Treasurer Peter Costello has played down hopes of tax cuts in next week's budget, saying his priorities are balancing the ledger and funding key services before cutting taxes.
"We've now got the Australian economy into a position where we can balance our budget, where our debt is low. We have big expenditures coming but if we can fund those expenditures and reduce taxes, that's our aim," he told the Ten Network today.
"This is the rule we have established over the last three years and we will continue to observe that rule."
Mr Costello has previously referred to large defence and security costs that Australia must meet.
He appeared cool on continuing calls for tax cuts for families to offset the effects of rising petrol prices and other burdens, saying the average family already pays no tax.
"With the family tax benefit, a family with two children pays no tax at about $40,000 to $45,000," he said.
"You can't cut them because they're paying none, they're not paying any income tax."
Australian Chamber of Commerce and Industry chief executive Peter Hendy today renewed his call for the government to heed the call made in a recent report he co-authored with businessman Dick Warburton for fundamental, structural tax reform in the budget.
Mr Hendy noted that the government-commissioned report found Australia clearly lagged behind the rest of the developed world on several key tax measures and was even further behind when compared to some Asian countries with which Australia increasingly competes.
"Australia's marginal tax rates across the board are above average, we have a uniquely complex system for taxing private superannuation savings, and payroll and property transaction taxes are above average," he said.
"ACCI believes that the top marginal tax rates should be cut over time to equal the company tax rate of 30 per cent, tax rates should be indexed to inflation and capital gains tax should be reduced the longer an asset is held.
"The 2006 Budget will be all about tax – either the Australian government takes the opportunity to implement significant reform, or this opportunity will have been missed."
ACTU president Sharan Burrow predicted the budget could deliver a historic surplus, as high as $52 billion, which should be returned to low and middle income earners.
"The cost pressures on families are now enormous, so any budget that doesn't actually give genuine cuts for low to middle income earners will just miss the test," she said.
"Unless it particularly deals with child care both in terms of capital costs in partnership with state and local governments, and indeed genuine entitlement to child care – we've said 20 hours a week – then it's not a budget that will be in the race."
Ms Burrow also called for the $450 a month bottom threshhold for employer superannuation contributions to be torn up.
Opposition treasury spokesman Wayne Swan said middle-income earners must be the focus of any tax reform this year.
"I don't apologise for making our first priority those middle-income earners who've been left behind by Peter Costello in the last five budgets," he said.
Brotherhood of St Laurence executive director Tony Nicholson said the budget should address welfare issues which the government had been talking about since 1996.
"The issues haven't changed and these complex problems need smart, evidence-based responses," he said.
A recent survey of banks and financial institutions found that most expect Mr Costello to announce the 2005-06 budget to be in surplus to the tune of at least $14 billion, up from the $11.5 billion forecast in the mid-year update.
Mr Costello announced a series of tax cuts in last year's budget.
From July 1 last year, the 17 per cent marginal tax rate was cut to 15 per cent, resulting in people earning up to $55,000 a year getting a $6 a week tax cut, while people on $120,000 or more saved $86.57 a week.
From July 1 this year, the thresholds for the 42 per cent tax rate will be lifted to hit between $70,000 and $125,000 a year, while the 47 per cent rate will only apply to those earning more than $125,000 a year.
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