Dinner idea that proved too rich for Julia Gillard

JULIA Gillard's guests were well into the main course on Tuesday evening at The Lodge when one of them served a surprise of his own.

JULIA Gillard's guests were well into the main course on Tuesday evening at The Lodge when one of them served a surprise of his own.

Over roast pork belly and scallops with apple and rhubarb jelly, the National Disability Insurance Scheme had finally come up in conversation.

"It was the elephant in the room until that point in time," one person at the dinner tells The Weekend Australian.

Before the Prime Minister was able to take the state and territory political leaders through her plans for the NDIS, Queensland Premier Campbell Newman interjected: "Have you thought about a tax?"

A levy, along the lines of a PAYE surcharge, would overcome individual budget constraints and offer the prospect of a long-term funding arrangement, Newman said.

Who knows? he added; securing a fully funded and fully functioning NDIS might become Gillard's "Obama moment", comparing it to the US President's historic healthcare reforms.

At least one conservative premier raised an eyebrow at the use of a Democrat president as a source of inspiration.

One after another, the premiers spoke to the proposal but it was the silence from Victorian Premier Ted Baillieu that particularly captured the attention of Gillard. Ultimately, the Prime Minister rejected the levy, insisting it was more important to get trials of the NDIS sorted out immediately.

Her decision was vindicated yesterday when Victoria and NSW agreed to fund trials in their states, folding after two days of intense political pressure from Gillard to lift their funding commitments to the landmark project.

The previous night, when Newman raised the levy, the proposal may have come as a surprise to Gillard, but the Queensland Premier had actually first raised the issue at the Council of Australian Federation meeting earlier that day. CAF is a somewhat antiquated pre-COAG meeting of premiers that does not include the prime minister.

Gillard quickly fired back that she was worried about the politics of such a move, expressing concerns to those present that a levy would be described as "just another big tax". She reiterated such sentiments to her closest advisers the following morning.

Newman was undaunted by Gillard's reluctance, assuring the Prime Minister that, with the premiers behind her, such attacks would not succeed. (Tony Abbott was never mentioned by name but everyone knew who they were talking about.)

He failed to reassure the Prime Minister. It was far from clear that Newman's proposal would be supported by the other premiers.

South Australia's Labor Premier, Jay Weatherill, was the next to speak. There had been a South Australian flavour to the evening - Woodside goat's cheese and spinach ravioli as an appetiser; Adelaide Hills sauvignon blanc and McLaren Vale shiraz on the wine list - but if Gillard hoped it would win over Weatherill, she was mistaken.

He told her he had been keen on a levy and had already raised it with federal Disability Reform Minister Jenny Macklin, who told him not to even bother mentioning the idea to Gillard. More than one premier was seen to shake his head at this.

Weatherill said his government had crunched the numbers and it was of the view that a 0.5-percentage-point increase in the Medicare levy should be sufficient to fund the NDIS.

Newman pointed out that the flood levy for Queensland, which had just expired, could simply be replaced by an NDIS levy.

West Australian Premier Colin Barnett said an NDIS would be the right thing to do, hinting that he would back such a levy.

"This is in the interests of the nation," Newman said, sensing a historic agreement was looming.

Barry O'Farrell appeared to be thinking the same thing but the NSW Premier added: "For a levy to work, everyone would need to be involved."

Tasmanian Premier Lara Giddings offered her support for the idea, but it was the silence from Baillieu that began to capture the attention of Gillard and premiers.

This is where disagreements about the evening start to emerge. Some present say that while he kept quiet, Baillieu appeared to offer grudging support for the levy with his body language. The Prime Minister disputes this, claiming that both Baillieu and O'Farrell were opposed to the idea and to suggest otherwise was disingenuous. Yet all agreed that none of the premiers explicitly ruled out a levy. After the premiers had each had their say, the Prime Minister refused to engage any further in the discussion, insisting that the first step was to set up launch sites and trials.

The conversation moved on to other business. The atmosphere in the room immediately changed. Most present knew that the moment for agreement on NDIS funding had passed and was unlikely to return. There was some hope that Gillard would consider the levy option overnight, after the dinner at The Lodge concluded, but at the COAG meetings the following day it was not raised.

Dessert was due to be served as the discussion wound up. It was a chocolate and peanut butter parfait, but it was too rich for most around the table to finish. One premier joked afterwards that perhaps they didn't have the stomach for it after the way the NDIS discussions had gone. At the end of dinner, despite disagreements, Gillard and the premiers all signed each other's menus, joking about who would raise the most money at a party fundraiser.

Expressing the lost opportunity in both policy and politics for the Prime Minister, one premier told The Weekend Australian that the bipartisan support for a levy "could have been a game-changer" for Gillard.

This was the tone of discussions when the four conservative premiers met for their pre-COAG breakfast the following day at the Hyatt in Canberra.

John Howard's former chief of staff Tony Nutt was there to take the minutes of the meeting. Seemingly happy with his suggestion the evening before, if not the outcome, Newman tucked into a full breakfast of bacon and eggs.

The Weekend Australian understands the Victorian Premier was more vocal about the levy idea over breakfast than he had been the night before. That morning, the four conservative premiers were in agreement that the Prime Minister seemed more interested in getting the trials in place before the next election than sorting out the long-term funding mechanism to make the NDIS a reality. They also felt she didn't want to share any credit for achieving an outcome on the NDIS.

Such feelings were stoked by a story in The Australian that day indicating Gillard was planning to double the amount of money the commonwealth would commit to the trials, from $150 million to $300m. She had not raised this the night before or in the various discussions between bureaucrats in the days leading up to COAG.

"Here we were, trying to come up with a bipartisan solution to get this thing happening, and she didn't even do us the courtesy of spelling out her plans for the trials," one premier said. "We had to read about it in the papers. That's no way to negotiate."

In scenes described by participants as "chaotic", Gillard extended both the morning tea and the lunch breaks so that she could have private discussions in her office with the NSW and Victorian premiers about funding options for the trials in their respective states. On each occasion, the PM expressed her strong desire to achieve an outcome before the press conference. More than one participant remarked that had she bothered to begin negotiations before the formal meeting began, that might have been more achievable.

By the time the premiers, chief ministers and Prime Minister fronted the media on Wednesday afternoon to outline what had been agreed to at COAG, or perhaps more accurately what had not, the body language between the participants said it all. O'Farrell in particular looked like someone who had lost respect for the Prime Minister as she tried to wedge the states over not agreeing to her funding mix for the trials.

Knowing what had transpired the evening before, a number of the premiers found it difficult to keep quiet about their frustrations that Gillard had rejected their support for a levy that was the very approach first suggested by Bill Shorten when he put the NDIS at the centre of the national debate.

When Gillard started talking up the smaller states' willingness to stump up funds for NDIS trials when others wouldn't, Barnett pointed out that an issue still unresolved was the highly disproportionate funding Western Australia sends to those same states in GST returns. He wasn't going to be lectured to.

In the days that followed, their respect for the Chatham House rules of the discussions at The Lodge faded with every pointed attack by the Prime Minister.

The revelation that Gillard snubbed an attempt by the premiers of all political stripes to achieve a consensus on the NDIS may be seen as a political blunder by Gillard at a time when she needed an outcome from the COAG meeting to appease concerns about her leadership.