Australian Government coat of arms

Prime Minister of Australia

The Hon Malcolm Turnbull MP

Interview with Fran Kelly, ABC RN Breakfast

31 March 2016

Prime Minister

E&OE

FRAN KELLY:

Prime Minister, welcome to Breakfast.

PRIME MINISTER:

Fran, it’s great to be here.

FRAN KELLY:

A process question first, if I may Prime Minister – why did you choose the launch of a football academy on the edge of a sporting field to reveal your plans for “the most fundamental reform in generations”?

PRIME MINISTER:

Well let me remind you that at the COAG meeting – this is the premiers and chief ministers meeting with me and the Treasurer and others in December last year – we agreed that we would at the next COAG – which is this week – review, look at a wide range of tax reform, that’s state tax reform and revenue sharing options between the Federal Government and the states. So this has been on the agenda.

We have raised it because I don't believe in dealing with the states via a megaphone. It has been raised privately and discussed between me and other chief ministers and between the Treasurer, Scott Morrison, and his counterparts and of course between Martin Parkinson the head of Premier and Cabinet and his bureaucratic counterparts. Those discussions found their way into the media yesterday morning. I heard you had a very good program yesterday morning talking about it.

FRAN KELLY:

Always.

PRIME MINISTER:

So really we're in a position where because, you know, confidential discussions had been breached, it was obvious I had to clarify what we were talking about and look, I'm an open person, it was an issue of concern so we – so I answered it. So there it is.

FRAN KELLY:

I ask it because there is a lot of process questioning going on as we know, this is a huge reform if it comes, the biggest reform to income tax probably in more than 70 years. One premier told me yesterday he hadn't seen anything in writing yet by way of proposal. That was at lunchtime yesterday. Such a big and important idea, where is the detail for the premiers to consider?

PRIME MINISTER:

Well, the detail comes at the meeting. One of the things the states undertook to come back to us with was what they could do to reform their tax bases, you know, the taxes they raise and we have not seen anything from them either. So as yet nothing in writing, we haven't even seen a proposal. So I hope that we'll see some more detail there.

But I think the big issue really is this, Fran, is that so far we've seen the state premiers urging us to raise tax, they urged us to put up the GST, and give the money to them, we looked at the GST and because of the very large amount of compensation you'd need to pay to people in lower income groups, the remainder, the amount left for compensatory tax cuts let alone giving money to the states was too small to warrant the exercise.

The Queensland Premier urged us to increase the Medicare levy as I recall, and give that money to the state. So the states have been urging us to put up taxes to give them more money. Now what we have said is, well let's have a look at the fundamental flaw at the heart of the Federation, the problem that we have is the states do not raise enough of their own money, they are not responsible for enough of their own spending and that's to say raising the revenue for it. And this has been – what we're talking about now was recommended by the Commission of Audit, it was recommended by the Henry Review, this problem of so called vertical fiscal imbalance is one that is at the very heart of many of the inefficiencies.

One chief minister said to me, only yesterday, that in his jurisdiction there are areas where there are Commonwealth grants that are given to his jurisdiction where the cost of the public servants in his jurisdiction administering that grant and reporting back to the Commonwealth almost equals the amount of the grant. So there is enormous duplication and waste and so if we make – if the states were to become more responsible in a manner that doesn't increase net taxes, I mean, we are not – can I tell you there is no increase in tax contemplated here. What we are saying is that we would – this is clearly a constructive offer, this is the biggest single proposal to make, get the Federation right in generations and what we're saying is we would retreat from, levy less federal income tax, so we'd retreat several percent perhaps and then the states could levy that tax, obviously there'd be no additional administration or compliance issues because it would all be managed by the ATO. And then they would be responsible for that and given that that would then concentrate their mind because they would be seen by their taxpayers and their constituents, as raising the money which they were spending or raising more of the money which they were spending.

FRAN KELLY:

Okay, so what's the point of it – a change in perceptions? I mean, it’s a zero sum game from what you describe there. If it’s a zero sum game where is the money coming from to fund the gap in hospitals and schools?

PRIME MINISTER:

If the states had to raise all of the money they spend themselves, they would spend that money much more wisely.

FRAN KELLY:

Yes, but we’ve got a funding gap of $80 billion looming.

