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Cash flows as mining tax wedges Libs

THE first payments from the Gillard government's cash splash budget will be handed to families with schoolchildren next month after the opposition failed to block the legislation in the lower house last night.

It came after Wayne Swan effectively enshrined the forecast $1.5 billion surplus for next financial year as an election promise by vowing to cut spending further if changed economic circumstances threatened to keep the budget in deficit.

The Treasurer rejected suggestions the budget, with its extra $5 billion in handouts to help low- and middle-income earners with the cost of living, was motivated by trying to assuage anger over the impending carbon tax. But he acknowledged the government had paid ''a pretty high political price'' for the policy.

The budget was delivered with government polling poorly, battling the Craig Thomson and Peter Slipper scandals, and renewed unrest over Julia Gillard's leadership.

It contained three new cost-of-living payments that will be paid on top of the $15 billion in tax cuts and benefit increases already set aside as carbon price compensation over the next four years.

The $2.1 billion ''schoolkids bonus'' will pay families each year $410 for each child at primary school and $820 for each child at high school.

Tony Abbott opposed the measure because the money does not have to be spent on school costs and could be squandered.

Ms Gillard argued the untied payments were no different to the Howard government's baby bonus and she accused Mr Abbott of being arrogant, out of touch with families, and of the view ''Australian families don't care about their kids''. She said: ''Mr Abbott's got to get off Sydney's north shore and go and talk to some real families and get himself in the real world.''

Paul Fletcher, the Liberal member for the north shore seat of Bradfield, demanded Ms Gillard apologise.

The other two new measures were the $1.1 billion supplementary allowance, which will provide cash payments to welfare recipients, and a $1.8 billion boost to Family Tax Benefit A, which is paid to low and middle-income earners.

These will be funded from proceeds of the mining tax after the government axed plans to fund a 1 percentage point cut to company tax.

The opposition opposed the company tax cut because it was funded by the mining tax. But yesterday it abandoned its principle of opposing policies funded by the mining tax and said it would support these two welfare measures.

Mr Abbott said the measures were not linked to the mining tax but the budget paper links them explicitly.

Supporting these increases while still vowing to abolish the mining tax if elected will blow a $2.9 billion hole in the Coalition's election costings.

The business community remained angry at losing the promised tax cut. The government scrapped it because the Greens and Coalition would not let it through the Parliament. Ms Gillard and Mr Swan said they remained keen to cut company tax but did not say when or how.

''This needs to be a priority issue for government and opposition and indeed all parties in the months ahead,'' said the chief executive of the Australian Industry Group, Innes Willox.

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