Contrary to the widespread public impression, Malcolm Turnbull is not a supporter of the idea of raising the GST rate.
The Prime Minister is a GST sceptic. Unless he can be persuaded to change his mind, the idea of ambitious tax reform will die.
Prime Minister talks GST changes
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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.
Turnbull does not lock himself in the basement of the Lodge every night with Scott Morrison to gleefully assemble a big tax reform bombshell, as Labor likes us to think.
Instead, the Prime Minister worries. As things stand, he can expect to cruise to an easy election victory against Bill Shorten. He doesn't have to do much except keep the sunshine factory running at full tilt, projecting optimism and smiling benignly.
When he goes home to the Lodge he frets that he will turn assured victory to ignominious defeat if he campaigns on a promise to raise the GST rate from 10 per cent to 15.
Labor is counting on it. Waging a scare campaign against the other guys is a lot easier than mounting a compelling case of your own.
The government is not lying when it says "all options are on the table" for tax reform. They are. It's just that some options are more likely to be picked up than others.
It's like saying you haven't decided what to have for lunch yet. It might be quite true. It's just that you have a pretty clear idea that it's not going to be the liver.
If Turnbull is to be persuaded to take the unpalatable option, Scott Morrison is the man who will have to do it.
It's not that Turnbull is simply scared. He could be persuaded to act, but only if there is a compelling case for taking the political risk.
Or, as he put it on radio on Friday, he would want to see "a growth dividend that justifies the trouble and expense" of reworking the tax system.
A growth dividend? He means a big boost to the rate of economic growth. But he says this in the full knowledge that the Treasury modelling shows no such boost.
The government hasn't released the figure, but Chris Richardson of Deloittes has estimated that a tax change along the lines of what's being discussed would add something around a third of a per cent to the national income, a permanent gain but a one-off.
This doesn't pass the Turnbull test.
The Treasurer is much more inclined to take up the big reform option, but even he isn't entirely sure yet.
Risk of inaction
Why is Morrison more inclined? Because he approaches it from another angle. Where Turnbull emphasises the risk of acting, Morrison is preoccupied with the risk of inaction.
If the government does nothing, the average wage-earner automatically will be pushed from the 32.5 per cent tax bracket to the 37 per cent tax bracket next year.
Instead of paying 32.5¢ of tax on each extra dollar of earnings, he or she will pay 37¢.
This happens automatically through the pernicious effects of "bracket creep" or "fiscal drag" – inflation and wage rises push wages higher bit by bit, and when they tip over the current tax threshold of $80,000 a year they qualify for a higher rate of tax.
Another way of putting it is that the average earner will move into the second-highest tax bracket. The last time that happened was 15 years ago. Howard and Costello delivered tax relief with their dramatic 2000 reform package.
The government backbencher Dan Tehan expressed Morrison's concerns in a piece in Fairfax Media on Friday:
"Bracket creep will take $5.5 billion from Australian workers this year and over $25 billion between now and 2019. This means that workers earning the average annual wage of $80,000 will see an extra $3800 go to the Tax Office each year. "With no changes, in seven years these average earners might be earning 30 per cent more in wages but end up paying 50 per cent more in tax."
Morrison fears that, when millions of workers are pushed into this higher tax bracket, they will crimp their spending. Consumption across the economy would be affected. Economic growth slows.
So, for Morrison, inaction carries its own risks.
Morrison also wonders if Australia can afford to sneer at any extra opportunities for growth, even small ones.
'Where is the growth going to come from?'
The world economy is slow and slowing. Australia used to enjoy trend growth of over 3 per cent a year; as the Reserve Bank has pointed out, the country seems to have slipped into a new era of growth below 3.
"Does a third of a per cent of extra growth sound trivial?" poses Chris Richardson of Deloittes. "Yes. But where is the growth going to come from?
"In the 1980s a lot of Australia's growth came from a growing share of baby boomers and women entering the workforce; now that's falling.
"In the 1990s a lot of the growth came from the productivity gains from the economic reforms of the 1980s. That's now exhausted.
