WE WILL say it plainly: Malcolm Turnbull’s “big idea” — to cede a slice of income tax revenue to the states, plus income-taxing powers, in return for ending Commonwealth health grants — is a rancid, festering, stinking turd metaphorically belonging only in a sewer. The package is a nonsense, and reeks of a hastily-concocted mishmash by a government desperate for something, anything to sell after months of political and policy ineptitude.
I write this morning not, oddly enough, to criticise Malcolm Turnbull, but from the sheer horror that my sense he could in fact lose the Coalition government this year is looking less and less like alarmist over-reaction with every passing day; this time — not content to have spent months examining better reform ideas in a thoroughly half-arsed fashion before unequivocally ruling them out, boxing the government in and moving the reform debate onto Labor’s vapid, vacuous turf — Turnbull has apparently presided over the creation of an actual policy initiative that is almost tailor-made for a vicious and hard-hitting ALP scare campaign.
More on that a bit later.
But Turnbull’s grand plan to “withdraw from a certain amount of income tax that would be available to the states” — and to give them the power to raise their own income tax component on Australians living within their respective jurisdictions — is one of the silliest, most politically dangerous and almost certainly unworkable “reform” policies produced by either side of politics for a very, very long time, and makes the “Medicare Gold” embarrassment cooked up by Mark Latham and Julia Gillard in 2004 look like a masterstroke by comparison.
The plan, which is unbelievably bereft of detail (and which readers can peruse more about here and here, with some comment from The Australian here) is, to be most kind, as oxymoronic as the pledge delivered by Tony Abbott in 2013 to bring the haemorrhaging federal budget back into surplus without major spending cuts if he won that year’s election; Abbott, at least, had a catch-all as a get-out-of-jail card: a disclaimer that if the books were in a worse state than the Coalition feared once it attained office, then all bets were off, even if that statement was subsequently ignored and the Abbott government proved incapable of using it to sell the 2014 budget. But Turnbull doesn’t even have anything like that to fall back on.
It’s hard to know where to start, so numerous are the holes in this policy, but the obvious place to start is with the states and territories, in whose hands income-taxing powers would be an anachronism, an assault on the truly national system of economic management that has emerged over decades, and a cynical abrogation of any meaningful attempt at genuine reform.
The states — all six of them — have not held responsibility for collecting income taxes for more than 70 years; the idea they could now do so, with no current expertise in this field, is laughable, and the notion the Commonwealth could collect it on their behalf and remit it to state coffers would seem to defeat the purpose completely.
As for the territories, which would presumably also receive this new power to vary and increase income taxes, it’s a case of something they never had that should not be given now.
It takes a heroic assumption of the behaviour of state governments — irrespective of political stripe — to believe that the power Turnbull is contemplating conferring on them would not be abused, and readers need look no further than their antics after the introduction of the GST in 2000 to know that it would only take a few years after this change for all of the states to be broke again, their people taxed to the hilt, and their governments once again crying poormouth on the Commonwealth’s doorstep.
As intended, the GST provided a short, sharp surge in receipts for state governments; Liberal administrations in Victoria, South Australia, Western Australia, Tasmania and the Coalition in Queensland were quickly bundled out of office at the first available opportunity in each case following the Howard government’s declaration that it would seek to legislate the measure if it won the 1998 election.
The resulting wall-to-wall Labor state governments went on a spending binge that left no lasting benefit or improvement in service standards in key areas such as health, education and roads; thousands of extra bureaucrats bloated and swelled stacked pro-Labor public services, of course, but these people do not directly tend or nurse sick patients, or teach kids, or build freeways.
Of course, those teachers and nurses and emergency services workers lucky enough to have jobs got hefty pay rises, as the rivers of GST gold flowed into their paymasters’ pockets, but their overall numbers did not rise to the extent proportionate with the huge amount of extra money the states had been gifted.
In short, and for the most part, the GST fillip was wasted.
To give the states income-taxing powers now — tied specifically to health — is to open a veritable Pandora’s box.
We already know, from their past behaviour, that the states would hire thousands of additional consultants, analysts, senior fat cats and other pen pushers, but very little in the way of extra teachers and nurses, or the beds and classroom infrastructure their professions require respectively.
Once the agreed share of income tax (whatever it is) has been exhausted — and the states’ income tax levers fully extended to extort more cash out of their people — what will they do? Go directly back to Canberra with their collective hand outstretched.
Of course, Turnbull has given no indication of how the plan will work, which raises the prospect of eight different income tax regimes across the country: this isn’t “competitive federalism,” as some in the Liberal Party like to imagine; it’s anarchy.
And what it also is — exactly as some commentators have already realised — is the thin edge of the wedge of an exercise in double taxation, where both the Commonwealth and the states get to pick over every dollar earned by hard-working mums and dads. The cost of living in this country is already a disgrace, and too many people earning seemingly comfortable incomes are involuntarily doing it tough as it is.
Contrary to Turnbull’s solemn assurance that there would be no overall increase in the tax burden faced by ordinary Australians, this dumb scheme will lead to precisely such an outcome, and as we all know too well, once governments are addicted to increased levels of recurrent spending it is very, very difficult to bring them back down.
Turnbull’s plan contains no details of any accountability measures — if there are any — to put constraints on the states to ensure they do not recklessly abuse the powers he proposes to give them, and if there are no such details to provide, then Turnbull shouldn’t have announced the policy. It’s that simple.
