Malcolm Turnbull finds his ‘big idea’, let States raise income tax

Malcolm Turnbull has found his “big idea” — reforming Federation by handing the States their own income tax.

After catching a train to the western suburbs of Sydney the Prime Minister formally announced his big idea standing in a park in Penrith, a synergy of local, suburban campaigning and a grand vision of governmental reform.

The key for what Turnbull describes as an idea of “generations” is the burgeoning cost of health care into the next decade and the inability for governments to pay.

In the short term Turnbull is proposing to give the States the extra funds they were being denied by Tony Abbott’s 2014 Budget and in the long term offer them their own direct share of income tax in return for a reduction in Commonwealth grants.

When he meets the Premiers on Friday, Turnbull will be seeking their endorsement but it is more likely he will get an acceptance for the short-term cash than the long-term prospect of the States taxing their residents directly and separately.

The difference between the Turnbull and Abbott proposal is a carrot and stick. Abbott was using a stick in the form of a decline in the growth of health funding to the States — not cuts — totalling $40 billion over 10 years to try and force the States to become more efficient in their hospital system rather than seek a federal cheque to get out of trouble.

Turnbull is offering a carrot in the form of future taxing powers where the States can decide how to spend the revenue rather than through direct federal grants.

One involves savings for the States and the other involves raising taxes for the States. Turnbull’s plan may not be accepted but it’s more likely to be considered than Abbott’s.