Shoving the GST off the table has laid bare the ideological rifts that have muddled the tax “debate” for months.



It confirmed what has been pretty clear – the Turnbull government is washing its hands of the looming funding crisis in health and education in the interests of an ideological commitment to small(ish) federal government.

And it clarified the extent to which the prime minister and his treasurer are talking at cross purposes, again because of ideology.

The major parties may now take similar tax plans to the next election – cutting superannuation tax concessions, for instance – but with an ideological divide over what the money is used for; the Coalition probably offering much smaller tax cuts and Labor paying for services.

The federal government’s “not our problem” attitude to the $80bn cut from forward projections for schools and hospitals funding in Tony Abbott’s first budget was already implied with its insistence it was not going to “raise the overall tax take” – it being somewhat difficult to return all the proceeds of a tax hike by cutting other taxes and simultaneously using the same money to pay for services.

But, with various premiers proposing various ways that they might be able to get some slice of the GST increase to pay for what they describe as a looming “fiscal cliff”, the federal government preferred to praise them for their “constructive efforts” on the GST and ignore all the stuff they were saying about how in the not-too-distant future they would not be able to pay for public hospitals.

Now the treasurer, Scott Morrison, is happy to come right out and say it. “The states wanted us to raise the GST so we could give them more money. We were never going to do that,” he told his friend Ray Hadley. “We are not about taxing and spending.”

Of course, taxing and spending is basically what all governments do. A decision to freeze the tax take at a particular level, regardless of the spending needs left unmet and the services left unavailable, is an incremental judgment call rather than some kind of absolutist decree. It is widely accepted the hospitals’ funding shortfall cannot possibly be met entirely by state government “efficiencies” or spending cuts.

So the federal government is proposing the states solve it by raising their own taxes, which means the decision that the current federal tax “take” cannot rise somehow does not extend to the state tax “takes” or the overall national tax “take”. The South Australian premier, Jay Weatherill, says that sounds like “cheap politics”. Another term could be “passing the buck”. Weatherill’s “constructive efforts” now appear to be over and he is reigniting his “federal cuts hurt” campaign.

Meanwhile, the federal government has different reasons for ditching the GST, depending on who you talk to.

The prime minister, Malcolm Turnbull, remains “unconvinced” because modelling showed the GST hike/personal tax cut switch didn’t deliver on the object of the exercise – a significant increase in economic growth. Defying the many commentators who define a GST increase as “reform”, and therefore by definition desirable, he persisted in looking for the economic evidence and says he didn’t find it.

But Morrison says he still wants to do it anyway because a higher GST is the only way to pay for a big tax cut for middle- and high-income earners, the people who “are out there working hard ... and who actually pay for the welfare system”.

Perhaps styling himself as a latter-day Moses, he says he was unable to “part the Red Sea” this time but that he will continue to work for this outcome – despite the fact that the prime minister says it doesn’t stack up.

And Morrison was as clear as he could be that ditching the GST option was not his idea and that he still thinks it could make sense.

“You have got to be practical in this business and you have got to make decisions as a team, which I fully support,” he said. “The prime minister leads that team. As he said, the first amongst equals.”

And asked about Turnbull’s assessment that the economics were not convincing, he said: “In an environment like this, where world growth is very, very sluggish for all the reasons we understand, then it is important that we fight for every inch of growth that we can get.”

Of course we could fully understand the relative economic merits of the options now on, and off, the table, if the government released its modelling.

And while we’re at it we could assess the long-term social and economic costs of substandard hospitals and insufficient funding for disadvantaged schools. Then we could really understand the trade-offs being made here, in the interests of economics, and of ideology.