Paul Bongiorno
Turnbull rattled over tax reform

Malcolm Turnbull’s self-proclaimed wingman, the nation’s new deputy prime minister, Barnaby Joyce, caught the mood of the joint party room this week. It was his first outing in the new role, and he solemnly intoned that the tightening opinion polls “were a wake-up call”.

Unsettling the butterflies in the stomachs of marginal seat-holders was the Newspoll coming in with a 50-50 result, two-party preferred. Victoria’s Liberal Party president, Michael Kroger, says he doesn’t believe it. Other polls still give the Coalition a winning edge 52-48 and all confirm Turnbull is far and away more popular as prime minister, and in positive approval territory for his performance. But the shine is fading.

And this has to be a major factor in the government’s thinking as it contemplates how to optimise its position in an election year. The clearest indication that a July double-dissolution election is on the cards is the rush into parliament of senate voting reform. The idea is for this to be done and dusted by the end of next month. Labor rejected the recommendation of the relevant shadow minister Gary Gray to support the reforms. They will allow optional preferential voting above the line and make it impossible for independents and micro parties to game the system.

There is no doubt “optional preferential” is virtually a first-past-the-post system that advantages the party or candidate that gets the highest primary vote. It is a significant modification of Australia’s hitherto exhaustive preferential system federally, where even if your first choice doesn’t get up, you get an input down the line. The Australia Institute’s Richard Denniss says it is such a revolutionary change more public discussion is demanded. He admits reform is needed and, as a former staffer to Greens founder Bob Brown, says today’s Greens are selling out their hero’s commitment to “full preferential” voting.

The argument may carry some weight with the Greens to further delay the process or agree to give the reform an August start-up date. That would mean any July double dissolution would be on the old rules and very unattractive to the PM. The Greens are resisting the pressure and reject Labor’s charge that they are helping to entrench the Coalition in the senate. After all, the old system saw the Howard coalition win control of the senate in 2004. A system that gives a seat to the candidates with most votes is hardly undemocratic. If Labor were riding higher, it would be their party benefiting.

While the Nationals’ John Cobb told the party room he didn’t think an early election was a good idea and there was no appetite for it, many of his colleagues disagree, especially Liberals. They are urging Turnbull to pull the trigger as soon as possible. The prime minister is considering it.

While some in cabinet believe the tax package should be held until the May budget, that is not Turnbull’s thinking. And it’s no wonder. He and his treasurer have been all over the place on tax policy as Labor has successfully filled the vacuum. The conflicting messages, poor salesmanship and hyperbolic attacks on the opposition are creating the impression of an administration at a loss. Even of one running scared. On the morning of the Newspoll, Immigration Minister Peter Dutton painted a Liberal doomsday scenario in several interviews: “The prospect of Bill Shorten leading the country is now in play.”

Turnbull must think so. In parliament he gave weight to Labor’s taunts that he was “rattled”. Gone was the equilibrium and humour in evidence since he grabbed the nation’s top job. Sounding more like the man he deposed in full attack-dog mode, he thundered, “Vote Labor and be poorer.”

Drawing full prime ministerial dudgeon was Shorten’s plan to restrict negative gearing to new housing from 2017 and halve the 50 per cent capital gains tax. Turnbull yelled across the despatch box to Labor’s Tanya Plibersek that she wants “to crash housing prices”. The reckless claim was unsupported by any evidence – although Turnbull did construct a hypothetical that presumed once the tax incentive of negative gearing was removed and the higher capital gains tax operating, no one would need or want to buy a house ever again.

The appearance of a shambles was reinforced when assistant treasurer Kelly O’Dwyer, on Channel Seven’s Sunrise the very next morning, said Labor’s capital gains tax reform package would “increase the cost of housing for all Australians – for those people who currently own a home and for those people who would like to get into the housing market”. The contradiction of the prime minister was only compounded in her clarifying statement: “The point I was making is that under Labor’s policy there will be increased demand for new property, pushing up prices for new property.”

When Turnbull was in full flight, lambasting the opposition, he said the government had “no thoughts whatsoever to increase capital gains tax”. That appeared to surprise some ministers sitting behind him. By the time he got back to his office, he realised he had overegged it and sent his minions out to clarify he meant no such thing. It only applied to Labor’s increase for individuals.

The papers next day carried a story that the government, in fact, was looking at changes to the capital gains tax discount for super funds. Turnbull in question time went further: “What we are looking at is the entire superannuation system.” He accurately observed that the tax on superannuation earnings is “remarkably low”. Lacking any precision, that idea sent shudders through the entire retirement industry.

And where was Treasurer Scott Morrison when you need him? Well, according to one of the government’s more strident cheerleaders, Sydney shock jock Ray Hadley, he was in witness protection. Morrison had earned Hadley’s ire when he failed to show up for his regular Monday morning slot on 2GB. It was so out of character. “Even when he travelled overseas,” Hadley told listeners, “he’d make arrangements to be available to talk to me.”

The treasurer wouldn’t undertake to turn up at a later time or day. He pleaded parliamentary business. That didn’t assuage Hadley. He accused the treasurer of not wanting to front after the mauling he had received from another champion of the right, Alan Jones, and from 3AW’s Neil Mitchell. Mitchell accused Morrison of not delivering on the promised economic vision and saying nothing in his National Press Club address.

Dangerously for Morrison and Turnbull, Hadley then gave brutal voice to a perception that is building more generally. He said, “I mean it appears to me that just perhaps these two blokes wished for the job they’ve now got, PM and treasurer, and wishing for it and getting it are two different things. It’s a lot harder, a lot harder when you get it than it appears when you’re looking from the outside.”

Tony Abbott and Joe Hockey would certainly be able to say “amen” to that. After promising a quick return to surplus and a tighter rein on spending, they actually added $70 billion to the deficit, as Morrison reminded the press club.

The heat is on the incumbents now and adding to their difficulty in delivering their promised economic leadership is confirmation that the resources boom is well and truly over. The big Australian BHP Billiton has posted an eye-watering half-year loss of $7.8 billion. CEO Andrew Mackenzie blamed the fairly significant collapse in the oil price. But he also pointed to other commodities such as iron ore, coal and gas. At a rather grim news conference, he announced the company’s dividend would be slashed. “We have seen ... confirmation that we are going to be in a period of low and high volatile prices before we see a recovery.”

Economist Shane Oliver told the ABC the resources boom was pumping something like $70 billion into federal and state revenue, and that has now disappeared. The gift that made Peter Costello look like a genius treasurer in the Howard years, with bulging surpluses in every budget, is “all gone”.

Oliver, freed from the need to score political points, made the perfectly reasonable observation that something else has to fill the budget hole. He said: “Negative gearing, superannuation, capital gains discounts are areas where there could be extra revenue sources to pull that budget deficit into line.”

Of course, that assumes that pulling the budget deficit into line is a priority. Morrison says it will take “budgets and budgets and budgets” to return to better fiscal health. It is clear that whatever ends up in the pre-election tax reform package will be a shrunken version of what we were led to believe in the heady days of “everything being on the table”.

Despite difficulties with securing supply, if a July double-dissolution election is called the prospect is weighing more heavily by the day. Bill Shorten suspects there won’t be a budget, just a tax package as user-friendly as possible and a rush for voters’ approval.

The Greens may stymie that scenario if they delay senate voting reforms, but don’t count on it.

This article was first published in the print edition of The Saturday Paper on Feb 27, 2016 as "Terms of preference".

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Paul Bongiorno is a columnist for The Saturday Paper and a 30-year veteran of the Canberra Press Gallery.

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