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Former treasurer Peter Costello says 'debt tax' would have 'no economic benefit'

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PM defends debt levy

72 per cent of voters don't support the flagged debt levy a galaxy poll has found. But Tony Abbott says governments need to make 'difficult decisions'. Nine News.

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One of the most respected economic figures in the Liberal Party, former treasurer Peter Costello, has hit out against the prospect of a deficit levy, describing it as a political idea that will have no economic benefit.

This comes as Commission of Audit chief Tony Shepherd warned that if the government brings in a deficit levy, it will have to be careful about implementing the commission's report, or risk "shocking the system", and as a new poll shows support for the Coalition has dropped to its lowest level since December 2009.

Former Liberal treasurer Peter Costello has joined a chorus of conservative figures questioning a proposal for a 'deficit levy'.

Former Liberal treasurer Peter Costello has joined a chorus of conservative figures questioning a proposal for a 'deficit levy'. Photo: Josh Robenstone

As the government prepares for its final meetings on the federal budget, which will be handed down next Tuesday, the Coalition continues to face a storm of voter anger, with three polls in the past three days putting Labor clearly in front of the government.

Mr Costello's voice has now been added to the mix of criticism over the prospect of a levy - which has not been confirmed or denied by the Coalition - in an opinion piece for the News Corp papers, arguing that the proposed levy would "detract from growth by reducing consumption".

"It will produce no interest rate reducation," he said, adding that it would not save enough money. 

"The argument for increasing income taxes through some kind of levy is all about politics. That's why it was floated - to gauge reaction."

Mr Costello is not the only former Howard minister who has spoken against the tax. On Sunday, Peter Reith said that he did not like the tax "at all" and he had been been receiving angry phone calls from Liberal supporters.

"People were not happy," he told Sky News.

Former Liberal leader John Hewson said that he had a similar view to Mr Costello's, telling ABC TV that "there are better ways to do it".

"You have got tax concessions in superannuation from which you can raise a substantial amount of money. They are heavily biased in favour of the wealthy," he said, noting that the audit commission had ignored them.

"That is a pity."

On Tuesday, the Australian Financial Review reported that the income threshold for the debt tax would be between $150,000 and $180,000. Earlier reports had the levy kicking in at $80,000 and $100,00, but there has been concern about avoiding hitting families on lower incomes twice - who already stand to lose from a tightening up of family benefits.

This comes as Mr Shepherd noted in an interview with the ABC's Lateline program on Monday night that while a deficit levy was an "issue for the government to decide", it should be wary about taking too harsh an approach on May 13.

"I'd say that if they were to bring in something like that, they'd need to be very careful about implementing any of our recommendations, which have an immediate impact on the individual. So, things like Family Tax Benefit B [which the Commission said should be abolished] and that sort of thing, I think you wouldn't want to run that in parallel with a debt tax or levy or whatever you want to call it," he said.

"That might just be too much of a shock for the system."

On Tuesday, the latest Newspoll has the Coalition's primary vote on 38 per cent - the equal lowest vote since Mr Abbott took over from Malcolm Turnbull as Liberal leader in December 2009.

Labor's vote has stayed on 34 per cent, with voters moving to the Greens and minor parties, leading to a two-party-preferred result of 53 per cent to Labor and 47 per cent to the Coalition. 

This result follows a Galaxy Poll on Sunday that also had Labor ahead, 52 per cent to 48 per cent, and a ReachTEL poll that had Labor streaking ahead, 54 per cent to 46 per cent.

These results also follow strong speculation that the government is preparing to introduce a GP co-payment in next week's budget and Audit Commission recommendations that eligibility around the age pension be tightened up.

Last week, Treasurer Joe Hockey confirmed that the government would legislate to increase the pension age to 70 by 2035.

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