Treasurer Joe Hockey's charm offensive with Senate crossbenchers in a bid to pass the budget was derailed on Wednesday after he suggested increasing fuel excise would not hit the poor because they "don't have cars or actually drive very far".
Economists, welfare groups, the federal opposition and the crossbench immediately questioned the claim, pointing out that poorer people pay a higher proportion of their incomes on petrol.
Poor people don't drive as much: Hockey
High income earners will bear the burden of increases to the fuel excise says the Treasurer.
It came as Mr Hockey threatened he may take "emergency action" and hand down a Queensland-style austerity budget if structural changes such as the $7 GP co-payment, fuel excise rise and higher education changes were not passed.
Following a budget meeting with Palmer United Party leader Clive Palmer, Mr Hockey also suggested "in net terms out of the budget, it is strongly arguable that pensioners are going to be better off" because the inflation rate is higher than average male weekly earnings. Pensions are indexed against whichever is higher of the CPI or average male earnings – and the former is higher at the moment.
Mr Hockey signalled willingness to compromise on one of the budget's most contentious measures, such as the $7 GP fee, as he argued "everyone is being slugged" in the budget.
"What we are now at is the point where we are building the structural changes in the budget such as the co-payment in Medicare, such as the higher education changes and some of the welfare changes," he said.
"Either we make the decisions now or you end up doing what [Premier] Campbell Newman and [Treasurer] Tim Nicholls have had to do in Queensland, and that is take emergency action in order to address the problem you inherit."
Labor leader Bill Shorten seized on Mr Hockey's comments as evidence he "didn't realise how rotten his budget is” and labelled him the "cigar chomping, Foghorn Leghorn of Australian politics.
"It is almost as if the Treasurer believes that poor people should be sleeping in their cars, not driving their cars," he said.
St Vincent de Paul Society chief executive John Falzon said Mr Hockey's claim was “completely fallacious”.
Grattan Institute economist John Daley said the fuel tax was regressive in so far as it hit the poor proportionally harder but that Mr Hockey was correct to argue the well-off spent more on fuel in whole dollar terms.
Late on Wednesday, Mr Hockey stood by his comments, criticised the "hysteria" they had generated and argued there was "a clear trend in Australia: the higher the household income the more fuel taxes are paid by the household".
He pointed to ABS data that showed in absolute terms, richer households spent more than poorer households and that poorer households owned fewer cars.
Fairfax Media recently revealed a Treasury analysis showed budget spending cuts would cost an average of $842 a year for lower-income households and $477 for middle-income families but a high-income family would lose just $71.
One of the most contentious elements of the Hockey budget was that the 2 per cent deficit levy on incomes over $180,000 applied for just three years whereas the proposed slowing of pension growth and cuts to family payments is permanent.
The fuel excise was due to rise on August 1 but the government does not have the numbers to pass the measure in the Senate.