Venom Page 5
Chris Bowen, the Labor Shadow Treasurer, had rejected a GST increase all year and now resumed the attack. The profusion of ideas from the government raised simultaneous hopes that a bigger GST could pay for more health and education, give the states more money, cut income tax rates or help business with a lower company tax. Which would it be? ‘It’s like when you get a raise in your salary and you think of five things you’d love to do with the extra money,’ Bowen said. ‘Deep down, you know you can only do one.’ Bowen was open to a cut in the company tax rate. ‘I would like to see the corporate tax rate come down over time. I have previously said the nation should be aiming for a 25 per cent corporate tax rate,’ he said in September.8
Summer began with the government so far ahead of Labor in the polls, 53 per cent to 47 per cent in two-party terms in Newspoll, that nobody around Turnbull had any cause for alarm at the fact the government’s economic agenda remained in flux. The work on the tax policy continued while two scandals intervened. One was the forced resignation of Brough as Special Minister of State when he came under investigation by the Australian Federal Police over a political intrigue years earlier that brought down the Speaker of the House of Representatives, Peter Slipper, after complaints by his adviser, James Ashby. Brough declared his innocence but said he would leave Parliament at the election.9
Another scandal emerged when the Minister for Cities, Jamie Briggs, resigned after a complaint against him by an Australian consular official who said he had placed his arm around her and kissed her on the neck at a Hong Kong bar during a work visit. Turnbull was quick to act on the complaint and told Briggs on 10 December he should consider his position, an early sign of the hard line the Prime Minister would take on matters of personal conduct.10
The first months of Turnbull’s leadership were marked by conflict and negotiation in global affairs, beginning with a visit to the Group of 20 summit in Turkey in the days after the Islamist terrorists inflicted the worst attacks in France since World War Two, killing 130 and wounding 90 at a concert at the Bataclan theatre and a football match at the Stade de France. Turnbull was in Berlin at the time of the attacks and responded with a condemnation of Islamic State terrorists and a warning against blaming Australian Muslims. He quoted Indonesian president Joko Widodo, who he had met two days earlier.
‘These terrorists commit a double crime,’ he said. ‘They are murderers. They are mass murderers. They are barbarians but at the same time, they also defame religion. They defame Islam.’11 This was a difference in stress and accent from Abbott. There was no shift in policy on counter-terrorism within Australia and no change to threat levels, but Turnbull was deliberately inclusive in his language and did not deliver the rebuke to Muslim Australians that so many conservative commentators wanted. Like others in power, Turnbull was given advice from security agencies on the need to avoid rhetorical flourishes that offended the Muslim community leaders whose work helped identify and halt attacks within Australia. Turnbull saw the Paris attackers as ‘terrorists who murder in the name of God but are utterly godless’ — a description at odds with Abbott’s view of Islam as a religion that encouraged violence and terror.
‘Cultures are not all equal,’ Abbott wrote. ‘We should be ready to proclaim the clear superiority of our culture to one that justifies killing people in the name of God. Islam never had its own version of the Reformation and the Enlightenment or a consequent acceptance of pluralism and the separation of church and state.’12 There was no shortage of scholars to dispute Abbott’s understanding of Islamic history but his position was as immutable as church law. Abbott, who had spent almost three years in a Catholic seminary before entering journalism and politics, held to the certainties of a church that had itself resisted the Enlightenment. He was unyielding on the superiority of Christian tradition and abrasive in a way he could not be when he had the responsibilities of the Prime Minister’s Office. He no longer felt the need to follow the advice of security experts who might urge caution in his public remarks to avoid provoking division.
Some of Abbott’s former allies in the government rejected his analysis. Concetta Fierravanti-Wells, the Assistant Minister for Multicultural Affairs and a conservative Catholic with a good network among Muslim community leaders, criticised the ‘megaphone politics’ of the calls for a reform of Islam. But another who voted for Abbott in the leadership spill, Josh Frydenberg, now the Energy Minister, had told Sky News he believed there was a ‘problem with Islam’ and that moderate voices within the Australian Islamic community should speak up to reject violence.13
What plagued the Liberals was a constant unease about whether they were being too hard or too soft in their message to Muslim Australians. There were few such divisions within Labor when Shorten spoke of ‘inclusion’ after the Paris attacks or wrote to Muslim community leaders to deplore the way they were ‘assaulted, vilified, and wrongly stigmatised’ for the crimes of Islamic State.14 On this issue, the contrast between Turnbull and Abbott was emblematic of the anxieties within their party.
The sensitivities were so great that Liberals complained when Turnbull suggested the head of the Australian Security Intelligence Organisation, Duncan Lewis, might want to talk to Andrew Hastie, a former soldier and new Liberal Member of Parliament who had spoken about the reform of Islam. Turnbull gave the intelligence chief Hastie’s mobile phone number. Lewis called Hastie and another Liberal MP, Dan Tehan, the chair of the parliamentary joint committee on intelligence and security. This was enough for Turnbull’s critics to complain that Lewis, a former SAS commander and national security adviser, had tried to ‘heavy’ the backbench.15 Lewis argued in public that Muslim Australians were critical to the fight against terror, an approach endorsed by many in the national security establishment, but this was provocative for Abbott and his small band of supporters in the party room.
