After a week in which the government has appeared to cool on the idea of increasing the goods and services tax, and backbenchers have openly criticised the idea, Turnbull used an interview with Adelaide radio to talk up the complexities of the move and reinforce the growing perception that he is unenthusiastic about it.
Turnbull questioned whether raising the GST could deliver the necessary compensation and personal income tax cuts as well as the boost to economic growth that the government has always said is the aim of the exercise.
“They have to do the heavy lifting in getting the maximum health bang for the taxpayers’ buck,” Turnbull told 5AA.
“The states cannot disclaim responsibility for raising revenue. They have to be prepared to go to their citizens and say we need to raise more money to spend on our schools and hospitals and we are going to raise this state tax or that state tax, but when you say that to them they recoil in horror and say, no the federal government should do it.
“Some of the most efficient taxes are state taxes, like land tax and payroll tax.
“The states have got themselves into a way of thinking that every time they need more money they go to the ATM of the federal government and when you say to the state … ‘You have land tax, you have payroll tax,’ they say, ‘Oh well, that would be politically difficult,’ and we say, ‘Well you’re asking us to put up the GST. Do you think that’s political easy?”
Earlier this week Guardian Australia revealed leaked confidential documents proposing a radical shake-up of hospital funding prepared for the next Council of Australian Governments (Coag) meeting in March or April.
The documents – marked “COAG in confidence” – proposed the commonwealth pay an agreed percentage of the cost of each hospital procedure under a new “hospitals benefit”, regardless of whether the service is provided in a public or private hospital or to a public or private patient.
And after a week of internal dissent over the possible rise in the GST, Turnbull articulated the government’s central dilemma: finding a way to achieve its stated aim of using the tax changes to boost economic growth while also delivering the compensation and personal income tax cuts that would make it fair and politically saleable.
“If you are going to make a change in the tax mix … you can only do so if the change will result in higher productivity, more growth and jobs and investments,” he said.
“After you have done all that are we getting a productivity benefit, a growth dividend that justifies the trouble and expense and complications of making the change?”
Behind closed doors the government has been struggling with this question and sources said the prime minister was unconvinced that a GST increase should be included in the final tax package.
The government’s stated argument for tax reform is to boost economic growth, but the modelling and analysis it is receiving from Treasury and other sources points to company tax cuts delivering a higher growth dividend, despite the political desirability of weighting the overall package towards personal income tax cuts.
The former Labor government had promised the states $57bn in long-term hospital funding after protracted negotiations to address the fact that the cost of hospitals – as the population aged and medical technologies became more expensive – was projected to exceed some states’ entire budgets over time.
The Abbott government cut this agreement in its 2014 budget, meaning that promised 9% a year funding increases after July 2017 would fall to 4.5%. Turnbull has continued with this policy.
All states say they cannot operate existing hospitals with this funding. The New South Wales premier, Mike Baird, calculated the shortfall would reach $35bn nationally by 2030.
Baird and the South Australia premier, Jay Weatherill, had joined forces to tell the treasurer, Scott Morrison, that finding extra federal funding to head off a looming hospitals and schools funding “cliff” is a “non-negotiable” condition of their support for increasing the GST.