"And in the 2000s a lot of growth came from the mining boom. That was marvellous until 2011. Now baby boomers are retiring and coal and iron ore prices are buggered and on the best measure of living standards" – real per capita national income – "we've been going backward for four years".
"Our living standards come down to our own courage. We now have to do politically difficult things that politicians haven't had to do for many years."
The one-third of a percentage point in extra growth, the experts add, is a guess, and it's likely to understate the real effect.
Morrison to test Turnbull's courage
ANU's Warwick McKibbin, a leading international expert on economic modelling, says the standard models like Treasury's models only show the effect that a change will have at a fixed point in time – they fail to capture the cumulative effects.
"Anything you can do to move growth rates will have a big impact over time. The big lesson is that a small positive change can become a big positive over 10 years."
How much courage does Turnbull have? Scott Morrison is about to test it.
If he doesn't have enough for big bang tax reform, there are less dramatic options available.
Plan B? He will trim the overgenerous superannuation tax benefits for the rich, maybe crimp negative gearing concessions, and assemble enough savings to hand out a small tax cut without having to raise the GST.
But hold on.
If he takes the cautious course, he'll end up where Tony Abbott was.
In the last weeks of the Abbott government, Joe Hockey presented his leader with a bold tax reform plan.
It proposed raising the GST to 15 per cent and using the funds to cut personal taxes and corporate taxes, as well as paying compensation to people on welfare.
This would replace inefficient taxes with a more efficient one. It's the same basic design that NSW Premier Mike Baird is urging on Turnbull and Morrison today.
'What is the point of Malcolm Turnbull, Prime Minister?'
But Abbott, badly burnt by his unpopular 2014 budget, had no appetite for risky reform.
Abbott told me last November: "At a minimum, we would have had modest tax cuts based on spending restraints. There were options for more radical reform, but whether we would have plumped for one or another would have depended on developments over the next few months, including what sort of co-operation we were going to get from the states."
Most of the states, then as now, are not minded to co-operate. They are happy for the Commonwealth to do the hard work of reform and to send the cheques to the states. Mike Baird is happy to cheer Turnbull and Morrison on to a higher GST, but he's not offering any serious reforms of the NSW tax base.
So Abbott, in all likelihood, would have ended up with "modest tax cuts based on spending restraints". As Joe Hockey observed to colleagues around the same time: "Tony didn't want to upset anyone" by that stage.
If Turnbull does, indeed, arrive at the same conclusion on tax reform, we are forced to ask: What is the point of Malcolm Turnbull, Prime Minister?
Turnbull inherited Abbott's policies on same-sex marriage. On climate change. On asylum seekers. And on just about everything else. He did announce an innovation package, a departure from Abbott. He has abolished knighthoods. He has funded measures to combat domestic violence.
But otherwise, in the main, we have to ask whether the Turnbull government is shaping up as the Abbott government with a more personable salesman.
Two of the most successful reformers of the past 30 years had some advice for Turnbull in the past week or two. Peter Costello and Paul Keating concurred on the main point.
Both men, Liberal and Labor, urged Turnbull to put top priority on reining in spending, to bring the national deficit under control.
"The world has trimmed us down," with the collapse in commodity prices, Keating wrote in Fairfax Media. "We now have to trim ourselves down. Trim our spending and not accommodate more of it by ever more taxation."
Costello's advice was similar: "Tax changes will not solve the budget problem," he said in a speech a couple of weeks ago. "The budget problem" was that the government was spending too much, he said.
If the government could merely return the level of spending as a share of GDP back to where it was in 2007, the budget would be in surplus, he said.
Once that had been accomplished, the government would be in a much stronger position to look at tax reform. Fixing the deficit would be serious reform, and something Abbott failed to accomplish.
Another of the successful reformers of the recent past, John Howard, gets the final word. Explaining why he took the bold step of acting to curb gun ownership after the Port Arthur massacre, he said on ABC Radio this week:
"History's full of governments having big wins and big mandates but unless you do something with them, you won't achieve much because I can guarantee you this: If you get a big mandate and you sit on it, it won't be there next time." Turnbull doesn't yet have a big mandate. But he has a very big approval rating and a great deal of public goodwill. He needs to think carefully about how to make best use of it.