PRIME MINISTER:

Well, we disagree with that. But it is far too easy, it is far too easy for the states to go to the Federal Government ATM. You see, what we're talking about here, Fran, is are we going to continue in a situation where a state premier or a state minister faced with a problem in a particular service – might be schools, it might be some other agency, it might be some welfare agency – faced with an issue there, do they try to manage it better to get more bang for the taxpayers' buck? Do they raise some more money themselves from their own tax bases? No, they don't want to do. No, what's the easiest thing to do? Demand that the Federal Government raise more money.

FRAN KELLY:

But do you deny there's a funding gap looming? I mean this has all started because the last Labor federal government had pledged money for schools and reforms – schools and hospitals – that was going to add to $80 billion over ten years. The Abbott Government first budget took this that away. The schools call that a funding gap, a funding chasm and they need some help with that. Do you deny that the hospital funding bill will outstrip the money coming in?

PRIME MINISTER:

We are addressing the issue with hospitals and that will with be addressed at the meeting on Friday.

FRAN KELLY:

Only to the value of a few billion though isn’t it?

PRIME MINISTER:

We'll see. That's still in under discussion, but can I just say to you Fran, what Labor did and what Bill Shorten is still doing is promising money, tens of billions of dollars that the Commonwealth Government doesn't have. And the only way, you’ve got to remember we are running a deficit so the only way that that money could be provided is by increasing government debt and borrowing more money or by putting up Commonwealth Government taxes which of course is what the state premiers are urging the Commonwealth to do. You see the real issue here is one of political responsibility. We do not want to raise more tax, but we know that if you have, if a jurisdiction, state for example, was responsible for raising more of the money that it spends, it would spend that money more efficiently and more carefully because it would have to be answerable to its voters to get the authorisation to raise that money.

FRAN KELLY:

Ok. There's a lot of questions around that actual system and we'll come to that but just a quick one if I can. When you talk about this plan to lower Federal income taxes and allow the states to match that, by what order are we talking? Are we talking 10 per cent, 2 per cent of income taxes?

PRIME MINISTER:

Well the example, and this is something that we cannot do alone, as I said yesterday.  So this is - what we are seeking to do is to engage the states as we agreed in December last year. This is not something that has come out of the blue, this was the COAG communique in December 2015.  So what we're coming back to them and saying is, well you wanted some, we agreed on some ideas on revenue sharing, well we could reduce the - let's say it was by- if we reduced income tax, Federal income tax for example, by 2 per cent in each threshold, and then said to the states - right, you, that is yours, that 2 per cent is yours. So your Parliament’s you pass a law to levy that and then we'll obviously collect it so from a taxpayers' point of view it makes no difference,  that would give them an in effect untied additional $14 billion or thereabouts of revenue and they would then be responsible for spending that. What we would do is we would then cancel $14 billion of grants to the states so there would be less if you like less Federal meddling with state responsibilities, more state responsibility, no more net tax and state governments would be vastly more responsible and I think we all understand, it's human nature after all, when you are responsible for raising that money yourself, you will spend it more wisely and more effectively and Australians will get better services.

FRAN KELLY:

You did say though yesterday, you keep telling us you're not going increase taxes, but you did say quite clearly yesterday that in the future after say a period of five years the states would be free to lower that amount of income tax or raise it.

PRIME MINISTER:

Yes of course.

FRAN KELLY:

So we could see a higher burden of income taxation.

PRIME MINISTER:

Well states could, just as Federal Governments can raise and lower income tax and do all the time. I mean the, you know the, this Government, the Coalition Government, the Abbott Government of course imposed a deficit levy, added 2 per cent to the top marginal rate.

FRAN KELLY:

So in a sense we could end up with double taxation?

PRIME MINISTER:

No, no, no. It's not double taxation at all Fran.

FRAN KELLY:

Well if the states are ultimately free to do what they like with that then ultimately we will have a separate income tax system?

PRIME MINISTER:

Well you could, you could in the future, you could have a different rate of income tax. The differences would be very slight I imagine between one state and another, but you know that's Federalism. We have different rates of land tax, we have different rates of payroll tax, we have different rates of stamp duty.

