Spending cuts the only way to pay for tax cuts

Mr Morrison confirmed again that plans to increase the rate or base of the GST were dead and that other tax options facing the government, such as curbing negative gearing, tax deductions and superannuation tax concessions, would not raise enough alone to fund meaningful tax cuts.

"What we have found is that the only way to have lower taxes is to have lower expenditure. The tax mix, which is not going to solve that problem at that scale, the only way we can deliver longer term relief for people out there earning every day is to deal with the issue of expenditure," he said.

"Our view about the budget is that we want to put as much money in your hands to do the best thing you want to do with it rather than keeping it in ours."

He also put the states on notice that there would be no extra money for them and there would be no paying back the $80 billion in hospital and school cuts announced in the 2014 budget. He said the states, too, should cut spending rather than increase taxes.

"What I'm saying is the simple proposition that the costs are going up, therefore taxes have to go up, is not a proposition that I think bears scrutiny. There are always other options and we need to look at those options both the State Governments and as a Federal Government," he said.

Mr Morrison also confirmed there would be an emphasis in the budget in easing reliance on welfare and getting people back to work.

He repeated that the multitude of payments that have sprung up over the past 15 years had complicated the GST compensation bill.


Too many people on welfare

He said it would have been as high as $16 billion had the government gone ahead with a proposal to lift the rate to 15 per cent and apply it to water and sewerage bills.

"That's 1 per cent of GDP on top of outlays," he said.

"Today that many Australians growing up will see transfer payments as a normal part of their income.

"That probably wasn't true many years ago when others were growing up. It has now become part of the middle class of Australia, the transfer payments are part of the income.

"One of the big issues that we actually had to deal with when we looked at the issues around compensation on the GST, there are just more people who are getting payments these days," he said.

"That is a big factor when you are trying to come up with a compensation bill."

The mid-year budget update released in December forecast that spending as a proportion of Gross Domestic Product would fall from 25.9 per cent in 2015-16 to 25.3 per cent in 2018-19. Without the National Disability Insurance scheme, the ratio would be 25 per cent in 2018-19.

Spending growth has fallen from 2 per cent to 1.8 per cent since the May budget but is estimated to grow to 3 per cent from 2019-20 to 2025-26 "indicating that further restraint in expenditure is necessary".

In September last year, Finance Minister Mathias Cormann said government spending needed to be reduced over time to an average of around 24 per cent of GDP "at the most".