The federal treasurer, Joe Hockey, has rebuked his Liberal predecessor, Peter Costello, for accusing the government of not doing enough to cut tax.
Costello, who served as the treasurer in the Howard government from 1996 to 2007, said the Abbott government had increased the top marginal tax rate to its highest level in 25 years and was contemplating other changes that would make Australia uncompetitive.
Costello pointed to tax proposals floated by the Coalition and other groups, suggesting they made the government’s stated aim of “lower, simpler, fairer” taxes look “like some kind of morbid joke”.
But Hockey hit back at Costello’s “free advice”, saying the criticism of a proposed bank tax was “wrong” and people should not dwell in the past.
“I really wish – I really wish – that I had the tax revenue that Peter Costello had when we were last in government, because if we had the same level of tax collections, I’d be collecting an extra $25bn today but unfortunately we do not have the revenue streams,” Hockey told Sky News on Tuesday.
“Everybody is entitled to give free advice. Frankly, that’s what it’s worth. It’s free advice. I would suggest that people stop looking back to what it was and focus on the challenges of today and the challenges of tomorrow, no matter who they are.”
Costello’s critique comes as Hockey prepares his second budget at a time of plunging tax revenues associated with the sharp decline in iron ore prices.
Hockey’s budget last year was widely criticised as unfair because of a relatively greater impact on poorer households, and key measures were blocked by the Senate.
The government is now considering changes to the eligibility of wealthier retirees to the part-pension, and adjustments to the taper rate, as an alternative to the stalled plan to reduce the size of annual increases to the pension.
In an opinion piece in News Corp’s Daily Telegraph, Costello argued against using both the tax and welfare system to redistribute income, saying it would result in “punishing rates of income withdrawal as a person’s income rises” and “a huge disincentive to work” along with “poverty traps”.
Costello said the conversation about tax had been “debased” and was “not a conversation about fairer tax – it is about more tax”. The government needed to “restart the conversation about getting taxes down, not up”.
He said the government had suggested a new bank tax and an intention to collect more tax from multinationals, while other political parties and some thinktanks had proposed measures including higher tax on superannuation and higher taxes on property investment and capital gains.
Costello said previous Labor and Coalition governments had pursued tax reform in which “fairer taxes meant lower taxes”.
“In particular it meant lowering the reach or rate of top marginal income tax rates because, yes, high taxes can be unfair taxes when they take away a person’s justly earned income and reduce the reward for effort,” Costello wrote.
“Sometimes tax reforms involved lower income earners paying more – like the introduction of the GST – but we were always clear that the welfare system could be used to compensate for that.”
Speaking on the ABC’s AM program, Hockey said Costello was wrong about the bank tax. The measure “was in fact a Labor party tax and it was proposed by the Labor party and built into the budget by the Labor party”, Hockey said.
“I’ve got to do more with less,” Hockey said of the budget situation.
The opposition leader, Bill Shorten, sought to capitalise on the dispute between Hockey and Costello, arguing the government was in disarray.
“I certainly think Peter Costello was a better treasurer than Joe Hockey,” Shorten said.
“He is right: Joe Hockey is a joke, but Australians stopped laughing a long time ago.”
But Shorten also gave a hint of the types of budget measures that Labor could support.
He said the party was “happy to have an intelligent discussion with the government” about part-pension taper rates, but there was “no way” it would support “across the board cuts” to pension indexation.
The opposition leader also called for a focus on changes to superannuation tax concessions for high income earners.
The prime minister, Tony Abbott, said Costello was “a distinguished former treasurer” who was entitled to his view “but this is a tax-cutting government as we’ve already demonstrated by abolishing the carbon tax, by abolishing the mining tax and preparing as we are for a small business tax cut in the upcoming budget”.
The former Labor treasurer Wayne Swan described Costello’s comments as “delusional”.
Swan said the Howard government had spent the vast majority of $334bn in revenue upgrades, whereas Labor had had to contend with a $160bn writedown in revenue in the five years from the beginning of the global financial crisis.
Swan said Hockey had previously denied Australia had a revenue problem.
“There’s an enormous gap in Mr Hockey’s rhetoric about his budget task. The truth is he like to portray his challenge as being a spending problem, when he’s got a significant revenue problem,” Swan said.
“He’s constantly alternating between scaremongering and sooking.”
The tension coincides with fresh conflict between the states over the distribution of GST revenue, with Hockey siding with Western Australia which argues it is unfair that its share will fall below 30% of the revenue collected in that state.
But Hockey on Tuesday also called on the WA Coalition government to undertake structural changes including privatisation of state-owned businesses and deregulation of trading hours.
“So we’ve got to unshackle our economy and Western Australia in particular needs to unshackle its own economy by getting rid of some of the old paradigms, restrictions on retail trading hours, owning poles and wires. We’ve got to keep up with the rest of the world to maintain our quality of living,” Hockey said.
Hockey was speaking from the US, where he is due to attend several economic meetings.