FRAN KELLY:

That's an important question, how does such a patch work approach fit with…

PRIME MINISTER: 

It's not a patch work at all. If a patch work means do you want every state - do you think - see what you're arguing for, really, is not having states at all. Australia as a Federation…

FRAN KELLY:

National standards for our schools and hospitals, I think that’s where we’ve been heading for the last 20 years. Doesn't this pull back from that?

PRIME MINISTER:

Who is best able to raise the revenue for that other than the governments that spend the money – in an ideal world - if we were starting from scratch, let's not kid ourselves, if you were starting from scratch, you would have a system where each government raised itself - each Parliament, raised itself, all of the money that it spent.

FRAN KELLY:

Yes.

PRIME MINISTER:

Now, what has gone wrong with the Federation is that more and more of the money the states spend comes from the Commonwealth so you have so much overlapping responsibilities, there are many areas…

FRAN KELLY:

But some of that is because of the make-up of our states, the premiers of some of the smaller states, Tasmania, South Australia for instance, have not expressed a lot of support for this plan?

PRIME MINISTER:

Can I tell you just between – seriously – Jay Weatherill was the first one to propose income tax sharing and he's the Premier of South Australia.

FRAN KELLY:

Yes he did, but he proposed it as a swap for the GST at a level of something like 17 per cent and not this notion of the states being able lift or decrease as I understand it.

PRIME MINISTER:

A fundamental premise of any premise of any reform like this would be that the smaller states could not be disadvantaged.

FRAN KELLY:

So how would you, what would that mechanism be?

PRIME MINISTER:

Clearly the Commonwealth would have to make sure that they were kept whole in any new arrangement. I mean we understand that, that’s self-evident and I think everyone is committed to that but the real question is this - the fundamental question is this - do we - are we sick of the blame game, are we sick of the finger pointing, are we sick of states not being responsible for much of the money they spend? Well, if we are, then what we are proposing is that we begin a grown up conversation, a rational conversation, about a solution that does not involve any new or it doesn't involve any additional tax, doesn't in fact involve any new tax, it would simply be a change to the way in which income tax is allocated and of course what it will do is deliver better government because people, politicians and Parliaments will be more responsible for more of the money they spend.

And I think that's a good thing because that means they will then have to be answerable to their voters for the money they spend and you will find that will concentrate the mind. It is too easy for states and territories to just go to the Federal ATM and too easy for them to just blame the Commonwealth for not having enough money. Most people - and can I tell you, most politicians do not know or understand the patchwork, using your term, of funding for various services between state and Federal Governments, how much money goes of state money goes to state schools and independent schools and federal money. It is so diverse, so confused that there is not a clear line of responsibility. This has been - what I'm talking about here, is a big reform. It acknowledges reality.

Yes, you can - if the states are not able to - if they don't want to take that responsibility, if they want to keep going along with the begging bowl for years and years into the future, then that is their call but they've got to the decide, really, whether they are serious in taking more responsibility for the money they spend and if they are then we will have a much stronger Federation and you and I and every other Australian will get better services because we'll have politicians and Parliaments that are truly accountable for the money they spend and that is what democracy is all about.

FRAN KELLY:

Our guest is the Prime Minister, Malcolm Turnbull. You talk about patchwork systems and, you know, who spends the money and who runs what services, you didn't mention education funding and you have told the premiers, as I understand it, there's no extra money for schools on the table and yet there is a looming gap there too as we see. Will the Commonwealth be withdrawing from school funding all together, is that your longer term objective?

PRIME MINISTER:

No, not at all. The Commonwealth is spending more money on education every year, in fact Federal Government funding on schools has been increasing at a much higher rate than state funding.

FRAN KELLY:

Yes, but we know what we’re talking about, we're talking about those final years of the Gonski plan, which is now not on the table.

PRIME MINISTER:

Funding is committed through to the end of 2016 - 2017. We believe that the future of that funding of post 2017 should be bound up with these discussions about revenue sharing, that is because for example the Federal Government provides money to state government schools, you could make a very powerful case for example, that if there was a revenue sharing, if the states had access to a portion of income tax that they would have the resource and the money and bear in mind income tax grows at a faster rate than either GST or grants, they would then have the responsibility for state schools which are the schools that they manage, they have the resources as well, we're not talking…

FRAN KELLY:

And then don't we end in a situation where we have eight different jurisdictions looking after the standards of our schools so that a student in one state can have a lesser quality of education. Already we’ve seen a Grattan Institute report last week which showed that a child in grade three showing the same capacity in grades as others just five years late can find themselves behind a significant year gap, two or three years behind because of standards who is going take care of that?

