Turnbull’s states of pay over GST and tax reform
The proper if not prim advice came from a respectable-looking middle-aged woman late last week: “Don’t fuck up.” Television cameras caught the brief encounter. A stunned Malcolm Turnbull replied with an uncharacteristic stammer: “Oh. Okay.” The next day the prime minister said he thought it was very good advice and that he had set about doing his best to heed it.
For starters, he has now given main carriage of his tax reform package design to the head of his department, Dr Martin Parkinson. Parkinson, a distinguished economist, was the head of treasury sacked by Tony Abbott for doing his job too well under the previous Labor government. Turnbull installed him in the top public service job and intends to make full use of his considerable expertise in the area. Where this leaves the current head of treasury, John Fraser, and his boss Scott Morrison, is not clear. “Sidelined,” was the description put to me by one MP.
Some Liberals are worried that Parkinson’s fingerprints were all over the politically disastrous 2014 budget. The senate and the electorate rejected its bitter medicine, even though in a perfect world without human voters its purpose was economically sound. Parkinson certainly thought so, only to be let down by a spectacular failure of salesmanship from then treasurer Joe Hockey.
Turnbull made “economic leadership” a key reason for the Liberals to dump Abbott and Hockey in favour of him. But difficulties in the tax “conversation” haven’t inspired confidence in the Coalition’s ranks. The retreat from the GST reminds some of Napoleon’s inglorious withdrawal from Moscow.
New Nationals MP Dr David Gillespie told the prime minister in the Coalition party room there should not be a knee-jerk reaction to criticism of raising the GST. Gillespie, a close mate of Tony Abbott, told Ten Eyewitness News that it appeared what he was advocating was slipping off the table or “heading over the horizon to a watery grave”. For good measure, he said he’d be “really disappointed if we didn’t reform our tax system”.
Turnbull assured his party that modelling done for the government showed the GST would not pass the first hurdle of economic feasibility. After careful consideration, an increase in the GST does not offer the economic benefits that many have assumed. To maximise benefits, according to the research, the revenue raised should be used to cut company tax rather than to fund personal income tax cuts. In glorious understatement, Turnbull said the politics of this “would be notoriously hard”. The prospect of increasing the cost of living for consumers, rich and poor, so that big business and foreign investors get a tax cut had less chance of flying in the electorate than the tough measures in Hockey’s first budget.
The commentariat has begun painting Turnbull as a do-nothing prime minister. Heading for the hills at the first whiff of grapeshot, as Paul Keating used to say. Dennis Shanahan in The Australian said Turnbull is beginning to look like another prime minister called Malcolm: Malcolm Fraser. That’s about as big an insult as you can get. As Shanahan pointed out, business and significant members of Fraser’s own government, particularly a thwarted treasurer John Howard, thought the prime minister had wasted the overwhelming opportunity voters had given him in 1975 and 1977 to deliver real economic reform. He had a majority in both houses. Turnbull, of course, is in no such position.
Shanahan’s stablemate, Paul Kelly, is beginning to question whether Turnbull has the stomach for battle. Scott Morrison ruefully conceded earlier in the week that without increasing the consumption tax he would have to take the long road delivering less ambitious company and income tax cuts.
But it is not only the conservative commentators and editorial writers who are joining the naysaying chorus. The Labor premier of South Australia, Jay Weatherill, bitterly reacted to Turnbull’s attack on him and the premiers by saying the prime minister had gone to water. He was particularly irked that Turnbull thought it was bad to raise $30 billion by a 50 per cent hike in the GST only to see it spent helping the states fund their schools and hospitals. “Taxes,” Weatherill said, “had to be raised to fund quality services and fill [the hole created by] the federal government’s $80 billion cuts to health and education.”
The message back from Turnbull was if the states need more money they should raise it themselves and take the heat for it. That, of course, changes the rationale that John Howard and his senior adviser, Arthur Sinodinos, gave for the GST in the first place. It was, you may recall, and the premiers certainly do, that it was supposed to be a states’ tax. It is now clear that even if they unanimously agreed to a tax rise, they wouldn’t get all the revenue anyhow.
