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‘The federation must work better,’ Turnbull said. ‘And right at the heart of the problems in the federation is the fact that the states do not raise enough of the revenue that they spend.’19 Turnbull was not the first Prime Minister to identify this weakness in the structure of Australian government, with Canberra collecting most of the revenue and the states crying poor, but he was the first since Malcolm Fraser to propose state power over income tax. ‘It’s much better if we have clearly marked out lines of responsibility and we allow the states to raise income tax to meet that,’ he said.
Shorten quickly launched the same attacks that had forced Fraser to retreat on the idea in the 1970s: this was double taxation. How could Turnbull prevent a state increasing its own income tax rate to leave workers worse off? He could not. The premiers and chief ministers were divided on the idea and the public could not be sure where it would lead. Because the proposal meant the Commonwealth would scale back its payments to the states in line with their increase in revenue, Shorten accused Turnbull of wanting to withdraw federal money from state schools.
This was exactly what Liberal Party headquarters had feared. The party’s federal director, Tony Nutt, had told Turnbull of the history of the income tax concept and the way New South Wales Premier Neville Wran had destroyed Fraser’s proposal by labelling it double taxation. The party’s pollster, Mark Textor, had quantitative and qualitative polling on the idea and knew how damaging it could be to the government’s fortunes. Yet it was announced anyway. Nutt heard the news from Penrith but could get no explanation of why the idea had been aired. It just happened.
The announcement on the lawns outside the football club offered no briefing documents on the scheme. There had been reports of the proposal, following leaks to the media from state governments, but there was not enough detail to answer the critics or quell the fears of double taxation. Hendy had worked on the idea with government officials who drafted cabinet submissions as thick as two airport novels, but none of that work saw the light of day. Turnbull, confident as ever in his ability to persuade others, made the sudden announcement with only days to go until he met the premiers and chief ministers. Two days later, on the Friday after Easter, they met in Canberra and the proposal was dead. It was April Fool’s Day.
‘There isn’t anything like a consensus,’ Turnbull said. ‘That proposal is not there, it’s withdrawn.’20 Hendy was frustrated at what he regarded as a lost opportunity. Of course there would be no consensus when the idea had only been public for two days. Hendy thought it was inevitable the states would object to the proposal, but that this was no cause for the government to halt at the first sign of resistance. Turnbull, however, was in no position to risk everything on the idea at the coming election. The only dividend was his exposure to a new Labor campaign that claimed he did not want to fund public schools.
Australian politics was no place to canvass a big idea without taking action. While the political class spoke often about the reform eras of the past, when Bob Hawke and Paul Keating modernised the economy, or when John Howard and Peter Costello overhauled the tax system with the GST, there was no reward for Turnbull in starting debates without a fixed objective. The natural question was whether reform was now more difficult in a world of instant criticism on social media and more scope for opponents to mobilise and destroy a proposal within days. Yet the government had made no attempt to clear the ground for its income tax proposal in the weeks before the meeting with the states and territories. It acted as if it had no need to explain the problem before revealing its solution. Turnbull’s popularity began to slip. Australians would not wait patiently for a new leader to bring forth an actual agenda after months of airing potential ones.
The same community impatience was building with the banks. The collapse of Storm Financial, Trio Capital and Opes Prime during the global financial crisis had led the Gillard government to legislate stricter rules over the way financial planners collected commissions from their clients, known as the Future of Financial Advice laws, but new reports were emerging of customers being fleeced while the banks fended off a timid regulator, the Australian Securities and Investments Commission. Scandals were uncovered at the Commonwealth Bank’s financial planning division, National Australia Bank, Macquarie Private Wealth and others, with the exposure due in large part to reporting by Adele Ferguson at The Age. Pressure began to build for an inquiry, but the Parliament did not seem ready: an attempt by Greens Senator Peter Whish-Wilson to call for a royal commission into the banks was voted down in the Senate in June 2015.21 A sole government backbencher, New South Wales Nationals Senator John ‘Wacka’ Williams, a former sheep shearer who heard from and spoke up for the victims of white-collar crime, crossed the floor to support the motion, but no Labor senators did the same. The two major parties were reluctant to launch such a powerful investigation.
Turnbull acknowledged the problem months later. On 6 April, with the defeat of the state income tax less than a week old, he appeared at the Westpac headquarters in Sydney to mark the bank’s birthday and told the assembled executives to put their customers first.22
‘The truth is that despite the public support offered at their time of need, our bankers have not always treated their customers as they should,’ he said. ‘Some, regrettably as we know, have taken advantage of fellow Australians and the savings they’ve spent a lifetime accumulating, seeking only dignity and independence in their retirement. Redressing wrongs is important especially where it is done promptly and generously.’ These were moderate remarks but they caused headlines. The Prime Minister had called out the behaviour of the banks, but he left it to the banks to volunteer to fix the problems. Promptly and generously. The unspoken question was obvious: why should customers trust them to do so? The experience overseas showed American bank executives continued to collect their bonuses after their companies were kept alive by vast government aid. The experience in Australia showed the banks pushed back against every complaint.
