Raised threshold: A 1 per cent debt tax will yield $700 million a year.

Raised threshold: A 1 per cent debt tax will yield $700 million a year. Photo: Michel O'Sullivan

A 1 per cent debt tax on people with taxable incomes above $150,000 would affect 7 per cent of taxpayers, or about 650,000 people, and would raise $700 million a year, researchers said.

Initial reports suggested people on incomes of $80,000 to $180,000 would pay 1 per cent extra in income tax, and those on $180,000 or more would pay 2 per cent.

It is now understood the threshold could be restricted to those on incomes above $150,000 paying an extra 1 per cent. This would ensure that the tax hits the highest earners, and spares the middle-class - who are likely to face cuts to their welfare benefits in the May 13 budget -  from being hit twice.

Economists and tax experts agree that the budget deficit needs to be fixed but have questioned the merits of a temporary deficit levy as a way to do so.

National Centre for Social and ­Economic Modelling principal research fellow Ben Phillips says assuming the tax is levied at 1 per cent for people beyond the $150,000 threshold, it would hit 650,000 people, or about 7 per cent of taxpayers.

If the threshold for the deficit levy was set at $180,000, it would affect just over 4 per cent of taxpayers.

Mr Phillips said while the Abbott government needed to introduce measures aimed at higher-income earners to avoid only low and middle-income earners being targeted, a temporary debt tax was not the solution.

“I don’t think it’s a gold standard in terms of taxation policy,” he said. “Australia needs longer-term tax reform. This is a stopgap measure.

“The measure clearly will not please the purists and, in the long term, the government can do better reform.”

But Mr Phillips dismissed comments by Liberal Brisbane MP  Teresa ­Gambaro that the tax would have a ­devastating impact on the economy and voter confidence.

Former treasurer Peter Costello has also openly criticised the debt tax. He said it would destroy Tony Abbott’s credibility with voters.

Mr Phillips said fears of a slightly higher income tax rate for very high income earners materially affecting the economy were “overblown”.

“A person on $200,000 a year will barely notice the $500-a-year impost and is hardly likely to reduce work effort, move overseas or adjust their tax arrangements on account of an impost of this size,” he said.

NATSEM estimates that significant tax cuts delivered under both Liberal and Labor governments between 2002-03 and 2012-12 have taken about $20 billion out of tax revenue even after bracket creep is accounted for.

“Over the past 10 years, high-income earners have done well out of ­reductions in personal income tax, so there’s been negative bracket creep,” Mr Phillips said. “When you don’t have rivers of gold from the mining boom, you’d expect some of that income will be taken back if we want to keep up the same level of services.”

But he said low and middle-income families would be likely to be the groups hardest hit by this budget, with talk of reductions in family payments and possibly pension payments.

A better approach to fixing the budget problem would be to look at the billions of dollars of revenue spent on tax concessions such as superannuation and fringe benefits that mainly benefit those on higher incomes, as well as increasing the base and rate of the goods and services tax (GST).

“If you raised the GST, you could compensate low-income earners, but that’s a complicated and large piece of reform,” he said.

Tax experts say if a debt tax is introduced, people will cut back spending, working hours, or engage in tax minimisation strategies such as negative gearing to avoid paying it.

William Buck tax director Greg Travers said the debt levy would have a “significant impact on the incentive for taxpayers to avoid their tax obligations”.

“High compliance costs, complexity and perceived inequity in the tax system serve to encourage higher levels of tax avoidance,” he said.

“Some of the proposed measures are a direct response to revenue pressures in the budget, but if the measures also result in greater tax avoidance, this will only add to the existing revenue pressures.”