Premiers and chief ministers on Friday delivered a humiliating public blow to Malcolm Turnbull, bluntly telling him they didn’t want even to think about his “big idea” to allow them to raise income tax.
The plan that would be, in Turnbull’s words, “the most fundamental reform to the federation in generations”, has now been consigned to the dust bin of history. It had been officially “withdrawn”, Turnbull said after the Council of Australian Governments (COAG) meeting. In an extraordinary example of mismanagement, the “big idea” had a public shelf life of only days.
Not only that, but Turnbull had to endure Northern Territory Chief Minister Adam Giles declaring at the joint news conference they could all agree it would have been better if the tax discussion had come out “in a different format, in a different way”. As one wag observed, the day you get lectured by the NT is not a good day at the office.
The states won a victory, though it is a long way from being landed. The leaders will consider proposals for the Commonwealth to share with the states revenue from personal income tax. This would provide them with “access to a broad revenue base that grows in line with the economy”, the communique said.
In other words, the Commonwealth would give them a cut of a growth tax without their having to accept any responsibility – or odium – for raising the tax.
As part of the arrangement, the federal government would reduce the number of “tied” grants it makes to the states, “providing them with greater autonomy and reducing [the] administrative burden”.
The implication of decreasing tied grants is that the Commonwealth would step back from certain functions. But that raises political problems, as we’ve seen in the furore over Turnbull’s suggestion that the states should take full responsibility for the funding of state schools.
A central purpose of tied grants is to ensure programs do what they are meant to. When the Commonwealth stepped back, what guarantees would there be? The federal government points to an agreement at the meeting to seek ways to provide the citizenry with more “real time data on how government money is spent”.
There is some scepticism in official circles about whether the states will ever get a slice of income tax revenue because of implementation problems.
Turnbull’s argument is that given the premiers’ negative attitude on the state income tax offer, they have to accept the consequences of operating within the existing revenue base.
His message is that schools and hospitals should be funded within the “current fiscal envelope”, with improved efficiency. “We’ve got to look at how we stretch our dollars further … Clearly we are living with constrained resources and we have to live within our means,” he said.
But the states continue to prosecute the broad case about revenue.
NSW Premier Mike Baird was definite: “I think we have an expenditure and a revenue problem … And we have to be honest about that.”
South Australia’s Jay Weatherill said: “We don’t raise enough taxation as a nation to meet the imperatives that we have.”
To help deal with their immediate hospital funding, the states have been given an extra A$2.9 billion over three years. Education is yet to be negotiated – current funding extends to the end of 2017.
The states’ benchmark is still the 2014 federal budget, which cut $80 billion over a decade from Labor’s projected health and education spending. But Turnbull wants a fresh slate. Rather than “harking back” to promises made in the Gillard era, the focus should be whether “we [are] getting the outcomes we need” in education and health “by using our limited resources as effectively as possible”.
He also declared the government was not wedded to “the full Gonski”, a line that Labor, which is promising a lot of money for Gonski, will exploit to the hilt.
The implosion of Turnbull’s “big idea” will raise further doubts about his substance and style. He was willing to chance his arm. But he fell badly short on preparation, process, and his much vaunted powers of persuasion. In the end, only Western Australian Premier Colin Barnett supported his plan.
Turnbull might regard the premiers as wimps for not accepting the challenge, but his bungling of such a major play will disturb colleagues and Liberal election strategists.
In an odd postscript to Turnbull’s day of disappointment, the Prime Minister’s Office sent out a notice for a picture opportunity with Turnbull and Treasurer Scott Morrison. There were no questions, just a chance to snap the pair – whose tensions have recently been palpable – as they walked to their car, headed for the airport.
An earlier suggestion of a joint news conference had not come to pass. Probably just as well. There would have been a good deal of awkward questioning about the relationship.