Door opens to tax reform deal with Greens

Scott Morrison has been offered a Senate deal on two of the leading options in the federal government’s tax reform plan.

Treasurer Scott Morrison.

Scott Morrison has been offered a Senate deal on two of the leading options in the federal government’s tax reform plan in a move that heightens the prospect of cuts to concessions on negative gearing and superannuation.

The Greens moved last night to start negotiations on the ­reforms as the government turned its focus to super and other measures to replace a more ­ambitious agenda based on an ­increase in the GST.

The invitation sets up a clear opportunity to get rapid agreement in parliament for difficult changes while sidelining Labor and ensuring the government could go to the election in the knowledge it could legislate its plans.

Opposition Leader Bill Shorten sounded a warning at the propsect of a deal, saying he was concerned about what further concessions the minor party might give.

Malcolm Turnbull assured his colleagues yesterday that an ­increase in the GST had not passed the “first hurdle” in the quest for tax reform, as he sought to soothe nerves over the government’s conflicting signals.

The Prime Minister warned government MPs of the difficulty of deciding the likely reform package in a move to turn the focus ­towards super tax breaks, negative gearing and workplace ­deductions as likely changes.

Greens Treasury spokesman Adam Bandt wrote to the Treasurer late yesterday to propose a discussion on options that could raise $7 billion a year.

“The Greens believe the upcoming budget should tackle ­unfair tax breaks and secure the country’s revenue base,” Mr Bandt wrote. “If the government agrees, we would be pleased to ­discuss our proposals further.”

The Greens have struck deals with the Coalition on the debt ceiling, multinational tax avoidance and pension reform in this term of parliament, proving they could work constructively with Mr Morrison. An agreement on tax was impossible when Tony Abbott and Joe Hockey ruled out changes to negative gearing and super, however.

Mr Turnbull and Mr Morrison have now put super and negative gearing on the agenda in the hope of funding income tax relief for workers, opening a window of ­opportunity for a Senate majority on reform even if Labor and the crossbenchers oppose the changes.

The Greens have been calling for a “progressive” approach to super taxes for more than two years, since having their policy costed by the Parliamentary Budget Office, which found it could generate $3bn a year.

The proposal would replace the existing tax on super contributions — a flat 15 per cent for all workers — with a rate that is scaled according to income, so that the person pays 15 percentage points less than his or her marg­inal income tax rate.

This is close to a plan closely examined by Mr Turnbull when it was proposed by Deloitte Access Economics director Chris Richardson last year. An alternative is to scale back the caps on super contributions, as reported by The Australian in November.

The Greens are proposing to remove negative gearing on all new properties, raising $4bn a year, but the government is adamant the tax break benefits many ordinary workers. Mr Bandt signalled that the Greens were open to a discussion on this and other changes.

While the Greens also want a tougher approach to capital gains tax to raise $10.2bn over four years, as well as cuts to diesel fuel rebates for the mining industry to raise $19.5bn over four years, these are not seen as deal-breakers to the talks on negative gearing or super.

The government has sent mixed signals on negative gearing, but Mr Morrison did not rule out applying limits on its use, although he strongly supports the benefits it offers to ordinary workers.

“We need to look at all aspects of how our tax system works,” he said of negative gearing on Monday. “But … we are not about taxing and spending. That’s Labor’s approach — it’s not ours.”

A single Coalition MP challenged Mr Turnbull on the government’s agenda yesterday, with Nationals MP David Gillespie using a regular meeting to argue that a GST increase had to be in the mix because it could fund substantial income tax cuts for workers.

Nobody spoke up to support Mr Gillespie at the Coalition party­room and the meeting avoided a potential showdown on the government’s economic narrative, ­despite obvious concern among Liberal and Nationals MPs.

Coalition MPs told The Australian that they left yesterday’s meeting without a sense of a clear direction on tax reform after Mr Turnbull made it clear the GST increase did not meet the government’s objective. MPs were frustrated at conflicting signals over reform options; others in the ­government conceded a lack of ­detail made it difficult to have an informed debate.

Mr Turnbull told MPs yesterday that the detailed modelling done so far showed that a GST ­increase did not deliver the economic gains needed even when used for a “tax mix switch” that ­reduced income taxes for workers.

He said more work was being done, in a comment that lends weight to suggestions that he has been dissatisfied with the modelling prepared so far.