Premiers have pocketed Malcolm Turnbull’s $2.9 billion in funding for hospitals, but rejected his radical income-tax plan, leaving the Coalition facing an election attack over tax policy and without any long-term funding strategy for schools.



At the Council of Australian Governments meeting in Canberra, Turnbull offered no extra money to make up for the $28bn cut from projected schools funding in Tony Abbott’s first budget but has agreed to sign a new deal with the states early next year.

But he did offer $2.9bn over the next three years for public hospitals ahead of a longer-term deal, and this was welcomed by the premiers.

The prime minister said both the schools deal and the longer-term hospitals deal would have to be paid for within “the existing fiscal envelope” by “stretching our dollars further” because all governments faced “serious structural budget problems”.

“We believe that the federal tax burden is already high. We do not seek to increase the net tax take of the federal government. Australians are already paying very high levels of tax. And what we are determined to do is to use the resources we have more efficiently,” he said.

But the premiers were adamant that the nation faces a serious revenue problem, and governments would need to raise taxes to retain health and education services at the levels Australians expect.

The NSW premier, Mike Baird, said the commonwealth had provided enough for hospitals up to 2020, but after that time he believed Australia faced “an expenditure and revenue problem. Both of them. And we have to be honest about that.”

Jay Weatherill, the South Australian premier, said: “I think that there is a truth and this is something that we are at odds with the commonwealth about. There is a revenue problem in this nation. These are needs, in particular in relation to hospitals. It is not a question of whether or not which level of government funds it. The reality is this expenditure is locked and loaded. These people are coming into our hospitals. The real question is who bears the burden of actually meeting that need. And there has to be a substantial discussion about increased revenues.”

The Victorian premier, Daniel Andrews, said there was “no getting away from, forgetting or politely explaining away the fact that many billions of dollars will not be flowing to hospitals in my state and hospitals right across the nation as a result of decisions made in the 2014 budget.”

Even Colin Barnett, the premier of Western Australia, who said the $80bn in funding promised under Labor had never been realistic, said he believed in the longer term “there has to be some extra revenue it we want to maintain the quality of health care we have.”

And the Queensland premier, Annastacia Palaszczuk, said there was “obviously going to be a huge strain on health and education and we have not yet talked about how we close that gap.”

Turnbull had asked the premiers to consider a sweeping plan to shift a proportion of the commonwealth’s income taxing powers to the states, with commensurate cuts to state grants, saying this could, over time, allow the states to take full responsibility for funding their own services like public schools with a growing revenue stream.

He conceded there had been “not anything like a consensus” for that idea and it had been “withdrawn”.

But the states have agreed to negotiate a plan to have more autonomy over the federal funding they receive, by getting a fixed share of income tax revenue instead of grants tied to commonwealth-imposed conditions.

“This would not result in states getting more money – immediately – though they would have a good growth profile, but it means they would have greater freedom. Greater freedom to determine how they spend that money. It would give them greater financial autonomy,” Turnbull said.

Turnbull had suggested his radical tax plan could even see the commonwealth withdraw from funding public schools, but the premiers insisted that idea was unacceptable and it has also been shelved.

Labor leader Bill Shorten is already on the attack over Turnbull’s original tax proposition, claiming Turnbull had come up with a “trifecta of band ideas”.

“Mr Turnbull, fresh from announcing that he wants states to be able to levy income taxes, so people pay more taxes, fresh from announcing this week an inadequate Band-Aid over the hospital system to repair some of the damage done by Liberal cuts to hospitals, Mr Turnbull’s now ... completed the trifecta of bad ideas for the future of Australia. He has now proposed that he wants to abandon funding of government schools throughout Australia. He only wants to ... fund private schools. Mr Turnbull has come up with the most outlandish idea in the history of Australian school education. The parents of Australia will not fall for this,” Shorten said on Friday.

And Greens leader Richard Di Natale was also scathing, saying Turnbull’s plan had been a distraction.

“Tony Abbott tried to deceive the Australian people. He did that by promising no cuts to health and education and yet in the 2014 budget he took the hatchet to schools and hospitals. Malcolm Turnbull is using a slightly more sophisticated tactic. Rather than trying to deceive the Australian people, he is trying to distract them. He is trying to distract them by throwing up this proposal to grant powers to the states to raise income taxes. Now, the impact is effectively the same. It is that we will see huge cuts to schools and hospitals,” he said.

“The Greens have a very clear view and it is a view that is supported by the majority of Australians. We believe it is a responsibility of all of us to raise revenue, to ensure that we provide an education and a health system that is available to everybody.”