Queensland Premier Campbell Newman called for states and territories to unite against federal budget cuts, as his New South Wales counterpart Mike Baird struck a more conciliatory tone following a meeting with Prime Minister Tony Abbott.
Mr Newman is calling for radical changes to the income tax system to compensate for hefty funding cuts to health and schools for the states, totalling $80 billion over 10 years, announced in the federal budget.
He told Fairfax Radio he wanted the Commonwealth to hand over some income tax to provide states with funding certainty.
He said he would raise the idea at a meeting with other states leaders in Sydney on Sunday.
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"A fair, reasonable and sensible way to go, if states are going to be allowed to be running these things and taking full responsibility is that, you know, 10 cents, 15 cents whatever it needs to be of the taxes that people are paying today, should automatically go to Queensland, New South Wales etc," he said.
"Then we can stand on our own two feet and we can sink or swim in terms of our performance."
The Queensland Premier said he would not push for a higher GST, saying he did not support raising taxes.
"We don't support the GST going up. It's as simple as that. And neither do the other states," Mr Newman said.
"Enough pressure is being put on families and individuals by the moves in this Federal Government budget without contemplating more tax increases.
"There's enough pressure on people's cost of living. That's why I'm not going to play this game - and it's a very cynical game that's being played. I'm not playing it and most first ministers that I've spoken to are not prepared to play that game."
Mr Abbott was non-committal when asked about Mr Newman's call for the states to get income tax revenue.
"I'm very happy for Campbell to be thinking of various proposals which Queensland may well bring to the Federation White Paper process," Mr Abbott said this morning.
We must move now to shape our destiny, says Hockey 6:59
"But what I'm on about is lower, simpler, fairer taxes - that's what I'm on about, and I'm on about a federation that works better."
New South Wales Premier Mr Baird yesterday described the federal cuts as a "kick in the guts", but was more measured when he met with Mr Abbot this morning.
"The long-term position in relation to the finances, particularly in relation to health, is a long-term challenge, but what I have said today is that I'm absolutely heartened by the Prime Minister, who is willing to respond and engage in a constructive discussion on how we fix it," Mr Baird said.
"You can achieve much more coming together and I'm very confident that's what will happen."
Abbott backs away from double dissolution talk
Mr Abbott's negotiations with angry premiers and chief ministers will drag on as he tries to steer the budget measures through the Senate.
Opposition Leader Bill Shorten has confirmed Labor will try to block changes to the pension and the proposed $7 Medicare co-payments.
"If Tony Abbott wants to attack universal Medicare for all with a new GP tax, he will have to come through me and the Labor Party," he said.
"We are determined that Tony Abbott's bleak vision, built upon broken promises and lies before the election, will not create a permanent underclass in this country."
However, the Prime Minister is trying to tone down talk of a double dissolution election.
"Look we're going to get on with governing," he said.
"We are going to get on with governing and we are confident that, one way or another, we will be able to negotiate the various budget measures through the Senate and into practice. That's what good governments do."
2014 Budget winners and losers
Don't know your structural deficits from your bracket creeps? Ahead of the Federal budget ABC News has decoded all the economic jargon to help you understand what is in store this year.
Term Definition Deficit/Debt The deficit is just the amount of money that the government spends beyond what it receives in a financial year. Just because you return the budget to surplus doesn't mean that the debt incurred by the previous deficits disappears. Any deficits, or shortfalls, instead are added to existing government debt, which currently sits at $319 billion. While $319 billion sounds like (and is) a lot of money, by international standards Australia's public debt is quite low, sitting at 21 per cent of GDP, the second lowest of the advanced economies - and that's just gross debt, which doesn't include the value of Australia's financial assets, such as the Future Fund. However while government debt can pose problems, it isn't quite the same as personal debt and can often serve a purpose. Governments take on debt by issuing bonds to investors that are paid a return, with ratings agencies allotting a credit rating to government debt. A high credit rating, such as the one Australia has, allows governments to borrow at a very low rates, with investors trading profit for security. Some economists argue this ability to borrow at a lower rate than the market should be use to fund infrastructure projects that are likely to make a profit, as well as boosting productivity. Forward estimates The forward estimates are a series of projections released alongside the budget predicting revenue and expenses for the next four financial years. As they rely on assumptions about revenue and indicators, they are often subject to change - as the mining boom unfolded the estimates often undervalued the amount of revenue, and after commodity prices peaked they have had to be revised downwards. But the estimates are seen as a useful way of showing the government's longer-term plans for spending. Revenue collapse Over the past few years there has been a significant drop in the amount of tax revenue coming into the government. There is some contention over the reasons behind the drop, but economists are united in saying that at least part of the problem facing the government in its quest to return to a surplus stems from a lack of revenue, rather than too much government spending. GDP The annual value of goods and services produced by a country. GDP is generally recognised as one of the key indicators of the state of a country's finances. Nominal GDP A version of the gross domestic product that has not been adjusted for inflation. This means the GDP will appear higher than it actually is, as it fails to take into account