Illustration: John Spooner "Crazy", "electoral suicide", a "Gillard moment" were some of the comments from Coalition MPs, the latter remark a reference to Julia Gillard's commitment to a carbon tax, which haunted her to Labor's eventual defeat. "Everyone is shell-shocked. They don't understand it," one Coalition MP said on Tuesday, after the Prime Minister confirmed a "temporary debt levy" for as long as four years was a live option for the Coalition. "They are asking ‘why is he doing this?'." The answer says much about the undeliverable platform the Coalition brought to the election and the true nature of the "budget emergency" the current government inherited from its predecessor.

The commission of audit report is not a government report. Its more extreme recommendations can be ignored and others watered down or delayed. But the "debt levy" raising $10 billion over four years is a different proposition entirely. It is not the work of the commission. It was cooked up in cabinet and commission chairman Tony Shepherd has let it be known he thinks it a foolish idea. Despite the backlash, Abbott and his two senior economic ministers – Joe Hockey and Mathias Cormann – have stuck by the proposal and defended it, while always giving themselves an opening to abandon it in the 10 days before the budget is delivered. As they insist that no election promises will be broken, the spin has been furious and much of it unconvincing. Abbott, after all, had a central narrative in opposition that voters could not trust a government that "lied" over the introduction of a tax, in this instance Gillard's price on carbon.

He also promised repeatedly not to increase taxes. "You can’t tax your way to prosperity" was a mantra. So was "Tax cuts, without new taxes". Speaking to 3AW's Neil Mitchell on Tuesday, Abbott redefined that commitment. A tax is only a tax if it is introduced in perpetuity. "If there was a permanent increase in taxation, that would certainly be inconsistent with the sort of things that were said before the election," he said. Hockey intimated the government should be given a break because it was all Labor's fault for ruining the budget, a new riff on "non-core policies". "Please, this idea, somehow, that everything we had ever said is going to be held against ... us because the previous government basically misled the Australian people about the state of the budget, is kind of ridiculous," he said.

The government's problem is the state of the budget was largely known on polling day. Voters will be asking themselves whether they would have supported the Coalition if they had known a tax rise was coming, along with changes to pensions, the end of bulk-billing for GP visits and cuts to family payments. The main justification for the tax increase is it is the only way that the government could put the budget on a path to surplus equitably. Cuts to welfare and employment programs, the $6 payment for GP visits, the raising of the retirement age all place a burden on the less privileged. "The only way we can effectively ensure that higher-income earners carry their fair share of the burden is through well-targeted, time-limited measures through the tax system," Cormann told the ABC. It is sound analysis but hitherto unheard from a Coalition minister. In the campaign, the Coalition promised no new tax rises, while quarantining health and education spending from cuts, pensions from changes and increasing defence spending. The idea that election commitments gave the Coalition the tools to fix fiscal problems was always a furphy.

But, while the government has exaggerated Australia's deficit and debt problem at times, there is a medium and long-term fiscal time bomb as the population ages that should be addressed now. The government points out that, without action, net government debt will double to $400 billion in 2024 after a decade of budget deficits. Labor's reckless spending is painted as the culprit behind the deterioration by the government and, certainly, the introduction of Labor's Gonski education reform and National Disability Insurance Scheme will blow out the budget. But the main reason for the decline in government's finances has been on the revenue side of the ledger. Revenue is down from 26 per cent to 23 per cent of gross domestic product in the past decade, while spending has remained at a relatively stable 25 per cent. The end of the mining boom is only partly responsible for the revenue crunch, argues Dr Richard Denniss, executive director of the Australia Institute. Eight years of personal income tax cuts in the Howard and Rudd government have hit the bottom line, as well as the concessions given to superannuants and seniors.

And higher income earners have been the main beneficiaries. Denniss thinks the proposed tax increase is hard to argue with on equity grounds, even if its timing – when the economy was slowing – ran counter to Keynesian principles of demand management. "Budget difficulties are not something high-income earners are likely to have been concerned with over the past seven years as they were the biggest beneficiaries of these tax cuts," he says. "Of the $169 billion in tax cuts [over the past seven years], 42 per cent of them or $71 billion went to the top 10 per cent of income earners. The top 10 per cent got more in tax cuts than the bottom 80 per cent." John Daley from the Grattan Institute says "as far as sharing the pain, [a debt levy] is not a completely insane way of doing it".