This terrible idea is not, as Turnbull pompously proclaimed, the “most fundamental reform to Federation in generations,” nor “the only way” to address the vertical fiscal imbalance that he claimed constitutes the “failure at the heart of the Federation:” any number of better options for securing government revenues — most notably, GST reform — offer other possibilities for dealing with the problem, even if they have been summarily discarded by the Coalition at the first sign of ALP mischief-making.
But simply shuffling responsibility for who levies which portion of the overall tax take around the place fundamentally solves nothing at all, even if (as expected) the states were to use that right to hike the taxes they took.
Curiously, the state Premiers have been barely lukewarm in their responses to the idea, and there is probably a warning message there: the sense that Turnbull might in fact be wiping his hands of federal responsibility for Health funding probably outweighs, in the mind of a pragmatic Premier, the attraction of what Paul Keating once characterised as “a pot of free money.” Certainly, something smells, and the states appear surprisingly astute in their hesitation.
But once Turnbull gave them partial income taxing powers for Health, what would follow? More state income tax for schools? More state income tax for roads? Before you know it, the Commonwealth would need to drastically increase other taxes (such as job-destroying company taxes) to be able to continue to deliver on Defence, Foreign Affairs, its own share of responsibilities for Roads and Higher Education, and — not least — the $175bn annual welfare bill, which in itself is a national disgrace.
By its nature, the Turnbull plan on Health does not and cannot enforce efficiencies on the states: they would be utterly free to squander every cent of the increased revenues on Labor-allied bureaucrats and other hangers-on if they chose to do so and again, protestations that “that would never happen” are shot down with a glance back in the direction of the post-2000 introduction of the GST.
And having seemingly surrendered funding of Health to the states altogether, the Commonwealth would be in no position at all to oversee any kind of effort to eliminate waste, or to exert any control over health service delivery at all, and with the odd exception of the odd state government for short periods not always determined by which political party holds power, the last thing anyone would argue is that Australian state governments have been star performers when it comes to running hospitals.
After months of picking up tax “reform” ideas, one by one, only to find arcane and at times ridiculous pretexts on which to unilaterally rule them out, the policy announced yesterday by the Prime Minister smacks of desperation, and reeks of the near-panic of a government that is in dire need of something — literally, anything — to cling to and to sell with an election bearing down on it like a road train.
But it won’t fix the funding problem the states have created in their hospitals, by pissing money away on non-frontline personnel when they had it; it won’t guarantee a permanent source of growth revenues to fund health services, and it won’t — irrespective of any melodramatic twaddle from Turnbull — reform the Federation in any way, shape or form: all it will do is create an anarchic mess, to say nothing of the very real scope for the Coalition’s opponents to run the mother of all scare campaigns to ensure it never even materialises.
With luck, this policy will go the same way GST changes, and capital gains changes, and negative gearing changes have gone: dumped. It is an execrable and unbelievably stupid “initiative” from a government that can and should know better. Then again, the quality of policy objectives from governments of both persuasions over the past decade has left a great deal to be desired.
A better discussion would be to finally confront the debate over whether Australia truly embraces universal socialised healthcare, and moves Medicare to a NHS-style system as applies in the UK, or whether it really does look to move to a model of two discrete systems of a public service funded by a Medicare levy with a parallel private system that people can opt out of the public system to join and fund through insurance.
As it stands, families with two middle income earners and a private health policy are paying up to $10,000 per year on health per household, often with poor outcomes in terms of waiting times, cost gaps* over and above those direct payments, and in some cases no availability of services at all.
But whether that happens or not, an even better discussion to have centres on why there should be eight state and territory health bureaucracies — plus a federal department of Health — when the Commonwealth can and should be the sole provider and funder of a single public system that can be streamlined, real savings realised through rationalisation, and the proceeds ploughed back into frontline services in the form of more nurses, beds, and more facilities and equipment.
In short, healthcare in this country is broken, and Labor is every bit as much to blame for that as the Coalition, irrespective of whatever it says to the contrary.
And this brings me back to the scare campaign Labor is already cranking up on the back of Malcolm Turnbull’s stupid, half-baked plans for the states to tax income to pay for hospitals.
Opposition “leader” Bill Shorten’s column today in Sydney’s Daily Telegraph is typical of the vacuous, dishonest, shrill rubbish that forms the ALP’s contribution to public debate these days, and whilst I’m not going to dignify it with the line-by-line demolition it probably merits, it is sufficient to simply describe it as absolute bullshit.
The problem is that whilst Shorten has undeniable form for talking bullshit, there are plenty of people around who like the sound of it, and who don’t give it a second thought: and by releasing such a politically naive policy that can’t and couldn’t achieve what it ostensibly aims to achieve anyway, Turnbull has exposed the government to yet another onslaught of Shorten’s verbal diarrhoea.
This year’s election is no slam dunk for Turnbull. Already, some who are well-placed in Coalition ranks who disagreed privately just a month ago with my assessment that defeat was starting to loom as a possibility are this week telling me they’re reconsidering their opinions on that assessment. And if a festering, stinking turd is the best Turnbull can offer after months of backdowns and policy dithering, then heaven help the country when he really gets cracking with the rest of his election agenda.
*As a personal aside and to illustrate the point, readers will recall I shared my experience of having “a stroke” on an aeroplane last August that wasn’t a stroke at all, but a completely harmless (albeit extremely rare) ear abnormality: despite the Medicare system and despite having top private health cover, it cost me $2,300 in out-of-pocket costs to ultimately ascertain that I needed a grommet. Others will have similar stories. If healthcare in this country is to be fixed, Labor’s model of bureaucrats and big pay rises for existing frontline staff (and little else) — and Turnbull’s game of smoke and mirrors with tax collection arrangements — are nothing more than empty bluster.