Budget hole opens up

Plenty to think about: Prime Minister Tony Abbott and Treasurer Joe Hockey. Photo: Alex Ellinghausen
Plenty to think about: Prime Minister Tony Abbott and Treasurer Joe Hockey. Photo: Alex Ellinghausen

The Abbott government is facing an early budget shortfall because it has no hope of passing many of its key measures through the existing Senate and members of the new Senate, starting on July 1, have said they will not support retrospective or backdated legislation.

As expected, on Sunday Labor finance spokeswoman Penny Wong confirmed Labor will wave through the Senate one of the most contentious "broken promises" of the budget, the 2 per cent temporary deficit levy on high income earners, which will rake in $600 million in 2014-15.

But other measures, many of them due to take effect on July 1, could be held up. This means savings will be lower than stated or changes will have to be legislated retrospectively to claw money back.

The emergence of a budget hole comes as private ALP-commissioned polling on specific measures, obtained by Fairfax Media, confirmed voters are overwhelmingly offside after what they see as an unfair economic formula based on broken promises.

The polling by the market research company UMR of 1000 voters shows three quarters of respondents (76 per cent) disapprove of federal cuts to public hospitals and six in 10 voters disapprove or strongly disapprove of four other contentious areas: higher costs for prescriptions (62 per cent), petrol excise indexation (61 per cent) and a delayed pension age to 70 (60 per cent).

Even the government's proposed paid parental leave scheme, which pays up to $50,000 over six months, recorded disapproval of 58 per cent.

If the government attempts to legislate retrospectively it is likely to create a fight with the Palmer United Party, whose leader Clive Palmer slammed that method for increasing taxes and charges and promised to block such measures in the new Senate.

Mr Palmer said the scale of broken promises was worse than Julia Gillard's backflip on the carbon price. "I guess what's astounding is that there is a whole raft of things which are repugnant to the Australian people," he said. "The magnitude is wholly different … we're not passing any of them."

Items such as the two-year freeze on indexation of family payments and lower indexation of some pensions have already been booked as delivering savings of $400 million in 2014-15 but appear to have no chance of passing the Senate before July due to stiff opposition from Labor and the Greens.

The problem means some government payment increases that would normally occur will either be withheld pending parliamentary authority for the freeze, or paid out and then reclaimed by Canberra.

A spokesman for government leader in the Senate Eric Abetz said: ''One would have to expect that negotiations with the new Senate would be a lot more sensible than with the current Senate. The Greens and Labor have blocked everything.''

But the spokesman admitted ''it will not be an easy road at all''. The Coalition will need four of the eight crossbenchers to vote with it, assuming Labor and the Greens oppose a specific measure.

While some aspects of the budget do not start until the next Parliament, such as the rise in the pension age, several measures are listed in the budget as savings in the coming year despite their uncertain future. An analysis by think tank the Australia Institute said these include a three-year freeze on private income thresholds affecting Parenting Payment Single, Youth Allowance (student), Austudy, ABSTUDY, Newstart Allowance, Widow Allowance and Child Care Benefit.

Also likely to be frustrated or delayed are the pausing of indexation of some Medicare Benefits Schedule fees, the Medicare Levy Surcharge, and Private Health Insurance Rebate thresholds, all of which the institute says amount to increasing out-of-pocket expenses for patients.

Institute executive director Richard Denniss said the Senate is expected to try to make the budget less harsh on the lower end of the income scale. "While the higher income tax levy is fair, freezing indexation for family tax benefits will hurt some of those that can least afford it," he said.

"If these measures are not passed by the Parliament before July 1 they shouldn't start. Retrospectively trying to legislate them with the new Senate is fraught with danger [and] it's economically and legally irresponsible to withhold money that may well need to be paid out later."

The main Appropriation Bills will be debated in the House of Representatives this week, and leader of government business Christopher Pyne signalled the government would use the debate ''to range widely over the financial challenges left to this government by the Labor Party''.

A vote is expected in the sitting week beginning June 16.