15/02/2017 10:01 AM AEDT | Updated 15/02/2017 1:19 PM AEDT

Government Threatens Tax Hikes Unless Welfare Cuts Pass

The latest bargaining chip in crackdown on youth welfare.

Fairfax Media
Treasurer Scott Morrison says tax hikes may be on the way.

CANBERRA -- The Government has flagged tax increases as a way to pay for its childcare measures, after a plan to cut welfare spending to pay for the plan failed to get crossbench support.

The Government's childcare bill, announced just a week ago, has struggled to gain support because of welfare cuts included alongside cheaper childcare and an extension to government-provided paid parental leave.

As revealed last week, the bill would have forced young people to wait four weeks before being able to access Centrelink payments, as well as moving 22-24 year olds from the Newstart payment to the Youth Allowance, which pays $45 less per week.

On Monday, Treasurer Scott Morrison said the savings made by clamping down on welfare would be directed to the National Disability Insurance Scheme. That, too, didn't fly with the Senate crossbench, with Nick Xenophon and his two senators announcing they would vote against the bill, saying "pitting battling Australians against Australians needing disability support services is dumb policy and even dumber politics".

Now, Morrison and finance minister Mathias Cormann are threatening tax hikes would be handed down in the federal budget unless cuts to welfare were passed.

"There are only really two options... You make savings which is our first preference to deal with the country's expenditure problem. But if you don't do that, you either have got to have higher debt which is a tax on your children, or you have to deal with it with other revenue measures," Morrison said on Sky News on Tuesday night.

Cormann said "if the Parliament were not to pass spending reductions... tax increases become the only option". On Wednesday, Prime Minister Malcolm Turnbull said it was a "solemn obligation" to make savings.

"The point that the Treasurer is making... is that those who oppose savings measures by definition are supporting tax increases," Turnbull said.

However, Labor leader Bill Shorten had some advice for Morrison, attacking the government's controversial $50 billion company tax cuts announced in last year's budget.

"Actually, there is a third choice. Don't give $50 billion away to Corporate Australia. This government says there are only two choices: Go after the pensioners and family payments or just increase taxes for ordinary Australians," he said.

"There is a third way. No $50 billion corporate tax cut and clean up the tax concessions which are stopping first home buyers in the market and which are unsustainable to the bottom line of the Budget. The choice here is actually do you look after working and middle-class Australians or do you look after the top end of town?"

Shadow Treasurer Chris Bowen also went on the attack on Wednesday.

"The pathetic irony of the Government promising tax rises when they are threatening a big tax cut to big business seems to escape this Government," he said.

"On the one hand they argue that we can afford as a nation a $50 billion tax cut over the next 10 years for Australia's big businesses. On the other hand, they argue that because they can't get their unfair and harsh cuts through the Senate, they need to increase taxes on ordinary Australians."