Shorten had rejected a royal commission the previous June but was faster than Turnbull to sense the mood of Australian voters. He had been Financial Services Minister during the Gillard government and witnessed the resistance of the banks and financial planners to Labor’s attempt to toughen the rules and protect consumers. Now he had an opportunity to call for a royal commission. Two days after Turnbull’s speech, the Opposition Leader said there were tens of thousands of victims who needed to be heard.23
He did not release any terms of reference for the royal commission and his justification for the inquiry varied over time, with an emphasis on bank executive pay or on customer compensation at various times. Yet he achieved three things. He showed he was listening to bank customers, signalled he would take a hard line against big business and took action when Turnbull did not. Shorten recalled later that Turnbull helped to create this opportunity by giving the Westpac speech.
‘While we were in government we thought we’d try and reform [the banks]. We went through the Future of Financial Advice reforms, and the Liberals and the banks and AMP fought us like Trojans — it was really disgusting,’ Shorten said later. ‘So I thought when we were in opposition, well, maybe we hadn’t gone hard enough. In 2015 we kicked it around but we needed the right timing. And then Malcolm Bligh Turnbull opened the door and didn’t walk through it. So we did.’24
Turnbull was in more danger than he realised. His personal popularity among voters made it easy to dismiss any concern about the false starts of his early months in power — and the sense of false promise among Australians who expected this Liberal Prime Minister to be more progressive than any Coalition government could ever accept. Turnbull was a republican who put off a referendum, a believer in same sex marriage who could not call a conscience vote, an advocate for action on climate change who was bound by a Coalition agreement that ruled out a price on carbon. His attempts to keep the peace within the Coalition left him permanently vulnerable to doubts over his true beliefs.
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THE PROMISE OF STABILITY
THE JULY 2016 ELECTION
TURNBULL SEARCHED FOR A way to take command of the political agenda and dictate the terms of the next election. He needed a plan that could throw Bill Shorten off balance and assert the government’s policies in the face of a Senate that blocked or delayed every initiative. Turnbull devised the strategy over the summer and presented it to his close confidants at the end of January 2016. He wanted a double dissolution election.
First, he would challenge the Senate to pass the government’s industrial relations laws; next, he would prepare to dissolve the Parliament in the likely event that the Senate refused to comply; then he would launch the election campaign with an argument about union power. Turnbull had found an audacious blueprint with an elegant legal framework, an irresistible combination for someone once called a legal street-fighter when he made his name at the Sydney bar.
Those around Turnbull could see he loved the idea. One of them thought it was rational but also an infatuation. It’s a silver bullet. You might get them in business, but not in politics. It meant sacrificing the safer approach of waiting until spring for the standard half-Senate election, which could be held at any point from 6 August to 14 January. Turnbull would be repeating the gamble taken by Bob Hawke in 1987, when the Labor Prime Minister called a double dissolution for 11 July, defeated John Howard and increased his majority by four seats. Turnbull added his own brinksmanship to the timetable by planning to prorogue and recall Parliament before the election, something not done since 1977.
The argument against this strategy was set out in a memo to Turnbull from one of his allies in the spill.1 Scott Ryan, now the Assistant Cabinet Secretary, believed a double dissolution would jeopardise Turnbull’s standing with voters who saw him as the ‘last best hope’ for stable government. ‘It may be seen as you “taking advantage” of the polls and your personal popularity to seek reelection rather than develop the policies the country needs,’ he wrote on 26 January in a document that later looked prophetic. ‘The best way to seek the electorate’s trust for three years of stable, predictable, pragmatic government is to deliver exactly that for twelve months.’ Ryan concluded the best prospect of success was a standard election in August or September, when Turnbull could face the voters one year after becoming Prime Minister.
There was another problem with Turnbull’s strategy. The plan was crafted at a time when the Coalition had a comfortable lead over Labor in the polls but executed at a time when the Coalition had begun to slide. An idea that looked compelling in its first draft, complete with parliamentary manoeuvres to delight any student of the Constitution, became dangerous when put into effect.
Turnbull’s standing had slipped during the first weeks of February, when he shut down the debate on an increase in the GST and Shorten launched his tax increase on negative gearing and capital gains. The Coalition primary vote in the Newspoll surveys fell from 45 per cent in early December and 46 per cent at the end of January to 43 per cent in late February. Rather than getting a reward for dropping the GST proposal, the government seemed to be punished for talking so much and doing so little. The government had been comfortably ahead of Labor by 53 to 47 per cent in two-party terms but had lost its lead. The two parties were now at 50 per cent each.
A more immediate concern was the power of the minor parties and independents in a Senate that had stymied Abbott for years and had the power to do the same to Turnbull. The government could not risk an election without first trying to amend the Commonwealth Electoral Act to stop the use of group voting tickets, the tools by which political parties negotiated preference arrangements among themselves, lodged their agreed tickets with the Australian Electoral Commission and asked voters to put a ‘1’ in a single box without needing to know where second preferences would be allocated. Trading these preferences was a way of playing the odds to ensure one of the minor parties could win. The new rules aimed to stop this by asking voters to number their own preferences from ‘1’ to ‘6’ above the line or ‘1’ to ‘12’ below the line. Voters could choose to allow their preferences to expire.
