Penurious premiers stonewall Scott Morrison

For weeks – months, even – we have been told that everything was on the table.

But when the guests arrived with their carpetbags and wheelbarrows to avail themselves of the largesse, it turned out that Stingy Scott Morrison had removed all but a handful of the goodies. In fact just about all that was left was a plate of mouldering shit sandwiches.

The penurious premiers, ready to voice their ritual chant ‘What’s in it for me?’ had already received the pre-emptive reply: ‘Blood and toil, tears and sweat.’ If they wanted more money, scolded Morrison, they would have to find it for themselves. The commonwealth was in the business of cutting taxes – its own taxes.

And in particular, if there was to be any kind of increase in the GST, it would be to pay for reductions in income tax, and preferably company taxes as well. The GST was not there to provide buckets of revenue to the premiers.

The GST was spruiked, in effect, as the states’ tax: the commonwealth would collect it, but every cent of the proceeds would go to the premiers, to spend just as they saw fit.

But in fact Morrison is rewriting history: that is exactly what the GST is for. When John Howard and Peter Costello, at the urging of the Treasury, devised the unpopular concept (‘Not a new tax – a new tax system’) the justification – the big carrot – was that it would provide the states with a much-need growth tax, a revenue stream which would help to redress the vertical fiscal imbalance that meant that the commonwealth collected most of the money, mainly through income tax and other imposts, and grudgingly doled out some of it for the states, which had to provide most of the services.

So the GST was spruiked, in effect, as the states’ tax: the commonwealth would collect it, but every cent of the proceeds would go to the premiers, to spend just as they saw fit. For this reason it had always been maintained, by Tony Abbott among others, that the states had an effective veto over changes to the GST; only if they agreed unanimously could be the rate expanded or increased.

In return, the states were supposed to drop some of their own taxes and charges. Well, some of them did drop at least some of the taxes. But mainly, they just grabbed the money and ran, as they were told they were supposed to.

So there is not much incentive for them to agree to a rise in the GST, either in range or in quantum, only to see the feds use the loot as a big election year promise of income tax cuts sometime in the future. After Morrison had effectively played bad cop. Turnbull, as his wont, came in to play good cop – how about a guaranteed share of income tax revenue for the states?

Certainly it would be tempting – but how long would it last? What the feds could give, they could also take away, just as they were attempting to do with the proceeds of the GST. And thus ended day one of what was billed as the great COAG tax reform debate.

Day two was a bit easier; for a while at least the subject was switched to terrorism and domestic violence, and the premiers were against them – firmly and unanimously. In the circumstances it could almost have been considered light relief. But when it came back to tax, the states remained obdurate.

They were prepared to squabble among themselves about precisely what measures were needed, but they knew exactly what the problem is: health budgets were simply unsustainable. If they were not already in crisis, they were on the brink of it. It might suit Morrison to pretend that he did not have a problem with revenue, but the premiers knew bloody well that they all did, and they want it fixed.

Turnbull will need a lot more than spin, legerdemain and lawyer’s cunning to get himself out of it. He will need a solid, credible program.

The hope of optimism, the promise of innovation, the belief in nimbleness and agility, was no longer enough. They wanted the cuts Tony Abbott and Joe Hockey had ambushed them with two years ago reinstated, at least in part, or there would be no detail. And this was not negotiable. After all, it should have been the only sensible reason to increase the GST.

So the impasse leaves Turnbull and Morrison with a huge dilemma. If the need for income tax reform had not been already an imperative, their own rhetoric had made it one: the public expected, indeed demanded, that their promises would be fulfilled.

But to do so would be hideously expensive: trimming welfare spending, pursuing efficiency dividends, removing the worst of the superannuation rorts ands even the most innovative accountancy they could manage would not pay the bill. What was needed was a massive injection of revenue – a new tax: and for practical purposes, ramping up the GST was the only thing left on the table.

But Bill Shorten and the unions had made it clear that they would oppose such a move with single-minded ferocity, and if a number – maybe even a majority – of the premiers joined in the chorus, the politics would become unacceptably risky. For the moment Turnbull and Morrison have backed off; they say they will revisit the issue, in March, and if the premiers still won’t come to the party, well, they’ll go it alone – but just what they will do they have not said. And as far as we know that there is no plan B, and time is running out. Very shortly after March the pair will have to unveil a crucial election-year budget, and after that the campaign will be gearing up to the climax of the polls themselves

And with the financial situation becoming ever more dire, the whole quagmire is becoming urgent, if not impossible. Turnbull will need a lot more than spin, legerdemain and lawyer’s cunning to get himself out of it. He will need a solid, credible program which will get him through to an election – either before the budget or after it. But all is not lost; even if he can’t come up with a solution, he always has Bill Shorten. That, at least, is a Christmas present he can rely on.