Treasurer Joe Hockey has hit back at Peter Costello after the former treasurer accused the Abbott government of reneging on its pledge to introduce a "lower, simpler, fairer" tax system.
That commitment is now beginning to look like a "morbid joke", Mr Costello wrote on Tuesday in a column published in News Corp newspapers.
Mr Costello, who was treasurer from 1996 to 2007, wrote that political debate is dominated by proposals for "higher, more complicated and less economic taxes" rather than lower taxes. He singled out Mr Hockey for foreshadowing a new tax on bank deposits and Assistant Treasurer Josh Frydenberg for saying multinational companies should pay more tax.
"Australia has one of the steepest income and tax withdrawal systems in the world," Mr Costello wrote.
"The government does have a tax problem. It is that there has been no adjustment to the tax thresholds for five years. Inflation is taking every Australian into higher average tax rates.
"This ever-increasing burden of tax requires no new action and no legislation. It happens in the absence of action. To get action, the government needs to restart the conversation about getting taxes down, not up."
Proposals to increase the pension taper rate, so wealthier retirees do not receive the pension, show that Australia's tax debate has become "debased", Mr Costello wrote.
"This is not a conversation about fairer tax. It is about more tax."
Mr Hockey responded by saying he was not inclined to follow Mr Costello's "free advice" and that he faces a much tougher task to repair the budget than Mr Costello did.
"Everyone's entitled to give free advice and frankly, you know, that's what it's worth," Mr Hockey told Sky News.
"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."
Mr Hockey said he wished he had the same revenue as Treasurer that Mr Costello did.
"I've got to do more with less," Mr Hockey later told the Seven Network.
Prime Minister Tony Abbott said on Tuesday that, "as a distinguished former treasurer", Mr Costello was entitled to his views.
But he added that his government had inherited a bigger budget deficit from the Rudd-Gillard governments than the Howard government had from the Hawke-Keating governments.
"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," Mr Abbott said.
With Chinese demand for Australian resources slowing, Mr Hockey is contemplating an iron ore price of $35 a tonne - down from $120 a tonne in 2013. This could lead to a revenue write-off of up to $25 billion over the next four years.
The next budget will be delivered on May 12.
As it seeks to reduce the budget deficit, the Abbott government is considering winding back some of the expensive concessions made to senior Australians during the latter years of the Howard government. These include tax-free superannuation payouts for Australians aged 60 and over and increases in pension payment rates for wealthy retirees.
