Budget 2016: $20 billion shortfall in smoking tax revealed

A budget document obtained by the Nine Network shows the government's planned tobacco tax will raise $28.2 billion over the decade, less than Labor expected.

Cigarettes could rise to $40 a packet under a proposal the federal government is considering. (AAP) Source: AAP

Labor will have to find an extra $20 billion in funding after a leaked federal budget document showed a shortfall in the opposition's expected revenue from taxing smokers.

In a document obtained by the Nine Network, Treasury forecasts the tobacco excise will raise $28.2 billion over 10 years.

That's $19.8 billion less than Labor had predicted over the decade, leaving it short on funding for its spending promises - including fully funding the Gonski school model.

Labor frontbencher Anthony Albanese dismissed the leak, saying it didn't show what the government's policy on the tobacco tax actually was.

Often what the government spins was different to reality, he said, and Labor would wait to see the detail.

"I've learnt not to trust government spin, let alone a drop," he told Sky News.

Treasurer Scott Morrison (L) and Prime Minister Malcolm Turnbull Source: AAP

Morrison set to announce company tax cut in budget

The federal government will fund company tax cuts through a crackdown on multinational tax dodging.

Treasurer Scott Morrison has told The Australian his "enterprise tax plan" will channel increased revenue into tax relief aimed at supporting the non-resources sector.

He says the tax office now has enough information about the structures of major multinational companies to estimate the additional tax revenue.

Mr Morrison has also flagged modest tax relief for people earning more than $80,000.

But it's unlikely there will be tax cuts for those on lower income brackets.

"People shouldn't expect measures to produce a next day better off/worse off comparison," he told Fairfax Media.

Cabinet minister Simon Birmingham says the government wants to help middle Australians who want to earn a few extra dollars but are facing disincentives because of tax brackets.

Lower income families already have a high tax-free threshold when family tax benefits and other measures are taken into account, and welfare payments are indexed, he told Sky News.

How the federal budget's shaping up

There is much speculation about what will, and won't be included in this year's federal budget.

Below is an explainer of how the May 3 federal budget is shaping up.

What we know

• There won't be a fistful of dollars as the government lives up to its promise of living within its means.
• Prudence, fairness and responsibility will be the catchwords.
• Measures will be included to boost jobs and growth as the economy transitions from the mining investment boom.
• The much-touted tax reform package will be included.

What won't be there

• Changes to tax breaks for property investors, aka negative gearing.
• Changes to the capital gains tax discount.
• A rise in the rate of GST, or broadening its base.

What will be there

• A reduction in the overall tax burden.
• Modest improvement in the budget bottom line.
• "Sensible" tax changes to prevent bracket creep for people earning over $80,000.
• Confirmation the budget repair levy on high-income earners will end on July 1, 2017.
• $5 billion over four years for a subsidised public dental scheme.
• $2.9 billion extra for public hospitals, stemming from COAG agreement.
• $1.2 billion extra from 2018 for schools aimed at literacy and numeracy checks.
• $230 million cyber security strategy.
• $118 million over two years to support disabled children in schools.
• $100 million domestic violence campaign.
• $21 million in health care for chronic conditions.
• Brought-forward upgrade of Adelaide-Tarcoola rail line.
• New drugs on the Pharmaceutical Benefits Scheme.
• Extra aged-care places.
• $1.7 billion for the Sydney Metro project.
• $167.3 million for a regional road freight corridor in NSW.
• $98.4 million to increase the capacity of Sydney's rail network.
• $78.3 million for Parramatta light rail.
• $60 million for "smart motorways" in NSW.
• $52.2 million to clear NSW road pinch points.
• $2.4 billion for Victorian infrastructure including $877.5 million for the Melbourne Metro tunnel and Murray Basin rail, plus money for Monash Freeway, Western Ring Road, regional roads.
• $750.8 million for WA infrastructure including the Forrestfield-Airport link and $260.8 million for the Perth freight link.
• Funding for Queensland's Ipswich Motorway.
• Timetable for phased-in cut to the company tax rate of 30 per cent.
• Further crackdown on multinational tax dodgers.
• $150 million security package including heavily armed security specialists guarding police buildings.
• $5 million annual cut to ABC

What's hinted at

• Paring back superannuation tax concessions for high-income earners by lowering the 30 per cent tax on concessional contributions to $180,000 from $300,000, and helping for those on low incomes.
• Further crackdown on welfare rorters.
• Incentives for state governments to get private sector involved in road, rail and port projects, and unlock land for housing.
• $1 billion for military role in Afghanistan, Iraq and Middle East, plus $1.4 billion in new defence spending.

What voters want (Essential Poll)

• Increased health and education funding.
• Personal income tax cuts.
• Reduced superannuation tax concessions for high earners.
• Increased tax on cigarettes.

What business wants

• The budget back in balance in five years.
• A path to a cut in the company and personal income tax rates.
• Infrastructure planning and skills training.

What the economy is doing

• Growing at its fastest pace in two years.
• A benign inflation outlook has turned to deflation risking an interest rate cut; unemployment rate remains close to six per cent; wages growth at its slowest in almost two decades.
• Iron ore prices touched $US70 ($A92) per tonne in recent weeks compared to $US39 assumed in the mid-year budget review, a positive for national income.