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Prime Minister Malcolm Turnbull and Treasurer Scott Morrison are facing a backbench revolt over a possible hike in the GST to 15 per cent, with opposition in government ranks hardening against a move to hike the consumption tax.
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Some Liberal backbenchers are getting cold feet on the GST, posing problems for Malcolm Turnbull and Scott Morrison. Analysis with James Massola.
The revolt centres on two groups of MPs: hard-headed small government advocates who oppose any tax hike, particularly if it also means an increase in welfare spending and compensation and, secondly, backbenchers in marginal seats - nicknamed "bedwetters" by some in the Liberal Party - who fear Labor's scare campaign on the GST and the difficulty of explaining the reform to voters.
One MP even claimed to Fairfax Media that as much as 50 per cent of the Liberal backbench were opposed to the rise. Fairfax Media spoke to 14 Liberal MPs on Wednesday about the prospect of an increase in the GST and was told that at least 17 MPs are now opposed to a rise.
There is, however, still a significant bloc of MPs that believe the government must press on with its reform agenda and spend the considerable political capital Mr Turnbull has banked - not to mention his lead in the opinion polls.
Some backbenchers are withholding judgment, rather than supporting a rise sight unseen, and are awaiting further details of the final shape fo the tax reform package. But there is a developing view that a GST rise will be so unpopular that it is best "killed" in the coming weeks.
It is now the prime topic of discussion for Liberal MPs and briefings by the tax unit in Mr Morrison's office - designed to keep nervous MPs "in the tent" - have begun to give an outline of the broad fiscal challenge facing government.
However frustration at the absence of any details has marginal seat MPs worried that the government is losing control of debate which is being increasingly defined by Labor's GST scare campaign.
Liberal Party federal director Tony Nutt will on Wednesday night brief marginal seat MPs about the challenges of the coming election campaign, and the GST is expected to be discussed at the meeting.
Assistant Treasurer Kelly O'Dwyer struggled to explain the government's position at the National Press Club on Wednesday, pledging only that voters would know all the details of the government's tax package before the election.
Mr Turnbull told Parliament that "the government is considering carefully all of these proposals, the government has not made a decision to change any element of the tax system beyond those that have already been announced".
And Mr Morrison seized on the comments of former prime minister Paul Keating - revealed in Fairfax Media - to criticise the opposition on Wednesday.
"This is what Paul Keating said: 'the world has trimmed us down, we now to have trim ourselves, trim our spending and not accommodate more of it by ever more taxation', he says 'the aim of policy should be make the private sector larger'. He's right."
The hard-heads - who are predominantly but not exclusively party of the party's right and are economically dry - are particularly annoyed with Mr Morrison, believing he is trying to emulate former treasurer Peter Costello.
"We are broadly supportive of the PM's desire to see all options on the table but Scott is too blinkered and too GST focused - now is the time to narrow the focus and take the GST off the table," one MP said.
That MP said Mr Morrison had made it very clear, through his "consigliere" Alex Hawke, a hard man of the NSW centre-right faction, that "Scott wants this" but there would be a "revolt" if it went ahead.
The opponents of a GST rise believe, however, that Mr Turnbull still genuinely has an open mind on the issue.
Another MP said there had been a "tidal wave of concern" expressed since MPs returned to Canberra.
"It's the only thing anyone is talking about," that MP said, "I don't like it because it increases the size of government. Why is [Mr Morrison] going so hard?"
A third MP said that "my growing view is that it is nearly impossible to raise [the GST] without increasing the size of government, in which case I can't support it".
The economic dries say they would accept other reform options that have been canvassed, such as changes to generous tax concessions on superannuation contributions.
But a supporter of raising the GST in Coalition ranks said that while "some people are very nervous" and agreed there were small government and marginal seat groups opposing a rise, "now is the time to do this".
"With Malcolm Turnbull having so much political capital, he needs to spend some of it and indirect taxes are more efficient than direct taxes," the MP said.
Another supporter of raising the GST said that "if not GST, then there will be no serious tax reform".
"There simply is no capacity within the budget for extra spending and there is no patience in the electorate for spending cuts."