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GST: political hot potato chips away at unity

An unpopular policy could deal a blow to the goodwill that Malcolm Turnbull's government has so far enjoyed.

Let's be impudent for a moment and ponder what is the point of the Turnbull government? When that brash question was asked of the previous Abbott iteration, at roughly the same stage in its term, Coalition MPs were miffed.

Yet it wasn't so long before they were asking it themselves. And we know where that led them.

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Prime Minister talks GST changes

Compensation would need to be considered for some Australians before any decisions are made about tax changes, including a GST hike according to Malcolm Turnbull.

The Turnbull administration, installed in extremis because Abbott's narrative had ceased to exist, is sailing along altogether more agreeably. However the manner in which a deliberately ill-defined GST-slash-broader tax reform debate has been let loose  on the public has insiders wondering if the government really knows as much about where it is going as it would have us believe.

As with the Abbott government in early 2014, there is no panic in Coalition ranks, no existential level crisis, but the backbench fear is that the leadership might fritter away its hard-recovered goodwill on a plan so diabolically unpopular that it will be dropped before the election anyway.

Do Scott Morrison and Malcolm Turnbull have a cunning plan up their sleeves?
Do Scott Morrison and Malcolm Turnbull have a cunning plan up their sleeves?  Photo: Andrew Meares

Feeding those concerns is the view that Treasurer Scott Morrison – who let's not forget is yet to hand down even a single budget – has gone out harder on the prospect of a massive 50 per cent GST increase, than his boss, Malcolm Turnbull. "Forward leaning" is the in vogue term.

Certainly Turnbull has been more careful, insisting both publicly and privately that no decisions have been made, no reform options favoured. And Morrison, to be strictly accurate, has been hardly more definitive in his public pronouncements. But the Treasurer has affected a comparatively bullish tone, referring on Monday morning to his record of championing tough unpopular policies in the national interest. The result is a strong sense that the Turnbull government's chief economic minister at least, has a bigger stake in a GST rise than he cares to admit.

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Morrison's comments raised eyebrows in Turnbull's inner-circle, and it is noteworthy at week's end, that they have not been repeated. 

Nonetheless, MPs close to the new Treasurer say a steeper GST must be debated, because frankly, in the absence of extra funds, there will be no wider tax reform, and no tax cuts either. It's as simple as that says one loyalist. Without that additional revenue, the government cannot pursue its objectives of returning bracket creep, lowering company tax to 25 per cent, and chipping away at the budget deficit. 

The MP said the government possessed plenty of political capital but little of the real thing. Given there was no appetite in voter-land for "any spending cuts", lowering income tax and company tax – both of which are articles of faith for Coalitionists – could only  be achieved if revenue foregone is replaced with extra GST. "There's no other choice".

All of which suggests Morrison, despite an official agnosticism, is locked in and fully committed to a formula that includes a GST hike.

Turnbull's innermost preferences are perhaps harder to discern, save for the obvious fact that he is maintaining ready access to an escape route. He knows he may yet be required by deteriorating political circumstances to play Bob Hawke to Morrison's Paul Keating.

Keating, who this week delivered a king-hit to a bigger GST in these pages, had promoted a 12.5 per cent consumption tax (not a GST but rather a single consolidated wholesale sales tax) in 1985 in his "option C" package. He had done so with the imprimatur of cabinet and the then prime minister Bob Hawke. But when the political going got tricky, Hawke went to water – an eleventh hour retreat that strained relations internally and had powerful long-term repercussions.

Worse, it meant the difficult terrain of tax base broadening would have to be traversed all over again leading to substandard results. First there was John Hewson's 1993 "Fightback!" which Keating, by now prime minister himself, demolished.

Fightback!'s searing demise would bring about Hewson's as well and eventually lead to John Howard's reprise. His "never ever" promise about a GST in the 1996 election reflected the Liberals' correct reading of voter disdain and their own trauma from losing the unlosable. More pain followed when Howard took a GST plan to the 1998 election and suffered an almost fatal anti-government swing surrendering 18 seats and losing the popular vote.

Such were the political complexities that Howard would be forced to give away huge slabs of the proposed GST base in order to get it through the Senate. The extinction of the Australian Democrats, who delivered that majority, can be traced directly to that complicity.

However their cut-outs contributed to the GST's dwindling efficacy, such that it now applies to just 47 per cent of transactions in Australia – New Zealand's GST remains right up there in the high nineties.

And that in turn, explains why there is so much energy being expended on lifting its rate, or broadening its base to include exemptions.

In short, the returns are huge – $33 billion a year from a jump to 15 cents. The gains leave in the shade other options being floated such as taxing super contributions at the relevant marginal income tax rate, minus 15 per cent, which, while very worthy, would return just $6 billion.

The inside word is that the government will narrow the GST/tax reform debate by month's end. For many MPs that is too long to bleed. But if, as many believe, the government eventually backs down, there are risks too.

Along with the obvious query "what was all that pain for?" arises a whole new question: what would be the point of a second term Turnbull government if it has already retreated on tax reform?

Mark Kenny is Fairfax Media's chief political correspondent.

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