[Theme music]

ELIZABETH:

From Schwartz Media, I’m Elizabeth Kulas. This is 7am.

Despite a public commitment to passing their tax reforms as a single package, some in the Liberal Party see benefits in not getting those cuts through parliament. At the same time, there are those within Labor who want to see those cuts pass, and have the Coalition deal with the consequences.

Paul Bongiorno on the workings of double bluff politics.

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ELIZABETH:

Paul, tell me this week about Rex Patrick.

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PAUL:

Well the government did very well in this election. It's still short of a majority in the senate. It needs four of the six crossbenchers to get to the 39 votes it needs to pass legislation. Now Rex Patrick, he counts for two votes. He's Centre Alliance. Formerly had been a staffer for Nick Xenophon, the very wily and canny South Australian Independent. Rex Patrick learnt at an old masters feet and the idea is that when the opposition or the government are at loggerheads, that's when you grab your moment in the sun.

Archival tape – Rex Patrick

"We don’t want to have a situation where we pass tax-cuts in a softening economy, and end up potentially have to cut education services, health-care, age-care, or in some way harm pensioners, so we just got to be mindful of that, we have to go through our processes to make sure that any decision we make is a responsible one."

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ELIZABETH:

Of course, Xenophon was great at using his position as a crossbencher to pressure government. Tell me about the strategy that makes that work?

PAUL:

They've got to be very good poker players. It's really a simple formula you know, make as much noise as possible, make the media look at me, and then be the last to fold in the negotiation.

ELIZABETH:

Quickly, can you remind me what's the make-up of the crossbench at the moment?

PAUL:

There are six. There are two from Centre Alliance, which is the old Nick Xenophon party. There's two from Pauline Hanson's party, both from Queensland. Malcolm Roberts is back in tow. Jacqui Lambie, she's back in town now – she’s the independent from Tasmania. And then there's Cory Bernardi.

ELIZABETH:

And what is this policy issue that Rex Patrick is making noise about?

PAUL:

Well, what's kicking it off really is the government's looking for numbers to get its 158 billion dollar, 10 year tax plan, with it’s three stages through. The first stage there is universal agreement in the Parliament over, so low and middle income earners will get what's called a tax offset which is basically a tax rebate of 1,080 dollars. Anthony Albanese, for example, says bring that into the Parliament. It can be passed in one hour. It’s stages two and three that are more problematic. Rex Patrick he's got concerns about that tax plan that feed into other issues for him.

One of the biggest concerns is that the tax plan flattens the tax rates, forgoes enormous revenue, and he's worried, as is his colleague Rebecca Sharkey, down in the House of Reps, that if you're going to shrink the pie this much, what does it do for outlays? What does it mean for being able to afford pensions? And social welfare payments? And even health and education?

ELIZABETH:

What is Rex Patrick asking for?

PAUL:

Well, Rex Patrick believes that the government hasn't given us enough detail.

Archival tape – Rex Patrick

"Look, we would love to be able to give hard-working Australians a tax break, I guess that’s our starting position, but it is $20b decision and our responsibility is to look at things properly and carefully."

PAUL:

He actually supports the Labor Party, and Labor says look we want to know what the costs are for each tranche and what it means for high income earners. Furthermore, they'd like to know the assumptions, because the government says” oh have a look. We've shown in the in the budget papers how we'll pay for it.” Well, how they'll pay for it in the out years is by assumptions on extraordinary wages growth but also, tellingly, on lower government outlays. But they haven't, of course, shown where and how and why these outlays will be lower or how we're going to reach this very optimistic wage growth forecast.

ELIZABETH:

And is he asking for certain policy tradeoffs, if Centre Alliance was going to give their support to the full package?

PAUL:

Yes he is. He is saying that he wants to see changes to the arrangements on the way in which Australia deals with our gas exports, and also the way in which the energy market is plied domestically. It's no good giving tax cuts if escalating energy prices take away the value of the tax cut.

And the whole idea of the tax cut is to boost the economy, that is to give people more money so they can spend it.

ELIZABETH:

And how has the government answered to Patrick’s requests for more information and for assurances on energy policy?

PAUL:

Well, it's taking it quite seriously. Patrick had a day in Perth with the finance minister and Matt Canavan, The Resources Minister, the one responsible for gas. He was there too and they had a long discussion over the various ways in which prices could be brought down. But there's another view that if they don't pass the tax cuts, Frydenberg has a much better chance of delivering a surplus.

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ELIZABETH:

So, it’s a bit of a double bluff… if they keep the tax cuts as an all or nothing package and they don’t pass, Frydenberg’s got a better chance of delivering a surplus.

PAUL:

Well yeah, there's a double bluff going on here. It's a high stakes game. The problem there is that, that might be good politics, but it's very bad fiscal policy

ELIZABETH:

We’ll be right back.

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ELIZABETH:

Rex Patrick has stepped into the role of his old boss, Nick Xenophon, using his crossbench status to pressure government over its tax policy. But as you say, there’s speculation that the treasurer, Josh Frydenberg might even want that tax cuts package to stall because it would make it easier for him to reach surplus. Tell me more about that.

PAUL:

There's two arguments going on here, and one is that if the government and the Treasurer hang tough and say it's all or nothing. What will actually happen is that the government won't have to spend the $1.5b a year, the tax cut first stage immediately costs and there are quite a few economists who say that could be a good thing for the government because it could help it reach its promised budget surplus next year.