The same Arthur Sinodinos is playing a key role again, helping a Liberal prime minister devise what he calls “sustainable tax reform”. With the cloud of the Independent Commission Against Corruption inquiry in New South Wales no longer over Sinodinos, Turnbull has reinstated him to the ministry as cabinet secretary. The role allows him to ride shotgun across government. Sinodinos rejects any sneering at Turnbull for merely being “political”.
Sinodinos told Sky News Agenda: “This is about tax reform that can actually be delivered. We have to be able to persuade the public, and then after the election, if we win, persuade the parliament to pass whatever package we put to the people.” To do that, the wily Sinodinos agrees a concrete proposal needs to be revealed soon so that the selling can begin. It took 12 months to prepare John Howard’s new tax system, which he released just six weeks before the 1998 election. It turned out to be a near-run thing that a majority of voters rejected.
Turnbull assured the party room, with its nervous Nellies and “bedwetters” as Scott Morrison is widely believed to call some of them, that the May budget will reveal almost all. A key component of the budget could also be a massive privatisation of payments for Medicare and Pharmaceutical Benefits Scheme claims, as well as aged care and veterans’ benefits. That would create a $42 billion a year business for a successful bidder if, as proposed, it is outsourced.
Tinkering with Medicare, or at least appearing to, is almost as dangerous for a conservative government as wanting to raise the GST. Howard got that message back in 1996 when he gave up his long-time opposition to universal health insurance ahead of winning the election. Turnbull is not denying the idea is being seriously considered but he denies it is touching Medicare; it is, he says, merely bringing its payment delivery into the 21st century. Labor, the public sector union and the doctors aren’t so sure. Labor’s Catherine King isn’t waiting: she says it is a disgraceful idea that should be immediately ruled out.
Labor spent most of the week demanding that the human services minister, Stuart Robert, be immediately sacked for breaching the prime minister’s code of conduct. Turnbull again went to the doctor – in this instance, Martin Parkinson. He deflected all of the opposition’s questions by saying he had referred the allegations to his departmental head. Due process, he claimed, demanded he wait for Parkinson’s advice.
The case against Robert appears open and shut and is based on forensic investigative journalism by the Herald Sun’s Ellen Whinnett. She revealed that Robert’s “private trip” had all the appearances of an official endorsement of an Australian government minister for his very good personal friend, millionaire miner Paul Marks. Robert has shares in two of Marks’s companies and encouraged his friend to donate $2 million to the Liberals over the past two years.
But some Liberals are suspicious that the intrepid Whinnett received considerable help in her digging from someone close to Abbott. “This,” one told me, “is an exercise in revenge.” Robert, at the urging of his Canberra flatmate Scott Morrison, switched his vote from Abbott to Turnbull in the September leadership spill. It is no secret Abbott believes he was betrayed by Morrison. A senate estimates committee was told Robert’s chief of staff made the application for his boss to travel privately to Beijing to the then prime minister’s chief of staff, Peta Credlin.
There’s no doubt the story creates the picture of a government in shambles. Bill Shorten drew the threads together. As the Robert story broke, he also pointed to the summertime departures of Mal Brough and Jamie Briggs from the ministry: “Malcolm Turnbull has lost more ministers than he’s released tax policies for Australia.”
By Thursday night Parkinson had unsurprisingly found that Robert's trip was "inconsistent" with ministerial standards. The same cabinet sub-committee that sacked cities minister Jamie Briggs agreed this minister had to go, too. Turnbull, despite some push back from Robert's good friend the Treasurer, concurred. The scandal certainly made the government look like it was on the run all week. The parliamentary tactics were clumsy and ham-fisted. The opposition was frequently gagged and initially not even allowed to question Robert. When Bill Shorten was finally given the floor he launched a devastating attack which blew away any hope the minister had of surviving.
There is a sniff of the Rudd–Gillard years with their constant ministerial merry-go-round. The announced retirements of Trade Minister Andrew Robb and Warren Truss, to be replaced by Barnaby Joyce as deputy prime minister, mean the next reshuffle will be every bit as extensive as those in Labor’s final year.
Three disgraced ministers in six months is hardly the stability the Liberals promised.
This article was first published in the print edition of The Saturday Paper on Feb 13, 2016 as "Turnbull’s states of pay". Subscribe here.