Including the family home in the pension assets test and a $15 to $20 co-payment for a bulk-billed visit to the doctor are among 86 recommendations of the Commission of Audit to be released today.
But the Abbott Government will move quickly to rule out or dilute some of the nastier proposals, ruling out any change to the pension assets test before 2017. It will also accept a lower GP co-payment with a safeguard for families and pensioners.
The West Australian understands the commission has found government spending is on an unsustainable growth trajectory.
It recommends structural reforms geared at bringing down welfare, health and education spending, by changing indexation and lowering thresholds.
Treasurer Joe Hockey is constrained by coalition election pledges not to touch pensions and superannuation for another three years, so he has decided to raise taxes by introducing a deficit levy.
With Liberal MPs horrified by the prospect of a new tax, Mr Hockey and Finance Minister Mathias Cormann yesterday called colleagues to explain the rationale.
They told MPs that the alternative to middle and high-income earners paying more through the tax system would be low- income earners bearing the entire burden.
Under the proposed deficit levy, income above $80,000 would be taxed at 38 cents in the dollar, up from 37 cents, and income above $180,000 would be taxed at 49 cents, up from 47 cents.
This would mean someone on $85,000 paying an extra $50 a year in tax. Someone on $200,000 would pay $1400 more.
Rather than have a $15-$20 co-payment on bulk-billed GP visits, as the commission recommends, the Government has settled on a $6 charge, limited to 12 a year for families and pensioners.
It is understood that the disability support pension's indexation rate will remain untouched until 2017 but efforts will be made to move many recipients into work instead.
No serious consideration has been given to unfreezing the indexation of fuel excise, which has remained at 38.1 cents a litre since 2001, for fear that the Nationals would never accept it.
Prime Minister Tony Abbott said everyone should expect to contribute "his or her bit".