Federal budget: Business groups warn against reports of 'debt tax' targeting high-income earners

Updated

Business groups have cautioned the Federal Government against introducing any new taxes to pay off the nation's debt.

There have been reports the Government is considering asking high-income earners to pay a levy to help bring the budget back into the black.

The Prime Minister yesterday failed to rule out the reports and will tonight use a speech at the Sydney Institute to describe next month's budget as not for the "rich or the poor", but "for the country".

After what is expected to be a lengthy Cabinet meeting today focusing on budget measures, Tony Abbott will warn Australians that fixing the budget will take a collective effort.

"I know that the tendency on budget night is to focus on 'What's happening to me,' but we need to focus on 'What's happening to us' because everyone needs to be involved in fixing Labor's debt mess if all of us are to prosper in the years ahead," he says in excerpts of the speech released by the Prime Minister's Office.

"This will not be a budget for the rich or the poor; it will be a budget for the country.

"This will be a nation-building budget, even though it cuts spending, because you can't build a nation spending money you don't have and that's more than you need to borrow."

Yesterday, when asked about the reports of a new levy, Mr Abbott said the Government would "tackle the fiscal disaster that we have inherited".

"It's important that the mess be tackled," he added.

"Now, we are going to do it in ways which are faithful to the commitments that we made to the Australian people, but we are not going to squib the challenge."

The reports said any new debt tax would target high-income earners, and Mr Abbott said any measure the Government took would be "fair".

His speech - due at 9:00pm (AEST) - will further signal that the budget will include measures that will hit taxpayers in the hip pocket.

"We owe it to our country; we owe it to everyone who elected a government to clean up Labor's mess; to take the right decisions rather than the popular ones," he will say.

"I don't expect politicians to be more popular the day after the budget but I hope that we might have earned a little more respect."

But business groups have warned the government against embracing the idea of a debt tax.

The Australian Industry Group says it could further weaken the economy.

"Raising taxes would dampen private sector demand at a time when the economy is growing at below trend and the labour market is flat at best," chief executive Innes Willox said.

"You can't tax your way to prosperity."

Australian Chamber of Commerce and Industry chief operating officer John Osborn agrees.

"An income tax levy is an income tax. It's an unwelcome surprise from a government that promised no new taxes and no surprises," he said.

"We run the risk of further weakening an already weak economy by dampening demand."

Mr Osborn also called on the Government to wind back its plans for a wage-replacement paid parental leave scheme in favour of a greater focus on childcare.

"It's a gold-plated scheme that we can't afford," Mr Osborn said.

"We certainly need to look at winding that back.

"Childcare is a very appropriate area of investment that can help further promote female participation in the workforce."

Shorten hits out at 'deceit tax'

The Federal Opposition says any new taxes will be a broken election promise from the Coalition.

Labor leader Bill Shorten says it should be renamed 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 said.

"If they are not committed to this deficit levy, what we call this deceit tax, the Abbott Government should just rule it out.

"The Abbott Government's ruled out other things. The fact that they're letting these rumours, these fears run, tells me the Abbott Government is using the Australian people to scare them, to prepare the ground for unpleasant, unnecessary decisions."

Opposition treasury spokesman Chris Bowen says such levies should be for "genuine unexpected emergencies" and fixing the deficit "falls a long way short".

"[Treasurer] Joe Hockey has deliberately inflated the budget deficit and is now asking the Australian people to pay for it in a clear breach - a clear breach - of an election promise that there'd be no new taxes," he told Radio National.

Mr Bowen said Labor supported returning the budget to surplus but only "gradually and over time without swingeing cuts that would affect confidence".

Federal MP Clive Palmer says his party, which will control four key Senate seats after July 1, will vote against a deficit levy because it is not warranted.

"If we get the opportunity we'd vote against it - but we may not get that opportunity," he said.

But budget expert and economist with Deloitte Access Economics Chris Richardson has interpreted the discussion about a debt tax as a sign the Government is serious about fixing the budget.

"Budget repair does hurt economies," he told The World Today.

"You don't need a surplus tomorrow, you don't need it even necessarily in five years time, but you do need it over time.

"The tougher the government is in two weeks' time in May's budget, the more likely it is that we will not see an interest rate rise from the Reserve Bank for a very long time.

"That flexibility gives the economy a buffer."

Mr Richardson said if the tax applied to those earning more than $80,000, it could reap the budget around $800,000 a year.

Topics: government-and-politics, budget, abbott-tony, australia

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