SYDNEY (REUTERS) - Australian Prime Minister Malcolm Turnbull on Monday (Feb 8) ruled out a rise in the Goods and Services Tax (GST) under pressure from within his own party, further raising the possibility that he may dissolve parliament and call a snap election.
The decision severely hampers the government's ability to include significant tax cuts of the kind beloved by voters in the May budget due to be released just months ahead of general elections expected for September or October.
The move also seemingly places a return to a budget surplus, long a central policy pledge for a conservative government preaching fiscal responsibility, even further beyond the horizon.
"At this stage, I remain to be convinced or persuaded that a tax mix switch of that kind would actually give us the economic benefit you'd want in order to do such a big thing," Turnbull told the Australian Broadcasting Corporation.
Beyond the budget Turnbull, who ousted Tony Abbott last year in a party coup, is facing a number of rear-guard actions from his party's conservative wing, led by Abbott, on a range of social issues including climate change and same sex marriage.
Plummeting commodity prices have depleted the government's coffers, a major financial stumbling block for Turnbull, whose rise was sparked partly by his image as a prudent financial manager based on his background in the private sector.
Australia in December forecast its budget deficit would swell to A$37.4 billion (S$52.6 billion) in the year to June as falling prices for key resource exports open a gaping hole in tax revenue.
Turnbull last week raised the possibility of dissolving both houses of parliament and calling an early election to break a political deadlock that has stymied the government.
The decision to abandon the GST may slightly increase the chances of an early election, said Peter Chen, a senior lecturer in government at the University of Sydney.
More worryingly for the government, however, is the growing perception that Turnbull lacks either the conviction or the ability to replace Abbott's unpopular policies with his own solutions.
"To some extent, the more that Turnbull does things like take the GST off the table is more strength to people who continue to say 'well, if the Abbott government was so bad, where's the policy direction that's so different'," Chen told Reuters.
The ruling Liberal Party and its junior coalition partner the National Party won a landslide election in 2013 but Abbott saw his popularity plummet in the wake of a hugely unpopular 2014 austerity budget from which he never fully recovered.
Turnbull's decision to banish key Abbott loyalists from cabinet while at the same time abandoning his pet social issues to placate the conservative wing is raising questions about his control over his own government.
Abbott pledged a smooth transition after his ouster, a reference to former Labor Prime Minister Kevin Rudd's successful campaign of destabilisation to regain the leadership from Julia Gillard.
But Abbott announced last month that he would re-contest his Sydney seat in the coming elections, and his supporters on the party's right have since engaged in a public and private campaign to rehabilitate his image.
Unless Turnbull and his backers can make a similarly forceful argument in favour of his vision for the nation, he may struggle at the polls, said Rod Tiffen, an emeritus professor of political science at the University of Sydney.
"He's far more popular than Shorten, but Shorten's line would have to be 'I'm the leader of my party, he's the prisoner of his'," Tiffen said, referring to Labor Party leader Bill Shorten.