In an all-night sitting of the Senate, starting on Thursday afternoon and finishing at lunchtime on Friday, 18 March, the government overcame the objections from Labor, the minor parties and the independents to legislate the new voting rules with the help of Greens leader Richard Di Natale and his party. It was an unusual alliance of Liberals and Greens, both sides calculating they would do better without minor parties collecting the breadcrumbs from the ballot papers.
The election timing was diabolical. One of the conditions of a double dissolution is that it cannot be called within six months of the expiry date of the House of Representatives. That meant the last possible date to dissolve the Parliament was 11 May, the day after the budget was meant to be made public. The last possible polling day would be 16 July. There were good reasons, on paper, for Turnbull to seek an election in the middle of winter. Senators elected at a double dissolution are deemed to start their terms on 1 July before the date of the election, which meant an election in May or June would have backdated senators to start their terms in July 2015. This, in turn, would have constrained the next Parliament by bringing forward the date of the subsequent election. A double dissolution election in May of 2016 would require a half-Senate election by the end of June in 2018. Why fight a campaign to secure only two years in power? Turnbull had to aim for a July election. The budget would have to be brought forward by one week, to 3 May, to allow more time to dissolve Parliament. Each step was strictly logical. Turnbull appeared supremely confident when he announced his plan to the Australian people.
‘The time for playing games is over,’ Turnbull said on Monday, 21 March. He had written to the Governor-General, Sir Peter Cosgrove, who prorogued Parliament and asked it to return on 18 April to consider the government’s industrial relations laws. The priority was the passage of two bills which had been blocked by the upper house and were triggers for a double dissolution: a bill to restore the Australian Building and Construction Commission (ABCC), the agency once used by the Howard government to investigate union power on building sites, and a bill to establish the Registered Organisations Commission, a new authority that would oversee all unions and could act against officials who misused their members’ funds.
Turnbull named 2 July as the election date if the Senate did not submit to his demands. This was fifteen weeks away. He was giving Shorten the extraordinary gift of time, letting him know the election date so far in advance and mandating a long formal campaign that could work to a challenger’s advantage. Asked in the Prime Minister’s courtyard to name what Australians would be voting for, Turnbull posed a question: ‘Who do you believe is best able to continue successfully to manage Australia’s economic transition?’ It was an echo of one of John Howard’s most successful campaign messages — ‘Who do you trust?’ from 2004 — but it was loaded with economic jargon and lacked the power to galvanise voters. ‘Our economic plan is more growth and jobs, fuelled by innovation, productivity, competition, open markets,’ Turnbull said.
Shorten mocked the promise of Turnbull’s ascent to power. ‘Now Mr Turnbull promised new economic leadership, but he has failed to deliver,’ he said. ‘Mr Turnbull promised fairness, and he has failed to deliver. And Mr Turnbull promised unity and he has monumentally failed to deliver.’ Shorten reminded voters of the spending cuts in the May 2014 budget and listed the words not said in Turnbull’s opening statement on the election. ‘Not one mention of Medicare, not one mention of schools, not one mention of universities, not one mention of child care, not one mention of TAFEs and apprenticeships, and there was no mention at all of renewable energy.’ He felt he had the upper hand on every issue he named.
Australian politics now turned on whether the Senate would submit to the government’s demands. Turnbull refused to contemplate amending the two industrial relations bills, making it as difficult as possible for those with the balance o
f power. The Senate crossbenchers had to vote with the government or risk losing their seats, a negotiating ploy worthy of an investment banker in a corporate takeover. On the evening of 18 April, in a special sitting of the Senate after being recalled by the Governor-General, four crossbenchers sided with Labor and the Greens to vote down the ABCC bill by 36 to 34 votes. The nation was set for a 74-day campaign for an election on 2 July. ‘I am extremely confident I’ll get back in,’ one of the crossbenchers, Glenn Lazarus, said that night, but his burial turned out to be final, as it was for fellow senators John Madigan and Ricky Muir.2 They were not the only ones to have their confidence shaken in the election to come.
The budget ended the long wait for a tax policy by saving one idea from all the options considered during the GST debate and the flirtation with a state income tax. Turnbull and Morrison chose to cut the company tax rate and shelve other options including substantial personal income tax cuts, in the belief that the increase in economic growth would be greatest from encouraging business owners to invest.
Turnbull and Morrison were warned of the political risk of this tax cut in the final weeks before the budget. The Liberal Party’s federal director, Tony Nutt, pointed out the danger of giving such substantial tax relief to big companies when the budget could only offer modest sweeteners to most voters. There was a gain for wealthier workers from the expiry of a ‘deficit levy’ worth 2 per cent on every dollar earned above $180,000 a year, and there was a small tax cut for workers on more than $85,000 a year, but nothing for those earning less than the average full-time wage. Nutt told the Prime Minister and Treasurer the political offerings in the budget were thin, but they put the company tax cuts ahead of personal tax cuts. This was the start of more than two years of hard political grind in the Senate to get the tax cuts legislated.