But, he adds, there are better ways of raising revenue from the wealthy that could be permanent, rectify distortions in the tax systems and produce good economic and policy outcomes – rather than just raise revenue. "If you are going to break a promise on taxation, you may as well do it properly." Daley says removing the capital gains tax discount, abolishing negative gearing and cracking down on superannuation taxation benefits were some measures that would have raised the same revenue or more at the expense of the wealthy. The superannuation system is an expensive mess and failing in its objective of stopping people relying on the aged pension, which 80 per cent of retirees still access. Perversely, the superannuation tax concessions – worth as much as $35 billion a year – will cost the government more than it outlays on the aged pension in a few years.

"If the cost of age pensions is ballooning, super tax concessions are the Hindenburg," Denniss says. The commission of audit did recommend reforms to the aged pension system. Its proposal to include the family home as part of the means testing will be rejected by the government. But the government will adopt the policy to strip family tax benefits from those earning between $100,000 and $150,000 per year. A $100,000 salary is fast emerging as the new – and lower – benchmark of what is considered wealthy. In an ignominious week, the Prime Minister changed his signature paid parental leave policy. Now only people on up to $100,000 will get their full salary for six months under the scheme, rather than those earning up to $150,000.

There was plenty of criticism that the commission of audit's recommendations hit the poor while leaving the well-off largely insulated from change. Its major reforms – on welfare, unemployment, health policies and foreign aid – all disproportionately affected those on below-average incomes, at home and abroad. The commission – dominated by members of the Business Council of Australia and former Coalition staffers and politicians – also oddly called for a lower minimum wage, which has nothing to do with budget policy. But concerns about the inequity in the commission's 86 recommendations highlights another fact that is often lost in the debate about the budget. Australia's social welfare programs are already tightly means-tested, meaning there is little scope to penalise the rich by slashing government spending programs.

The commission's terms of reference were to look at government expenditure, not revenue or tax. Separate reviews on taxation and superannuation are coming and will be delivered before the next election. In the meantime, Hockey's "Call to arms to the nation" – and the Prime Minister's Kennedyesque entreaty that Australians ask what they can do for their budget, rather than what it can do for them – does not appear to resonating. "People are not really aware we have a big budget crisis. They haven't really laid the groundwork for a tough budget," says pollster John Scales from JWS Research, who has done focus groups on the issue. "There’s a high level of distrust at government. They would not accept a temporary tax will be just that." Coalition MPs have been aggrieved about how the matter has been handled by the Prime Minister's office this week. The media management was chaotic as the news of the tax increase leaked to the media, foiling well-laid plans to massage public opinion.

Then it was misreported by News Corp tabloids – despite an apparent deliberate leak from the government – that the debt levy would kick in at incomes of $80,000 per year with a 1 per cent impost on the marginal rate of taxation. It is more likely to come in at $100,000, rising to a 2 per cent increase on the top marginal rate of taxation that cuts in at $180,000. The current thinking remains that it will be in place for four years. Even so, the debt levy, or "deceit tax" as Labor calls it, could still end up being dropped, or further modified, by the government after a disastrous week. Its introduction at the budget would be a huge political risk but one the government feels it has no choice but to implement.

The best it can hope for is that the commission of audit's report will assist it by making the budget measures appear more moderate by comparison. Government sources also point out that the debt levy will only hit 14 per cent of taxpayers, so may not have the negative political impact some are predicting. Looking further ahead, the upcoming reviews into tax and super will give the Coalition the platform to fashion new policies to take to the election and offer tax cuts in its second term. Loading But the Coalition is expecting a hammering in the opinion polls after the budget and many backbenchers believe the broken promise on tax could be fatal.

As Abbott learnt to his advantage as opposition leader, trust is hard to earn, easy to lose – and even harder to regain.