Malcolm Turnbull and Scott Morrison seem to be at odds about what their big new state income tax plan would so. In fact they don’t even seem to be able to agree that it is a plan.
Broadly, the commonwealth is proposing federal income tax be reduced and then a similar state income tax surcharge be levied. The federal government would reduce its direct payments to the states by the same amount that the states would raise.
For example, if federal income tax went down by 10%, the state tax surcharge would be 10% and federal grants would be cut by the amount that the state surcharge would raise.
At first this seems like a money shuffle, but the rationale is that the states would finally have a share of a tax that steadily grows and would therefore be better able to pay for the increasing costs of the things they need to pay for, like hospitals. And this, so the theory goes, means the states would take responsibility for running those services efficiently, instead of turning to the federal government for more money every time the costs blow out.
As proposed by Tony Abbott’s commission of audit (before the former prime minister ruled it out, calling it “double taxation”) the states would have the ability to raise or lower their surcharges.
And as Turnbull explains it, this is exactly what the commonwealth is proposing over time.
“We would agree that that [the direct shift in the quantum of taxing powers] would be the maximum [the states] would levy for a period. In future, on the longer term, a state should be free to lower that amount or indeed raise it and then they are accountable to their own voters,” he said.
In theory this makes total sense. If the states haven’t got the power to make sure their tax revenue matches the money they need – or if their ability to determine the level of the tax surcharge is tightly constrained – then they may well turn up in Canberra again in years to come asking for more and they don’t actually have the means to take complete responsibility for their own rising costs.
Remember the GST was also initially supposed to be a growth tax that ended the states’ mendicant status for ever, but then Australians started spending less and saving more and the GST grew less than anticipated and the states were back, cap in hand, in Canberra.
But if the states do have power to increase the state income tax surcharge over time then the commonwealth has no way to keep the solemn promise made by the treasurer, Scott Morrison, on Wednesday that any changes would not increase the overall rate of taxation because the Coalition was not into “tax and spend” policies, like Labor.
If you give the states the power to raise a tax, then surely you have to accept that they might raise the tax.
Hours after Turnbull’s announcement Morrison still appeared to dispute this in an interview on Sky news.
“This isn’t about states raising taxes at all ... we have no appetite for states to be able to increase taxes,” he insisted, saying it wasn’t really a plan at all, but rather just speculation and noone should “jump the gun”.
Under Turnbull’s formulation, if state governments wanted to tax and spend, then over time, there would be nothing at all Morrison could do about it. And the Turnbull plan means the Coalition has no definitive comeback to Bill Shorten’s new-political-attack-being-hastily-drafted, that the government is proposing new income tax or an income tax hike, even if that’s not the immediate impact.
• Lenore Taylor will be on the panel at Quarter Time – a topical Guardian Live event featuring Dom Knight from the ABC, Adam Creighton from the Australian and Guardian Australia’s Bridie Jabour on 14 April in Sydney
