problem that they have. And the way to do it, by all means, cut spending. And removing all these various duplication of federal departments of Health, federal departments of Education, federal departments of the Environment, federal departments of the Arts and all these sorts of things, they should all go. Let the states do those things. So cutting spending, absolutely, they're doing right thing there. I don't have a problem with that. Where they don't seem to understand how markets work or how an economy works is how best to raise more revenue. And the best way to do that, as I've said, is to lower the tax rates, align - flatten the taxes more towards single-rate taxes and just wait and see how the revenue will flow in for them. That's the best way to go. That's - the evidence around the world now is overwhelming.

EMMA ALBERICI: Where would you like to see the flat tax rate set?

BOD DAY: Well they could start by certainly lowering the personal tax rate so they're aligned with the company tax rate of 30 per cent. And then they should make a commitment to reduce the tax rate by one per cent every year for, say, 10 years and then see - it normally levels out around about - the optimum level of tax-to-revenue is around about the 20 per cent mark. But they could start slowly, commit to doing one per cent a year and watch the revenues flow in. If they don't, they can always put the tax rates back up again, but that won't happen. People will start to get more enterprise, more incentive, they won't spend anywhere near as much on tax avoidance, the cash economy, tax planning and all those other things that people do and move heaven and earth to try to avoid paying tax.

EMMA ALBERICI: A few other of the issues that we're expecting to come out of tomorrow's budget. The curious thing to some commentators is that wealthy households with incomes of more than $180,000 a year are likely to face a temporary tax increase, but ordinary taxpayers will face permanently higher petrol prices. What do you think of that, David Leyonhjelm?

DAVID LEYONHJELM: Yeah, it's a bit incongruous. We don't think tax increases of any description are a good idea. The question with regards to fuel tax is: what's the best way to fund roads? Fuel taxes mean petrol is high and everybody pays it, but somehow or other the roads are supposed to be paid for. So do you charge road users on a per-use basis or do you effectively, although it's not strictly legal, to hypothecate the money from fuel tax, from selling petrol, and allocate it purely to roads? The risk is - and this is what happens - is that all the money raised from petrol taxes goes into a big pot and then some of it goes into roads. A lot of it ends up paying for other things as well. Now that's politicians playing around with our money. If there was a user-pays system on the roads and the petrol tax was eliminated, then we would be paying for the roads as we use them. So people who weren't doing very much driving wouldn't pay much. People who are doing a lot of travelling and using the roads a lot would pay more. There's an argument for both of those, but I don't like the fact that the petrol tax seems to become a bit of a honey pot for politicians.

EMMA ALBERICI: But reimposing an indexation on the petrol fuel excise, would you support that in the Senate?

DAVID LEYONHJELM: No, I won't vote for any tax increases of any description. I think we're taxed way too much already and taxes should go down, not up.

EMMA ALBERICI: Bob Day, on the fuel excise - what's your view?

BOD DAY: Well, I spent the first six years or seven years of my working life working for the Highways Department and I know all about hypothecation. Those were the days when petrol taxes were spent on roads and it was an acceptable tax, that those who use the roads should pay for the maintenance of them and the building of new ones. But of course, over the years, the - like David said, it becomes a honey pot. The money gets siphoned off into other areas, so now we've got the situation where something like $20 billion a year is raised in fuel taxes, but barely half of that is actually spent on roads. So to increase petrol taxes, I've just got no confidence that that will solve the problem. They already raise enough money from petrol taxes. Motorists are already paying enough in fuel taxes to build all the roads that we need.

EMMA ALBERICI: So, do I take it you'd vote against it in the Senate?

BOD DAY: Well, we'll have to have a look at the detail of it, but I'm not attracted to that idea. Given my background on it, the way I've seen it go before, I'm not a big fan.

EMMA ALBERICI: We are running out of time, but just quickly, Labor's rejected the idea of a GP co-payment. Will the Government have your support, David Leyonhjelm, in making people pay for doctors' visits?

DAVID LEYONHJELM: Yes. Yes, I would support that.

EMMA ALBERICI: Bob Day?

BOD DAY: Well, look, it's - in the whole context of tax reform, I just think this kind of piecemeal little tax here and a small tax there - we've been trying this for years. Peter Costello committed and commissioned two very, very prominent business people, Dick Warburton and Peter Hendy, to do a major tax reform review a number of years ago. That's what's needed again and this kind of piecemeal approach - a little bit of extra fuel tax a co-payment here and a co-payment there - is the not the way to go. We've had enough of that.

EMMA ALBERICI: OK. And now finally onto proposed changes to the voting system, ostensibly to stop the likes of the two of you ever entering the Senate again. What do you think about that, David Leyonhjelm?

DAVID LEYONHJELM: It's a bit like Coles and Woolworths deciding the rules for the corner shops, and saying, "Well, these are the rules that we think are - should apply," and if you can get through those rules, then you're fine and essentially the rules don't let you get through. You won't be able to get through them. That's what it amounts to. The committee was represented by Liberal, Labor and the Greens. There was nobody else on it, as far as I'm aware. And if those recommendations of that committee were applied, the minor parties would be effectively wiped out. I can go into the reasons why if you like, but that would be the end result. Now, 24, 25 per cent of voters did not vote for Liberal, National, Labor or the Greens in the election. Now that would suggest that there should be more senators like Bob and myself, not less. So what these guys, the three ugly sisters, if I can put it that way, are saying is, "We don't want any of you there. We're going to make it so difficult, the hurdle so high, you're not going to be able to get into this," and that's the bottom line, that's what they're up to.

EMMA ALBERICI: You're saying the major parties are like a closed shop like the big supermarkets?

DAVID LEYONHJELM: Absolutely. Oh, yes. It's a conspiracy against the public, if you ask me. Highly anti-democratic.

EMMA ALBERICI: What do you think, Bob Day?

BOD DAY: Well, it's a little bit un-Australian. We've all been elected and they're trying to sack us before we've even started. At least let's see how we perform and if the Parliament becomes dysfunctional or gets bogged down in gridlock, then fine, then make a case. But until we've all actually taken our seats - and who knows?, we might actually improve things. But like David says, 25 per cent of the electorate voted for the minor parties and only about 18 per cent of the seats have been taken up, so I think it's a little bit rough that they're ganging up and making recommendations that we should all be sacked before we've even started. You know, give us a go; I think we deserve better than that. I think the electorate deserves a little bit better than that as well.

EMMA ALBERICI: What do you think's behind these recommendations?

BOD DAY: Well it's pretty obvious that if the same happened again at the next election, there'd be another six minor party senators to deal with. And, one has to ask the question: why are 25 per cent of the electorate voting for parties other than the majors? And this notion that senators are being elected on such a very small percentage - they're only representative of all the minor parties. So that the - if all the minor parties preferenced each other, then one of them would be a representative of all the minor parties. And I think that's - well, let's see. It could well be a very, very good thing for the Parliament. We'd like to do a good job, we'd like to improve and enhance the performance of the Parliament. So let's just see how we go.

EMMA ALBERICI: We are out of time. I look forward to speaking to you when you take up your seats in the new Senate. In the meantime, all best to you both.

DAVID LEYONHJELM: Thank you.

BOD DAY: Thank you very much. Thank you.