Turnbull reached an unlikely agreement with United States president Barack Obama in January. In their private talks in Washington DC, Obama admitted to lying awake at night pondering the risk to thousands of Iraqis from a collapse in the fragile Mosul Dam, a problem he acted upon within days. In response, Turnbull mentioned the fate of refugees on Manus Island and Nauru. The discussion turned to Obama’s desire to host a leaders’ summit on refugees in New York in September, and then to the idea that the United States could resettle some of the ‘Pacific Solution’ asylum seekers while Australia might take some from America. Months of confidential work followed and the September deadline was missed, but Turnbull was able to announce a surprising agreement in November to find new homes for hundreds of refugees.
While the government pondered its tax ideas over summer, Shorten exploited its indecision. The Opposition Leader returned from leave in the second week of January 2016 and began a series of daily appearances at supermarkets to speak about household prices, as if the election campaign had already begun. His small talk at a Woolworths store in the New South Wales regional city of Queanbeyan, where he asked a shopper which type of lettuce she preferred, led to days of mockery on social media, yet the attention helped him alert voters to the prospect of price increases if Turnbull extended the GST to fresh food.
‘Everyone said how silly I was,’ Shorten said later.16 ‘And I thought no, I know exactly what people will think about the prices. Just talking about increasing prices was, I thought, an act of arrogance by the government, and very much out of touch with how real people were living.’ Shorten toured regional seats to warn about a GST increase and was confident he was rattling the Liberal and Nationals MPs. ‘They weren’t used to the pressure.’
Business groups, and some economists, wanted the government to win this economic argument in the belief Australia needed more revenue from the GST, seen as an efficient tax, in order to reduce income tax and encourage workers. The Financial Services Council, representing banks and the finance sector, produced a report from KPMG in the middle of January that found a bigger GST, extended to fresh food and lifted to 15 per cent, could pay for a
cut in the company tax rate from 30 to 22 per cent as well as income tax cuts and payments to those without work. The effect would increase economic growth, add to job creation and leave households better off. The Business Council of Australia released similar work three weeks later, with figures from Deloitte Access Economics on the economic gain from a higher GST and lower company taxes, but it came too late.
The reform moment passed. Turnbull buried the GST option in an interview on the ABC’s Insiders program on Sunday, 7 February, with a warning that the economic gain would be too small to justify the changes. ‘At this stage I remain to be convinced, to be persuaded, that a tax mix switch of that kind would actually give us the economic benefit that you’d want in order to do such a big thing,’ he said. His office later distributed a treasury analysis, using work from KPMG, that estimated a 0.3 per cent increase in gross domestic product from an increase in the GST to 15 per cent, a broadening of its base to water and sewerage, a cut in personal income taxes and compensation for vulnerable households.
This was a pivotal retreat for a government and leader searching for something to fight for. Turnbull had spent months looking at battle plans without taking a step, while the chatter about his options had worried his own soldiers. He was now exposed to Labor claims he secretly wanted to impose a GST after the election even if he ruled one out beforehand. Some of those around Turnbull, such as Hendy and Sinodinos, believed the tax change was worth pursuing, but all knew the conditions were very different from the Howard government’s campaign for the GST at the 1998 election. The budget deficit was a significant constraint. ‘We could buy reform in 1998, we could not do it in 2016,’ said one cabinet minister.
The government’s ability to argue the case for major change was weaker than it thought. A proposal as difficult as a higher GST required total discipline and precision in political execution, something the government rarely displayed. There were signs of friction between Turnbull and Morrison at times, particularly when Turnbull’s staff saw media reports in favour of a particular tax reform option as a sign of ‘front-running’ by the Treasurer’s office. It was a warning sign for the election to come.
Shorten and Bowen advanced their own tax agenda while the Coalition regrouped. One week after the government abandoned the GST package, they put forward a way to raise $32.1 billion over ten years by tightening the tax concessions on negative gearing and capital gains. First, they would limit negative gearing to new housing, so an investor might have less reason to outbid young homebuyers who wanted to own their own homes. Next, they would cut the capital gains tax concession on investment properties from 50 per cent to 25 per cent, so investors would have to pay more tax if and when they sold their properties. Shorten and Bowen were not banning negative gearing but making it less attractive — and stepping into a boxing ring where Labor had been bruised before.
