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Australian prime minister promised no new taxes, but won't rule out deficit reduction levy

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CANBERRA, Australia - Weeks before he was elected as Australia's prime minister, Tony Abbott promised no new taxes. But with his first annual budget looming, Abbott on Tuesday wouldn't rule out a so-called deficit reduction levy to be paid by higher income earners.

Abbott has warned that his conservative government faces tough decisions to rein in mounting debt in its budget blueprint for the fiscal year starting July 1. The blueprint will be revealed to Parliament on May 13.

Abbott, who came to power with a decisive election victory last September after six years in opposition, said that introducing a temporary levy in the budget might not break his election promise to introduce no new taxes.

"There's been speculation, as you know, about a deficit reduction levy," Abbott told Melbourne Radio 3AW.

"I think if there was a permanent increase in taxation, that would certainly be inconsistent with the sort of things that were said before the election," he added, referring to his election promises.

But Abbott would say if the levy would be in or not for next year's budget, in keeping with previous government policies of keeping budget details secret until they are released to Parliament. In practice, budget measures are usually published in unsourced media reports every year as part of government strategies to control the message and manage public expectations.

Sydney's The Daily Telegraph newspaper reported on Tuesday that Australians earning more than 80,000 Australian dollars ($74,000) would pay a levy to help retire national debt over the next four years from July 1. The levy would be charged at 1 per cent for incomes of AU$80,000 to AU$180,000, and 2 per cent for higher incomes.

Opposition leader Bill Shorten said such a levy would amount to a broken promise not to increase taxes.

"A tax increase is a tax increase," Shorten said.

A mining boom fueled by Chinese industrial demand for iron ore and coal helped Australia avoid a recession during the global financial crisis. But the boom has passed and the economy is slowing along with the weakening resource sector.

The government's latest economic forecast shows Australia's deteriorating economic performance will translate into a deficit of AU$68.1 billion in the current fiscal year — about AU$16.8 billion worse than was forecast when the budget was announced in May last year.

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