17 October 2015
by Phillip Coorey

Privatisation of government services an option, says Treasurer Scott Morrison

The Turnbull government is planning a new era of federal incentive payments designed to encourage the states to open up their social services to competition and help boost economic growth as the mining boom fades.

During Friday's meeting between federal and state Treasurers, the federal Treasurer Scott Morrison, as promised, put on the table recommendations from the Harper review into competition that suggests the states should open up the delivery of health and other human and social services to the private sector.

Sources said Mr Morrison confirmed, when asked by the Treasurers, that he was contemplating incentive payments similar to those given to the states during the 1990s in return for them implementing the wave of national competition reforms and deregulation measures recommended by Professor Fred Hilmer.

Mr Morrison said afterwards he believed the Harper reforms had the capacity to boost national economic growth by at least the 2.5 per cent attributed to the Hilmer reforms.

"The Harper Review has the potential to unlock, if acted upon, enormous economic opportunities for Australia, not the unlike what was achieved when we realised 2.5 per cent growth by implementing the Hilmer reforms," he said.

"Today I've been able to get a very good indication of the willingness and appetite of the states and territories to engage in that process and it is now for us to … chart out an institutional framework for how they can be driven, in the same way as back under the Hilmer process.

"This is an exciting area but very early days, there are key principles to work off and flesh them out to ensure at the next meeting we can consider how that process can be managed."

The Treasurers also discussed tax reform but little progress was made in terms of an agreement. Sources said Mr Morrison presented a slide show of Treasury modelling of the various tax options that were put forward by the Premiers and then-prime minister Tony Abbott at a leaders' retreat in August.

This included the affect of broadening the base of the GST, lifting the rate, and doing both at once. He also showed the effect of doubling the Medicare Levy from 2 per cent to 4 per cent, as proposed by Victoria and Queensland as an alternative to the GST.

Modelling not released The government refused to release the modelling but it was believed to be similar to that prepared by the states and presented to earlier gatherings. For example, the NSW government estimated that by 2020, a 15 per cent GST rate applied to the existing base of the GST, would raise an extra $36 billion a year.

Doubling the Medicare levy would raise much more and cover the growing gap in health funding, which is forecast to reach $35 billion a year by 2030.

But this would drive the top marginal tax rate to 51 per cent and Mr Morrison again indicated on Friday he was happy to model it but would never support it.

He emphasised repeatedly that the tax options were just that, and the government was still in the "discovery phase" of tax reform.

But Mr Morrison stressed that with falling commodity prices, the economy needed more than tax reform to boost growth.

He said the Harper review had been bogged down in a debate about changing Section 46 of the Competition Act to introduce an effects test and while that was important, there were many other good recommendations which had economy-boosting potential.

South Australian Treasurer Tom Koutsantonis said he and his colleagues were "very happy" that Mr Morrison had breathed life back" into the Harper review.

"This is the next wave of reform and it's important to do more. Let's see what the incentives are," he said.