Deficit levy on the cards

Prime Minister Tony Abbott. Photo: Alex Ellinghausen

Prime Minister Tony Abbott. Photo: Alex Ellinghausen

The federal government appears poised to push ahead with a new tax on high earners, despite a backlash from Coalition backbenchers and senior Liberal figures.

Prime Minister Tony Abbott and Finance Minister Mathias Cormann emerged from the last full cabinet meeting before the budget talking of the need for "an immediate special effort" and for all Australians to "chip in" to address Australia's debt levels.

On Wednesday afternoon, when asked if a decision had been made on a deficit levy, Mr Abbott responded by saying that "no one ever said it was going to be easy to tackle Labor's debt and deficit disaster".

He told reporters in Canberra that the Coalition was elected to "get the budget under control".

"It is important that we are all in this together because ... if we're all chipping in something, we can chip away at the disastrous inheritance that the former government left our country."

Mr Abbott added that next Tuesday evening when the budget is handed down, "I'm going to be able to look people in the eye ... and say we are all in this together."

While the Prime Minister addressed reporters in the committee area of Parliament House, Senator Cormann also held a press conference.

In a clear indication that a debt tax will be imposed on high earners, the Finance Minster said there was a "need for an immediate special effort in order to put ourselves into a stronger starting position as we repair the budget".

“That special effort needs to be spread fairly and equitably,” Senator Cormann said.

“The only way you can ensure you do that is by also considering appropriately targeted measures through the tax system so that higher income earners participate in the additional effort.”

There has been a range of speculation about the cut-in point for any deficit tax, however, while it was initially suggested that Australians earning more than $80,000 a year would face a 1% levy, it is now expected to be imposed on incomes above $140,000.

Cabinet met on Wednesday morning in Canberra to discuss the budget, which Treasurer Joe Hockey will release next Tuesday. Cabinet has reported to have been split on the issue of introducing the tax.

Mr Abbott and Senator Cormann's comments come after another Coalition MP spoke out against the possible tax, with Teresa Gambaro describing the proposed tax as a "breach of promise".

In the lead up to the 2013 federal election, Mr Abbott pledged there would be no new taxes under his government.

On Wednesday, Ms Gambaro argued a debt levy would hurt the economy and public trust in the government.

"We went to the Australian people with a promise of being a government of no surprises," the member for Brisbane told Fairfax Media.

"We didn't go to the Australian people with a deficit levy."

Ms Gambaro, who has an economics and business background, said she did not think a deficit levy would deliver any economic benefits.

"I think what it will do is reduce business confidence," she said. "This isn't the way to go."

Ms Gambaro joins a group of Coalition MPs who have already publicly criticised or questioned the idea of a deficit levy.

These include Warren Entsch, Andrew Broad, Ian Macdonald, Zed Seselja, Cory Bernardi and John Cobb.

Liberal senator Cory Bernardi has also emailed supporters saying he hoped the tax would "disappear".

Assistant Minister for Infrastructure Jamie Briggs described Ms Gambaro's comments as "pre-emptive", and said the Queensland MP did not know the detail of the budget.

"I think it would be wise for Teresa to wait until next Tuesday to start expressing views," he told Sky News.

When asked about Ms Gambaro's remarks, Foreign Affairs Minister Julie Bishop said she would not make "any comments about current commentary".

Ms Bishop said there were no "easy choices" when it came to addressing the country's debt levels.

"Whatever we choose to do will be right for the country and it will be fair to everyone."

Other senior Liberal figures to have spoken out against the proposed tax include former treasurer Peter Costello, and Howard era ministers Peter Reith and Amanda Vanstone.

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