Treasurer Joe Hockey has hit back at his Liberal predecessor Peter Costello, rejecting criticism that the Government’s tax policy looks like a “morbid joke”.

Mr Costello, who was treasurer for 11 years in the Howard government, has written an opinion piece in News Corp newspapers, declaring that the current debate about tax is “debased”.

He said the Coalition’s mantra of wanting “lower, simpler, fairer” taxes had given way to demands for “higher, more complicated and less economic” taxes.

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“‘Lower, simpler, fairer is looking like some kind of morbid joke,” Mr Costello said.

Mr Hockey, who is in New York for meetings with G20 counterparts and the International Monetary Fund, said “Mr Costello is wrong”.

“Quite frankly, I really wish I had the revenue that Peter Costello had,” he told the ABC’s AM program.

“If I had the same revenue as he had, then I’d be getting $25 billion extra each year to spend on things.”

Prime Minister Tony Abbott said Mr Costello did a “magnificent job” with the country’s finances, and the challenge for his government was to do “likewise”.

“As a distinguished former Treasurer, he is perfectly, perfectly entitled to his view, but 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,” he said.

Coalition frontbencher Barnaby Joyce has dismissed Mr Costello’s admonitions as armchair criticism.

“It’s easy to give advice when you’re not actually on the football paddock anymore. I do it every game I watch on a Saturday afternoon,” he said.

“I’ve become a brilliant football player since I started sitting in the grandstand.”

In particular, Mr Costello has criticised the current Liberal government for pursuing a tax on bank deposits and a so-called “Google Tax” to target multi-nationals who shift profits to pay more tax overseas.

And he has called on the Government to address bracket creep — as more lower and middle-income Australians are pushed into higher income tax brackets even if their wages are rising only with inflation.

“High taxes can be unfair taxes when they take away a person’s justly earned income and reduce the reward for effort,” he said.

“This creates a huge disincentive to work.

“It creates poverty traps.”

But Mr Hockey said there was little room to move in the budget to adjust the tax thresholds, without cuts to spending.

“Eighty-six per cent of all Government expenditure is locked in by legislation,” he said.

“If the Labor Party doesn’t want to help us to reduce government expenditure… then the only way you would ever get back to surplus is by collecting more tax and part of that would come from bracket creep.”

Hockey in midst of heated battle with states over GST

Last month’s Intergenerational Report pointed to the disproportionate effect bracket creep has on workers on low and middle wages.

Mr Hockey is also in the midst of a heated battle with the states and territories over the distribution of the GST and the base rate of the tax.

Ahead of a meeting of state and territory leaders with Prime Minister Tony Abbott on Friday, South Australia is threatening to bring back state taxes if the Commonwealth does not restore billions of dollars in health funding it cut in last year’s budget.

I’m with Peter Costello in advocating for lower taxes. We need more Australians to pay tax, not more tax from those that already do.

— Cory Bernardi (@corybernardi) April 13, 2015

SA Premier Jay Weatherill said the $80 billion cut to hospital and schools funding was an attempt to force the states to agree to a higher rate of GST, which is still 10 per cent nearly 15 years after it was introduced.

“We all know what the game is – the game is to ask us to come back to them begging for an increase in the GST,” he said.

Mr Weatherill said the Commonwealth should instead save money by removing generous superannuation concessions for high income earners, as he considers reinstating a Financial Institutions Duty in SA – a tax that was abolished as part of the GST deal when it was introduced on July 1, 2000.

Mr Hockey said any state was “entitled to introduce its own taxes” but added that state taxes are part of a national equation.

“What we’ve got to do is make sure Australia has an efficient, fair and a reasonable tax base — the states need to be part of that process,” he said.

He is also pushing Western Australia to sell off state assets and deregulate its retail sector, as the state pushes for a bigger GST take.

“Western Australia has antiquated laws in relation to retail trading hours or in relation to retail, for example, they have restrictions on the sale of lights at night time,” he told AM.

Labor leader Bill Shorten says the Abbott Government’s funding cut — which will begin to effect state budgets from 2017 — has caused the GST brawl.

“They’re all desperate for revenue because Tony Abbott and Joe Hockey have cut funding for schools and hospitals,” he said.

Last week it was revealed that the latest carve-up of the GST would leave WA with less than 30 cents in every dollar spent on GST in that state — an amount Mr Hockey has said is “not fair”.

– ABC