“This is not a mandate we have nor plan to seek,” he says.
In other words: go away NSW.
But Perrottet, and his problems, aren’t going away.
And to demonstrate that he isn’t intimidated by the man who covers 38 per cent of the NSW budget, Perrottet directed a style-over-substance jibe towards his federal counterparts.
“The disappointing thing about this is that you have got politicians these days, particularly federal politicians, who are more focused on the media cycle and run for political cover,” Perrottet told The Business show on the ABC. “[They] immediately take it off the table because it’s politically challenging.”
Who says Liberal disunity is dead?
The deficit precipice
Perrottet is striking out from the dying days of fiscal superiority. While his government boasts of four coming years of budget surpluses, they exclude the huge cost of tunnels, roads, hospitals and other capital expenditure that carried Premier Gladys Berejiklian to an election victory in March.
Long-range forecasts by the NSW Treasury predict the budget is on the precipice of a permanent deficit that will leave future generations to pay for today’s spending. This financial year the NSW Government will shift from $9 billion in savings, which it refers to as negative net debt, to $12 billion in debt, a figure likely to triple in three years.
Put simply, the budget of Australia’s biggest state is broken. Several major taxation revenue pools have growth rates heading towards zero, including payrolls, land, motor vehicles and the GST (which is run federally but goes to the states).
The situation isn’t better in the other states either. Almost nowhere else do state or provincial governments require as much federal support as in Australia.
To meet the needs of hospitals, schools, police stations and other essentials of the modern government, the states are forced to rely on stamp duty, a highly volatile tax levied when property is sold.
The terrible tax
Pretty much every economist regards stamp duty as a terrible tax. With the average home in Sydney worth around $1 million, the $40,000 in stamp duty and roughly $20,000 in real estate agent fees is a big disincentive to the property trade – a market vital to the efficient use of the economy’s only fixed asset: land.
People familiar with Perrottet’s thinking believe he would like to replace stamp duty with land tax. The move could be made as part of a grand tax deal between the states and the federal government that might extend the GST to fresh food, health and even private schools.
Land tax – an annual charge on land only – is the Roger Federer of taxes: efficient, reliable and humble. It isn’t regressive. The wealthy pay more. It doesn’t encourage people to stay in houses bigger than they need, or not move for work or education. The revenue stream is stable and usually rises over time.
And as if he didn’t need reminding, Perrottet’s NSW Review of Federal Financial Relations pointed out to Frydenberg that the GST is in steady, long-term decline. From 2002 to 2017 the GST coverage of average family spending fell from around 61 per cent to 56 per cent, a trend likely to continue, as more middle-class parents shell out on braces for their organic-meat-chewing college-educated teenagers.
A sunset industry
The review panel, which is chaired by former Telstra CEO David Thodey, came up with another fascinating fact for the federal treasurer. As cars become more efficient, and electric, in response to concerns about global warming, growth in collections of fuel excise – a $20 billion-a-year tax – are declining. Turns out taxing petrol is a sunset industry.
The discussion paper even suggests Frydenberg is losing the much-heralded battle against international profit shifting. Thodey’s team concluded corporate income tax faces long-term challenges because of “compliance risks”. In other words, tax avoidance. Thank you Mossack Fonseca.
As usual, when it comes to reform, politics trumps policy. Only one Australian government has overcome voters’ resistance to a regular charge on land over a one-off property tax. And it happened on the federal government’s home ground.
In 2012, ACT chief minister Katy Gallagher decided to phase in the switch over 20 years. Voters accepted the compromise, at least initially. Labor will next month clock up an uninterrupted 18 years in power in the territory.
“We went from 7 per cent of people covering one quarter of the cost of budget to spreading that across practically 100 per cent,” Gallagher says. “That was an incredibly unfair situation.”
Today, many Canberrans complain about the equality. Land tax is the number-one political issue in the ACT, and could decide next year’s election.
Perrottet begun planning his tax push before the May federal election, when it looked likely that he would have to negotiate with Chris Bowen, then Labor’s Treasury spokesman.
Perrottet had, and has, a useful ally in Tim Pallas, the Labor Treasurer of Victoria. Pallas, whose rugby forward-like build contrasts with Perrottet’s runner’s frame, recently quipped that they are the “Lennon and McCartney” of Australian politics. In the band, Perrottet is the front man.
“We’re happy to talk about ways to improve our tax system, but as we’ve also said previously, we don’t support a GST rise,” Pallas said through a spokesman.
First, though, Perrottet’s panel is taking suggestions from the public. It will then propose solutions.
“I want to start a discussion and get input and solutions to some of the challenges that we have outlined in this discussion paper,” Perrottet says. “I don’t want reform to be shut down before it begins. Simply ruling things out doesn’t help progress the standards of living in our country,”
His unlikely friendship with Pallas presents Frydenberg with a bipartisan negotiating bloc of the two-largest states.
They aren’t alone. Western Australia, a Labor state, expressed an interest in the plan. As has the ACT.
Queensland Treasurer Jackie Trad is dismissive. But it is difficult to see a Labor state with big infrastructure costs rejecting extra billions from a Coalition government, especially when Liberals would have to wear the political cost.
With reform-minded Liberal governments in power in South Australia and Tasmania, Perrottet could have a ready-made coalition behind him.
With tax reform such an easy political target, the path through for NSW’s budding premier might be to find a way to make Frydenberg the hero.
After all, the politician who ends the federal-state fiscal fiasco would have a pretty strong claim on that chair next to the Dispatch Box.