the devaluing effect of inflation. However it is also the measure of GDP that is closest related to government revenue and spending, as both are affected by inflation. Terms of trade Terms of trade measures the relationship between the prices a country receives for its exports and the prices it pays for its imports. A rising terms of trade means the nation is getting better prices for its exports relative to what it pays for imports, and vice-versa. Australia benefitted from rising terms of trade during the mining boom as the prices of iron ore, coal and other commodities surged, while the price of many imports such as electronics and clothes stayed steady or fell. Economists are cautious about drawing too many conclusions from high or low terms of trade figures, but trends in the movement of the terms of trade are useful for predicting changes in the standard of living. Tax expenditures Tax expenditures are sources of revenue the government goes without due to tax concessions. While they are not government spending, they represent significant losses of potential revenue for the government. In 2013-14 expenditures hit the budget bottom line to the tune of $115 billion, and while some of this is offset by increases in productivity and increased spending, it remains a significant source of potential revenue the government is missing out on. Among the most well-known examples of tax expenditures are superannuation concessions and the capital gains tax exemption on the family home. Negative gearing Negative gearing allows property investors to write the interest costs of their mortgages off as an income tax deduction against other sources of income, and has been blamed for soaring property prices as it subsidises loss-making real estate investments. Superannuation concessions Super concessions are tax breaks designed to encourage people to put more money into superannuation, in theory saving the government money down the track by reducing the burden these people will have on the public purse when they retire. Currently superannuation is taxed at 15 per cent, with super earnings not taxed at all once you hit 60 years of age. Employers are required to put aside 9 per cent of an employee’s income into a super fund. The superannuation concession allows people to voluntarily contribute more to their superannuation and still be taxed at the rate of 15 per cent, well below the majority of tax rates. The concessions have been criticised for disproportionately benefiting the wealthy, who get a much bigger discount on their normal income tax rates than those in lower tax brackets. With many wealthy people likely to be ineligible for the pension on reaching retirement anyway, critics argue that the concessions cost the government far more in lost revenue than it would cost to support wealthy individuals with the aged pension. According to the Australia Institute, superannuation concessions cost the Federal budget $35 billion in 2013-14 (with that number expected to rise to $50.7 billion by 2016-17), of which 30 per cent ($10.5 billion) goes to the top 5 per cent of income earners. Debt Levy The debt levy has been proposed as a possible means for the government to pay back the budget surplus, and is expected to hit people earning more than $80,000 or $180,000 a year, taking an extra 1 per cent of their annual income. The Government, including Prime Minister Tony Abbott, is claiming it does not constitute a broken promise, as the levy will not be permanent (and so is different from a tax), but widespread polling indicates this won't wash with the public. Middle class welfare Middle-class welfare is a term used by economists and commentators to refer to the increase in tax breaks and welfare payments for those on higher incomes that came in under the Howard Government. The private health insurance rebate for higher income earners has been singled out as an example of this. The majority of the policies labelled 'middle-class welfare' were maintained by the Rudd and Gillard governments, with any attempts to wind them back labelled "class warfare". But some economists have argued this has significantly contributed to the collapse in tax revenue. Parameter variations Parameter variations refer to the budget’s assumptions about the economy (such as growth, inflation and unemployment) and how these will affect revenue and costs. The parameter variations in the MYEFO were vastly different to those set out in the PEFO, leading commentators to question whether they were massaged to provide a worst-case scenario, giving the Government more freedom to implement unpopular cuts and space for a miraculous recovery in the upcoming budget. The age of entitlement is over A term first mentioned by Treasurer Joe Hockey in a speech to British Conservatives in early 2012 that has become the informal motto of his time as Treasurer. Despite following up his debut of the term with an attack on Labor’s attempt to wind back the health insurance rebate, Mr Hockey has signalled that in order to get the budget back to surplus, sacrifices must be made by all, from businesses to the man or woman on the street. Whether this commitment goes beyond political rhetoric to actual structural reform is a question many expect to be answered in Tuesday's budget. So far the government's unwillingness to bail out the car industry, and public speculation about a debt levy on high income earners, indicate this may be the case. Efficiency dividend A reduction in funding for Commonwealth government portfolios designed to drive efforts to increase efficiency. First put in place by the Hawke government, the dividend is based on the rationale that without market demands there is no pressure for government departments to find ways to save money through efficiency, and was originally labelled a dividend as it aimed to return revenue to the taxpayer. The dividend only aims to reduce expenses around the operation of a department, not the overall funding, and so is applied before budgets are indexed to account for increases in wages. There has been speculation an efficiency dividend will be applied to the ABC and SBS (which have previously been exempt) as a way of reducing funding to the broadcasters without breaking an election promise made by Tony Abbott that there would be no cuts to either organisation. Structural deficit A structural deficit refers to a situation where the current tax structures of a country will fail to cover the