View from The Hill

View from The Hill

Joe Hockey tries to get reluctant states to drive a new GST cart

Treasurer Joe Hockey favours reform of the Goods and Services Tax. AAP/Lukas Coch

It’s clear the Abbott government wants change to the GST on the agenda but is anxious that others – notably the states – do the dirty work of putting it there.

Treasurer Joe Hockey is understood to have said as much privately.

The budget announcement that the government will drastically cut its funding for schools from 2018 and hospitals from 2017-18, saving the Commonwealth more than $80 billion by 2024-25, is being seen – correctly - as seeking to twist the states’ arms to ask for the GST to be increased or broadened or both.

Hockey intention was obvious in his Tuesday appearance on the ABC’s 7.30.

Asked whether he was starving the states so that they begged him to raise the GST, he said: “Well, that’s up to them. They are responsible for schools and hospitals. We don’t run any schools. We don’t run any hospitals.” He stressed the point that all GST revenue goes to the states.

An angry Queensland premier, Campbell Newman, said on Wednesday that the funding move “seems like a wedge to get the states to ask for the GST to be raised”.

It’s the logical conclusion because the states don’t have the practical capacity to expand their revenue to meet such a gap. An increase in the GST to say, 12.5% and a broadening to include fresh food could provide the funds (while paying the necessary compensation for low-income earners).

A debate about a higher, wider GST would be especially awkward at the moment for the Liberal premiers of the three east coast states - Mike Baird in NSW, Denis Napthine in Victoria and Newman. (West Australia’s Colin Barnett would be up for it, but only if the carve-up between the states was changed to benefit WA, another can of worms.)

The Victorian minority government faces a November election; there are polls in NSW and Queensland (where the governments have large majorities but also problems) in the first half of next year.

Presumably the Abbott government is seeking to lay the ground for managing the aftermath of its white paper on tax, which will come later in the term. That paper can be expected to promote GST changes.

If the states were petitioning, it would be easier for the government to look favourably on such a recommendation.

But even if this could be achieved – a very long shot - the political onus would still be squarely on the Abbott government, which has pledged to take any tax proposals to the 2016 election. The GST revenue might go to the states but it is a federal tax, and its reform would need to be part of a wider package to have the slightest appeal.

John Howard was brave in putting his plan for a GST to the 1998 election - and was lucky to survive the experience. It would be high risk for Abbott to campaign on GST changes, however sensible they might be.

The row over the hospital and schools cuts (and also the Medicare co-payment with its implications for hospital emergency wards) shows the Abbott government can’t assume an easy ride with the states just because most of the country is coloured blue. Disgruntled Liberal premiers Newman, Baird and Napthine are angry not just at the decision, but that they weren’t warned at the recent Council of Australian Governments meeting, when the talk was about improving the federation.

On Wednesday night it was rather startling to hear Newman and South Australia’s Labor premier, Jay Weatherill, singing the same lines in a joint TV appearance.

The federal government is, at least in public, shrugging off the premiers’ complaints, constantly repeating the mantra that schools and hospitals are the states’ responsibility and that the funding issue is a matter for them. Abbott has refused requests for a special COAG but Newman is seeking to organise a meeting of state and territory first ministers for Sunday.

While Hockey might hope the states eventually conclude an enhanced GST is their only salvation, the easier path for them would be blame-shifting to the Commonwealth, a well-tried tactic.

The budget contained the reminder that the government’s policy is to ensure as far as possible that the states “are sovereign in their own sphere”.

But the funding bombshell also raises the question of the soundness of trying to cleanly devolve all responsibility for schools and hospitals to the states.

This government has a horror of any overlap, seeing it as excessive bureaucracy. Some federal oversight, however, can be important for maintaining standards. And, in the case of health, primary care (a federal responsibility) and hospitals (the states’ area) are intimately related. Attempting to erect a wall between them is more ideological than a matter of good policy.

Listen to the Politics with Michelle Grattan budget podcast with Finance Minister Mathias Cormann and Shadow Finance Minister Tony Burke here.

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