PRIME MINISTER:

Fran, the real message from that Grattan report, I think, which had a lot of value, it's worth reading, but what it pointed out that different states spend different amounts of money per student on their school system.

FRAN KELLY:

That’s what Gonski was there to address.

PRIME MINISTER:

But they don't necessarily get better outcomes by spending more money. We have spent more and more money on our schools over the last decade, several decades much more money, and our educational outcomes have not improved.

FRAN KELLY:

So what's your plan then?

PRIME MINISTER:

The focus has got to be clearly, we believe, on teacher quality but, you know, ultimately you've got to decide do you want to have - continue to have the Federal Government and the states arm wrestling about how your local primary school, your local high school, should be run, should it - are we really saying that Mike Baird and Dan Andrews and Jay Weatherill are not capable of running their own schools? Or Colin Barnett is not capable of running his own schools? We've got to ask ourselves whether we are not adding to the problem by so much overlapping engagement. You see, of course we need a national curriculum but - and I don't think anyone argues about that, but the fact is that state governments and state Education Departments and state headmistresses and headmasters should be able to run their schools, you see, we have a massive Education Department in Canberra in the Federal Government, we don't employ any teachers, you’ve got to ask yourself whether we should not have clearly lines of responsibility. Now this is the conversation…

FRAN KELLY:

Are you attracted to a realignment of responsibilities, say the states take over child-care and schools and the Commonwealth takes over the National Disability Insurance Scheme and TAFE. Attracted to that?

PRIME MINISTER:

These are all good ideas, I'm not saying we accept them, but these are good ideas for discussion, Jay Weatherill for example who has been really a thought leader in a lot of this area, Jay has argued that the states should be responsible from 0 to 18 for the world of education and the Federal Government responsible for thereafter. No Coalition Federal Government I suspect no, Federal Government, would retreat or from funding and continuing to support the non-government school sector because there would be a concern that they would not get a fair go from state governments who obviously would have a competing interest with their schools but in terms of state schools, state education, government schools, if the states had the money, if they had the money from a share of the tax base, would they not do a better job managing those schools themselves? That would be a question to ask the Education Minister, does the Education Minister in Canberra know better how to run a primary school in Tasmania or South Australia or Western Australia than the Education Minister in those states.

FRAN KELLY:

Prime Minister, so much to ask you, we’re almost out of time, but I should ask you a question about the domestic violence Royal Commission in Victoria. Daniel Andrews is going to bring two of those recommendations to COAG tomorrow a separate Medicare number for domestic violence survivors and an overhaul of workplace laws to include family violence leave.

Are you keen or mindful to support those ideas?

PRIME MINISTER:

We'll certainly be talking about it. You know the first announcement I made as Prime Minister was our $100 million women's safety package so with Michaelia Cash, the Minister for Women. Tackling domestic violence has been a very high priority of my Government and we'll be launching a national campaign shortly to change attitudes about violence and disrespect as I've said again and again, you've heard me say it a lot but it's a good point to make that not all disrespect of women ends up in violence against women and children, but all violence against women begins with disrespecting women so there are big cultural changes there and we've already agreed to national perpetrator intervention standards with the states and I welcome the findings of the royal commission that was released yesterday, it's got important learnings and I'm looking forward to discussing it with the Premier and also with Ken Lay and Rosie Batty as well who are part of the COAG committee or panel on domestic violence.

FRAN KELLY:

Prime Minister, so much to discuss, an election looming, we don’t know when perhaps we'll have you back soon to discuss those issues too.

PRIME MINISTER:

I look forward to it! I must say that I love this standing studio. Don't know if people watching us on television can see us standing. It is so much better for us. We should all spend more time standing.

FRAN KELLY:

Prime Minister, thank you.

PRIME MINISTER:

Thanks a lot.

Ends