Malcolm Turnbull has held up Senate intransigence over Abbott-era spending cuts to counter the Treasury chief’s warnings about the safety of Australia’s AAA credit rating, but says the government will not seek to increase overall tax as a share of GDP, which he says is “already very high”.

The prime minister would not be drawn on the timing of the government’s tax package, saying only that it would be released before an election, likely to be held between August and October, and that the Coalition was “certainly” looking at potential changes to the goods and service tax.

Citing the tight state of the budget, Turnbull said it would not be a “fistful of dollars election campaign”. He also played down the scope to increase funding for health and hospitals, saying the government would seek to find further efficiencies.

The Treasury secretary, John Fraser, raised the credit rating issue in a speech to the Sydney Institute, noting the government’s interest bill had passed $1bn a month and was projected to more than double within a decade unless action was taken to improve the budget.

Fraser said Australia was one of only 10 countries with a AAA credit rating from all three major agencies “but this rating is dependent on credible fiscal consolidation and a smooth transition to a more diverse economy” and the country “should not be complacent about this”.

In an interview with 3AW on Friday, Turnbull associated himself with about $14bn in contentious Abbott-era cuts that are stalled in the Senate but remain factored in to the budget bottom line. He said Fraser was “drawing attention to the same point that we’ve been drawing attention to, which is that our debt is too high and it’s being driven up by continued deficits”.

“What we are seeking to do is rein that back in making prudent savings right across the board and one of our challenges is that so many of them are being blocked in the Senate,” the prime minister said.

“We have many savings, cuts in spending, which are stuck in the Senate because the Labor party won’t agree to them passing.”

Turnbull said the government would continue to look for savings in all areas of the budget “in a measured way” that did not jeopardise jobs and growth.

But he indicated the government would seek to contain the overall tax take as a share of gross domestic product.

The budget update in December showed the tax take would be 22.8% this financial year, rising to 23.6% by 2018-19. Total revenue as a share of GDP would rise from 24.3% to 25.8% over the same period.

“We’re looking at how we can make the tax system more efficient, that is to say less of a brake on growth, so that the tax system will provide more incentives for work and investment, but we don’t believe that taxes as a percentage of GDP should creep up any higher because they’re already very high now,” Turnbull said.



Asked whether increasing the rate or broadening the base of the GST was a live issue, Turnbull said such changes were “certainly part of the tax debate and certainly being actively considered by the government, as it should be.”

“It is a relatively efficient tax,” he said. “A dollar that is raised by any number of taxes is still a dollar but different taxes have different impacts on the economy. What governments should seek to do is constantly and regularly review the mix of taxes to ensure they raise the money they need, but in a way that provides the least brake, the least negative impact on economic activity.”

The federal Labor leader, Bill Shorten, has been campaigning against “a 15% tax on everything” on the basis that the regressive GST would have the biggest impact on poorer households, and would hurt economic confidence.

Shorten, who has spent the past three weeks sweeping through marginal electorates, accused the prime minister of failing to show economic leadership – the very charge Turnbull levelled against Abbott in launching the Liberal leadership challenge.

“For the last four and a half months he’s said he will provide new economic leadership, yet we’ve seen senior representatives of the public service say that our AAA credit rating is under threat,” Shorten said on Friday.

“The whole case for Malcolm Turnbull replacing Tony Abbott is he would provide new economic leadership, yet the truth of the matter is things have gone from bad to worse.

“With Malcolm Turnbull I get the impression from everything – from the GST, through to marriage equality through to the republic – that this is a guy who’ll say and do anything to get into the Lodge and that’s the only thing he’s been fighting for.”

The political dispute over tax will escalate when the details of the government’s plan are finally released.

Turnbull declined to reveal whether the tax changes would be included in the forthcoming budget, saying this was “a decision yet to be taken”, but noted the government would need to give itself plenty of time to communicate the plan to the public before the election.

“There is a budget in May and there will be an election, all other things being equal, in August, September, October – in the latter part of the year,” he said. “There certainly will be a tax reform package that will be presented in the course of this year.”

Turnbull said the budget would be tight so voters should not expect “a fistful of dollars election campaign from us” and he argued there remained a high level of inefficiencies in parts of the health system.

The Australian Medical Association has warned that public hospitals face “a growing funding crisis”. State and territory governments are calling for a solution after Abbott’s first budget in 2014 foreshadowed more than $50bn of savings from cuts to long-term projected hospital spending.

The treasurer, Scott Morrison, who has argued strongly against lifting taxes to fund rising hospital costs, played down the risk to the AAA credit rating on Friday.

He said his mid-year economic and fiscal outlook “was very well received by the ratings agencies and the Treasury secretary has made some very good points about the need for us to continue to get expenditure under control”.

“Our plan is to reduce expenditure as a share of the economy from 25.9% to 25.3% [over the next four years],” Morrison said.

“The best guarantee against higher taxes is lower spending.”

Myefo revealed total deficits over the next four years would be $26bn higher than estimated at the time of the last budget. The government is not projecting a return to surplus until 2020-21.