expenses, even when an economy is performing at its peak. Governments commonly run deficits in times of economic downturn as a means of insulating the economy and ensure services are not impacted, with the understanding that surpluses during peak times will help pay down the debt incurred by going into deficit. Working out whether a government has a structural deficit is complicated by the changing nature of sources of revenue and costs for governments, but governments and economic organisations try to remove the influence of temporary impacts on the budget bottom line to assess the long-term prospects for the economy. In the MYEFO the structural deficit was estimated at 2-3 per cent of GDP. Fiscal drag Fiscal drag refers to when excessive taxation or a lack of spending by the government puts a dampener on the economy. Bracket creep is a form of fiscal drag that occurs when tax rates do not keep up with wage increases in the economy, pushing wages up to a higher bracket, and resulting in the government taking more tax revenue. Tax brackets are designed to be indexed to account for increases in inflation, however the indexes are usually set manually, and leaving them stationary while wages grow allows the government to increase the amount of revenue it takes from taxpayers without raising taxes. Warnings from accounting firms KPMG and PwC have fuelled speculation that the government is planning on letting bracket creep do some of the heavy lifting when it comes to recovering revenue. Bracket creep Fiscal drag refers to when excessive taxation or a lack of spending by the government puts a dampener on the economy. Bracket creep is a form of fiscal drag that occurs when tax rates do not keep up with wage increases in the economy, pushing wages up to a higher bracket, and resulting in the government taking more tax revenue. Tax brackets are designed to be indexed to account for increases in inflation, however the indexes are usually set manually, and leaving them stationary while wages grow allows the government to increase the amount of revenue it takes from taxpayers without raising taxes. Warnings from accounting firms KPMG and PwC have fuelled speculation that the government is planning on letting bracket creep do some of the heavy lifting when it comes to recovering revenue. PEFO The Pre-Election Economic and Fiscal Outlook was released by the Federal Treasury shortly before the last election, and represents Treasury's and Finance's predictions on the current and future state of the economy. While budget bottom lines are often open to manipulation by governments, the PEFO is put together independently and the only outlook signed off by the heads of Treasury and Finance. MYEFO The Mid-Year Economic and Fiscal Outlook is an update to the budget that the government releases halfway through the financial year. The most recent MYEFO showed a major increase in the budget deficit from the PEFO, prompting speculation over whether the government was using a worst case scenario to strengthen the case for unpopular cuts and pave the way to a budget recovery. Vertical fiscal imbalance This refers to the fact that the Commonwealth raises the vast bulk of tax revenue, but the states have a large part of the spending responsibility. There is currently a large shortfall in the amount of tax the states receive compared to the cost of providing the services required of them, such as healthcare and education. This current imbalance is overcome by the Federal Government distributing money raised by the GST to the states, but this makes the states reliant on federal grants and subject to greater federal control. Underlying cash balance The benchmark measure of the government’s budget position: deficit equals less revenue than spending; surplus equals more revenue than spending; balance equals revenue matches spending. Unemployment rate Critical to the budget on both the revenue and spending fronts because a higher unemployment rate means less income tax revenue (and potentially less GST from consumption), while also meaning more money going out in unemployment benefits. Consumer price index Measures the inflation in the price of goods and services. Important to the budget because higher prices mean more GST revenue, although they also mean higher increases in government payments indexed to CPI and higher costs for government purchases. CPI Measures the inflation in the price of goods and services. Important to the budget because higher prices mean more GST revenue, although they also mean higher increases in government payments indexed to CPI and higher costs for government purchases. Wage price index Measures the change in wage levels paid to employees. Important to the budget because higher wage growth across the economy means faster growth in income tax revenue, which can be magnified by bracket creep – individual income taxes (which includes non-wage related capital gains tax) make up around 46 per cent of federal government revenue. Higher economy-wide wage growth may also mean larger rises in public service pay, but the income tax boost to the Government far outweighs this cost. Corporate profits Important to the budget because company tax makes up more than 18 per cent of federal government revenue. The faster corporate profit growth, the healthier are government revenues. A fall in company tax revenue, due to slower than expected profit growth and higher than expected deductions, accounted for a large proportion of the previous government’s revenue write-downs. Consumption subject to GST GST accounts for around 14 per cent of the Federal Government's revenue, although it is ultimately distributed to the States in grants. Not all goods are subject to GST, and the growth in consumption of exempt goods (such as fresh food, education and healthcare) has recently been much faster than the increase in purchases of goods subject to GST. Obviously, faster growth in the consumption of GST-levied goods means a greater increase in GST revenue for the government. GP co-payment The Government has introduced an upfront $7 co-payment for bulk-billed visits to the GP. After 10 visits, patients with concession cards and children under 16 will be exempt from the fee. Fuel excise This is a tax on petrol that currently sits at 39 cents per litre. The Government in the budget announced it would index the fuel excise twice a year to raise it in line with inflation, resulting in higher fuel prices.