ELIZABETH:

What is Josh Frydenberg saying about all of this?

PAUL:

Well Josh Frydenberg, the Treasurer has been in Washington and he's been talking to Trump's treasury of the secretary, Frydenberg actually points to the stimulus that Trump’s tax cuts have given to the American economy with increasing growth and lower unemployment. And that's why he says Labor should pass the whole package.
The risk of course, for the Treasurer in citing Trump's America or the United States is that do we really want the American model? For one thing, the $1.5trillion has plunged the American budget into historic deficit. And Trump, to deliver these tax cuts doesn't deliver, for example, universal health care like we have in Australia. In fact, they've even trimmed Obama's health care. In fact, the economist, Richard Dennis, says to me there is no way that American tax scales could fund the sort of services that Australians have come to expect.

ELIZABETH:

And Paul, Labor's position on this tax package - what is that?

PAUL:

Labor's position is that it says it's looking at all options. Anthony Albanese continues to repeat, as do others, including the shadow treasurer, that really the Parliament is being asked to vote on stage three of the tax plan that doesn't come in for another five years on assumptions that are already shaky, if not shonky as well. Who knows what the economy is going to look like in five years and should we be legislating that now. But there is a private view within Labor, not only within the shadow cabinet but also within the caucus, that look, why should Labor why should the opposition save the government from itself? This tax package was put together for political reasons in the expectation they're going to lose the election. It won't stand up, if it falls over, it will undermine the credibility the government claims in the area of economics.

ELIZABETH:

In that scenario, Labor would pass these tax cuts. The government’s ability to provide services would be severely reduced by the loss of revenue. And Labor would leave the coalition essentially to deal with the fall out. It’s quite a cynical view.

PAUL:

Well, to some extent it is cynical, although as Labor is now pointing out almost every other day, it's the opposition and it's not the government. And that's part of the argument he will. The Government's say this is their policy we think it's a fraught policy and a dangerous one, maybe let them implement it and the Australian public can make their judgment. The economy is constantly changing. So, this adds some weight to the view of labor and the crossbench that the Government's 10 year plan is not a wise one.

ELIZABETH:

So that’s the tax cuts, what else is going on this week?

PAUL:

Well, this week Cory Bernardi, the Liberal senator, the former Liberal senator from South Australia, went on Sky Television and flagged that he might be willing to re-enter the Liberal fold.

Archival tape – Cory Bernardi:

"You know, over the last month or so, I’ve been openly to thinking and canvassing what my role might be in politics. So I’ll think about to how best I can do that."

Archival tape – Chris Kenny:

"Back in the Liberal Party?"

Archival tape – Cory Bernardi:

"I didn’t say that, Chris, they’re your words mate."

PAUL:

Now, he absolutely incensed the party. He was the number one position on the Liberal Senate ticket in South Australia. He won a six-year term as a result of that and within a few months of that election, he quit the Liberal Party. He sat on the crossbench in the Senate and he founded his Australian conservative party. Now the Australian Conservative Party has gone nowhere. Cory Bernardi says himself that now that Scott Morrison's in charge, a Liberal leader much to his own policy prescription liking, that maybe he could come back.

ELIZABETH:

And how popular is that idea within the Coalition?

PAUL:

Well look, there's enormous resistance across the party to any return of this prodigal son, not only in South Australia but right around the country. One Liberal says: he's a rat, he's a rat, he's a rat who's denied the party a number in the Senate for years he shouldn't be rewarded. And a powerbroker, says loyal members value loyalty and hate backstabbing egomaniacs. Now there is a view that why Bernardi actually thinks he might want to be a Liberal again... see Bernardi's only about 49 and by some standards, certainly mine, he's a very young man that he realises that he won't win a seat in the Senate again if he runs as an independent. His best chance is to get Liberal preselection. That's the view of some of his former angry colleagues.

ELIZABETH:

I mean Paul, the Parliament hasn't even sat yet since being re-elected and already there is a lot for Scott Morrison to be working through and balancing up.

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PAUL:

Mmm. Yeah well, that that's the way of it. The government has been described as basically managing poo sandwiches.

[Elizabeth laughs]

Nothing happens quite in the way you want it to and it's literally a balancing act every other day of the week. So let's hope Scott Morrison's enjoying his family holiday up there in Fiji. When he comes back, there'll be a week to go, till the fun and games begin in the first week of July in the Parliament.

ELIZABETH:

Thank you so much, Paul.

PAUL:

Thank you Elizabeth. Bye.

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ELIZABETH:

Elsewhere in the news:
It has been revealed that Josh Frydenberg’s office sought to find out whether he could overrule endangered species protections while he was environment minister, this came after lobbying from Angus Taylor, who had interests in an area of land covered by those protections. According to documents obtained by the Guardian, a company Taylor had shares in was being investigated for clearing critically endangered grasslands. Taylor says he was representing constituents in making his approaches.

And Chris Dawson - the subject of the Teacher’s Pet podcast - has been charged with “carnal knowledge by teacher of a girl between the ages of 10 and 17”. The charge comes after he pleaded not guilty to allegedly killing his wife.

7am is produced by Emile Klein, Ruby Schwartz and Atticus Bastow with Michelle Macklem.

Erik Jensen is our editor.

Our theme music is by Ned Beckley and Josh Hogan of Equate Studio.

Special thanks this week to Helene Thomas.

This is 7am.

I’m Elizabeth Kulas.

See you next week.