Federal Politics

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Bigger fish to fry: Labor plans to pass levy

Labor will wave through Tony Abbott's controversial deficit levy on high income earners as shadow ministers argue they must pick their fights and make the government ''carry the can for breaking election promises''.

The opposition leadership has decided the deficit levy, a 2 per cent loading on the top tax bracket - over $180,000 per year - should be allowed to pass the Senate.

Other parts of Tuesday's budget face defeat in the Senate at the hands of the Labor-Greens majority before July. The picture becomes less certain after July 1 when new senators take office.

The levy will net a modest $3.1 billion over the four years against a claimed ''budget emergency'' and a combined federal debt climbing to $667 billion over 10 years if left unaddressed.

The opposition's decision reflects what one called ''a happy coincidence'' of left-aligned MPs keen to ensure high earners are not the only ones exempted from paying more out of the budget, and hard heads on the party's Right, who argued that it should be Mr Abbott's problem to explain why he was breaking a solemn pledge not to increase taxes. ''Part of the task in opposition is learning that you can bag the shit out of something and still wave it through,'' said one senior Labor Party figure.

Another confirmed the levy would be approved because it was ''the least offensive'' measure in the budget and was targeted exclusively at the wealthy.


But the future of other changes looks less assured. The $7 GP ''co-payment'' is certain to be blocked in both the current Senate and probably the new one to take up from July 1.

Also set to be blocked are the punitive changes to Newstart designed to cut some young jobless off any benefit at all for up to six months at a time, the staged delaying of the pension age to 70 along with lower indexation, and reduced support for university students.

In a rousing budget-in-reply speech by Opposition Leader Bill Shorten on Thursday, he taunted the government to call an early election if it thought it was on such solid ground.

''[The deficit levy] was a lie before the election and now the lie has been proven. But in terms of where Labor fights, our priority is to stand up for the pensioners, for the people who will get hit by the new GP tax going to the doctor, for the working-class kids, for the country kids, for the children from modest means and who want to go to university,'' he said.

A caucus source confirmed the levy was viewed as a ''Mickey Mouse measure'', and most high earners would avoid it through creative accounting.

Financial experts have said the wealthy will use the time before they hit the 2 per cent levy threshold to bring their taxable income below $180,000 by increasing the non-cash benefits component of salary packages.

Labor MPs reported widespread opposition to the budget, particularly among pensioners. A NSW Liberal MP said it would take more time to gauge the public response but conceded that before Tuesday the government could have presented the case for a tough budget better.

''Perhaps people still don't realise there is a debt and deficit emergency because that is exactly what we have got,'' the MP said.

But another Liberal said ''budget stunts and cheap political devices'' were still preferred over hard economic reforms''.