Shorten and Bowen were at risk in this contest, but Turnbull and Morrison were both handicapped. Turnbull had admitted a decade earlier that the negative gearing rules were ‘very generous’ and akin to tax avoidance. Morrison had conceded only two months earlier there were ‘excesses’ in the system. Now both men decided to do nothing about them. The government relied on analysis that painted negative gearing as the domain of the average, aspirational Australian, used by one in every five police officers, train drivers and ambulance officers. The picture was very different when measured by value. The deductions from negative gearing reduced federal revenue by about $3.7 billion a year. One third of that went to the top 10 per cent of households by income. The capital gains tax discount on the sale of investment properties reduced revenue by another $4 billion a year. Three quarters of that went to the top 10 per cent of households. The figures from the National Centre for Social and Economic Modelling, at the University of Canberra, buttressed the Labor campaign but also meant Shorten had to debate complexity while his opponents chose the simplicity of ruling out change.
The gulf between Labor and the Coalition over the 2014 budget, defined by Shorten’s rejection of Abbott’s spending cuts, continued in the new landscape of the tax debate. Shorten proposed a tax increase while Turnbull talked of tax cuts. Shorten punished a specific group, property investors, while Turnbull looked at ways to reward companies with lower tax rates. Labor was pinning its hopes on younger Australians who blamed property investors, most of them older and wealthier, for pushing up prices and making it harder for others to buy their first homes. The generational divide was central to this Labor policy and others.
The government considered its own negative gearing changes, such as a cap on the number of properties an investor could use to claim tax deductions, or a cap on the dollar value of the deductions on an annual tax return, but the resistance within the party room was too great. In early March, after weeks of rumours of a budget measure that would raise money but hurt property investors, Abbott made a rare intervention in the Coalition party room to praise Turnbull for criticising the Labor proposal on negative gearing.17 Abbott followed this praise with a warning. ‘The corollary is that we can’t go down this path ourselves,’ he told the meeting, according to another in the room. ‘If we do our words will come back to haunt us.’ A handful of Liberals expressed the same view. Another door slammed on tax policy.
Abbott had the power to disrupt even if he had no formal position of influence. He demonstrated this within a day by lending his name to a report that blamed Turnbull for pushing back the arrival of a new submarine fleet by half a decade. ‘I’m not just disappointed, I’m flabbergasted at this decision,’ Abbott told The Australian in a news story written by Greg Sheridan, a long-standing friend. The report relied on two documents: the Abbott government’s draft defence white paper, which was classified and never released, and the Turnbull government’s defence white paper, which was released in the last week of February. The first expected the first submarines to enter service ‘in the late 2020s’ while the second forecast ‘the early 2030s’ instead. Abbott denied leaking the document and Sheridan denied he was the source, but what disturbed ministers and backbenchers was the way the former Prime Minister amplified the leak and maximised the damage to the government on national security and defence planning. The charge was not the leaking but the poor judgement.
This was the first instance of Abbott clashing with the government on significant policy in order to defend his legacy. His record on the submarine fleet was marked by abrupt changes without resolution before he lost power, starting with his preference for the purchase of Soryu-class vessels from Japan before he succumbed to pressure from South Australian Liberals to build the fleet in Australia by expanding the capacity of the Osborne shipyard in Adelaide.18 Some of this pressure had come from one of the state’s senators, Sean Edwards, at a point when Abbott was especially vulnerable, days before the attempted leadership spill of February 2015. While the Abbott government began a ‘competitive evaluation process’ to consider proposals from French, German and Japanese shipbuilders, it was left to the Turnbull government to finish the process and select the French supplier, Naval Group. Could the Department of Defence and its contractors really build submarines faster under one prime minister or another? The answer could never be known.
Abbott was parading his promise next to Turnbull’s plan, a political manoeuvre common to opposition leaders who must, by necessity, engage in the hypothetical exercise of what they would do if they held office. This dynamic was now built into the government party room, with a voice ready to remind Liberals of the alternative path they could be on if they had chosen differently the previous September. The government had an internal Opposition Leader. His imaginary path was drawn by assumptions and ideals rather than hard analysis of what might have been possible under an Abbott government, but it became a dotted line on a map as the government marched along its chosen trail instead. It was always there when the Liberals argued over their direction, until the arguments left them stranded in a valley.
Turnbull had not given up on t
he grand ambition of restructuring the tax system and, even more audaciously, the federation itself. He began preparing for a meeting with state premiers and territory chief ministers to negotiate funding for schools and hospitals, a source of endless friction after the slowdown in spending growth in the 2014 budget. Abbott and Hockey, proud of their spending restraint, had printed budget brochures advertising a saving of $80 billion over a decade by reducing the annual increase in outlays to the states in these two areas. Spending increased steadily but Shorten attacked the shortfall as a ‘cut’ and wounded the government so effectively that Turnbull was still dealing with the legacy two years later. His answer was to propose giving the states more control over their own destinies.
On the Wednesday after Easter, six weeks after killing off the GST increase, Turnbull held a press conference at the Penrith Panthers rugby league club to reveal a proposal to allow the states to levy their own income tax in order to pay for their own responsibilities. The federal government would reduce its share of income tax by an agreed percentage and allow state governments to claim an income tax equal to that amount. There would be no increase in income tax from the taxpayer’s point of view and the money would be collected by the Australian Tax Office in the usual way. Crucially, the states could set their own tax rates if they wanted more money.