Malcolm Turnbull has moved to reassure smaller states and territories they would not lose out from a plan to share revenue gained from income tax, but the proposal still faces an uphill battle to be accepted.
Premiers and chief ministers arrived in Canberra on Thursday to attend a dinner with the prime minister ahead of Friday’s council of Australian governments (Coag) meeting.
The dinner-table conversation about the income-tax-sharing arrangement, first revealed by Guardian Australia on Tuesday, was “robust”, the chief ministers said.
Under the arrangement, the commonwealth would give states and territories a proportion of income tax revenue in exchange for individual grants and partnerships. Although Turnbull said the deal would not result in extra taxes, he conceded states would eventually be able to raise income tax rates.
Smaller states are worried they would lose out from the deal because their capacity to raise revenue was lower.
“I’m here once again to protect Tasmania’s interests, and while we’re prepared to talk about possibly sharing in the national pool of income tax revenues, the notion that Tasmania might compete with other states in an income tax race to the bottom is not something that will serve Tasmania’s interests at all,” the Tasmanian premier, Will Hodgman, said.
The Northern Territory stood to lose about $166 a fortnight from the proposal, its chief minister, Adam Giles, said. But he said Turnbull was considering “work-arounds” to help level the playing field.
“The prime minister has said that there will be no tax increase on Territorians and on Australians,” Giles said. “It’s about the work-arounds in the system, but the big benefit in this is giving states and territories the freedoms to be able to make decisions without Canberra telling you what to do.”
Hodgman said Tasmanians would still lose out.
“Any talk of compensation just demonstrates the fact that there’s going to be a loser in this,” he said. “If there’s compensation necessary somebody is getting hurt and more likely than not under this arrangement it would be Tasmania.”
Victoria and Queensland were against the proposal because of its intent to hand back funding of public schools to the states, while the commonwealth retains funding for independent and private schools.
“I am absolutely horrified,” the Queensland premier, Annastacia Palaszczuk, said. “The Australian public, and I know Queenslanders, expect the commonwealth to be a key player and a key partner in issues like health and education.
“It’s simply unacceptable to have a divide, which is what the prime minister is talking about, between different schools in our country.”
The Victorian premier, Daniel Andrews, said it was wrong to assume that income tax revenue would grow faster than revenue from commonwealth grants.
“The facts are, no, that has not been established,” he told ABC Radio.
The Western Australian premier, Colin Barnett, supported the income tax-sharing idea, saying it would increase accountability in spending.
“I’m a little disappointed that some of my premier colleagues have been so negative so quickly,” he said. “As soon as a proposal is put up with good intention, people start doing the numbers and working out whether I lose or you win and we go nowhere. We’ve had decades of that.”
South Australia and New South Wales welcomed the proposal as a way to recoup some of the money taken from the states in the 2014 federal election.
“I think it is possible for us to get a contribution towards restoring some of those cuts to health and education,” the SA premier, Jay Weatherill, said.
“A number of us have been essentially campaigning against those $80bn cuts since the day they were made and this is an opportunity to remedy that situation.”
The Coag meeting is expected to wrap up on Friday afternoon.
