Australia’s federal government is planning a temporary new income tax on workers, targeted largely at higher-income earners, to help redress the budget deficit.
According to a News Corp Australia report, the measure will be discussed by federal Cabinet tomorrow, with ministers set to decide on the threshold for the tax’s application.
Prime Minister Tony Abbott didn’t rule the option out when speaking to reporters today, saying it was important that the “mess be tackled”.
“Now we are going to do it in ways which are faithful to the commitments that we made to the Australian people,” he said. “We will do it in ways which are fair, which are equitable, and which I believe will be seen to be fair by the Australian people.”
The government has been steeling the country for months for the depth of saving measures required to reduce the budget deficit, expected to be $47 billion this year. There has been talk of lifting the retirement age and changes to welfare entitlements, but a new income tax would be a dramatic – and potentially politically explosive – new impost on voters in the federal Budget, which will be delivered on May 13th.
The opposition will seize on the measure as undermining Tony Abbott’s Coalition’s promises to be an administration of lower taxes. Equally, the government will seek to pin the necessity of the tax onto Labor cost overruns, and failure to address budget structural problems, during its six years in power.
Treasurer Joe Hockey is aiming to return the budget to a surplus of 1% of GDP by 2024, after a budget update in December forecast $100 billion in deficits over the next four years.
Hockey said in a speech last week: “Every sector of the community — households, corporates and the public sector alike — will be expected to contribute.”
Temporary federal levies are not without precedent. The Labor government imposed a 1% income levy on high-income earners to help pay for infrastructure reconstruction required after the devastating Queensland floods in 2011.
That measure primarily targeted higher-income earners. People earning over $200,000 a year paid for more than half of the $1.8 billion raised by the tax, which charged 1c on every dollar earned above $100,000.
The cabinet meeting tomorrow comes ahead of Thursday’s release of the report from the Commission of Audit, a razor gang which worked over the summer to identify savings in government spending.
One of its proposed options, according to News Corp, is to change the structure of a key family payment, Family Tax Benefit Part B, which is typically paid to a family where there’s one breadwinner.
News Corp reports the income levy would likely be removed before the next federal election, likely to be held towards the end of 2016.