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There is a fierce debate under way inside the Liberal Party room that will help define its future, and it’s not about the tough-talking new immigration policy. It’s about tax.
Specifically, should the Coalition block or wave through the federal Labor government’s expected tweaks to capital gains and negative gearing tax breaks, the details of which are expected in the May budget?
The easiest way to understand the debate is to personify it: current party leader Angus Taylor up against his conservative ally Andrew Hastie, though that characterisation only grazes the surface.
The debate goes to the existential question: what does the modern Liberal Party stand for, and how does it fend off the challenge of One Nation while also winning back support from voters who have deserted it for Labor?
Labor’s changes are expected to be relatively modest compared to what former leader Bill Shorten had planned in 2019: a cap on how many investment properties can be negatively geared – somewhere between two and five – and a reduction in the capital gains tax discount from 50 per cent to perhaps 33 or 25 per cent.
But those proposed tweaks have been more than enough to kick-start the internal debate within the conservative faction, which controls the parliamentary party, about what the Liberals should be for in the third decade of the 21st century.
Should it maintain its small government traditions or is it is time to evolve to meet the demands of the time and become a party that is unafraid of supporting bigger government (in certain circumstances) so that it can implement a conservative agenda? After all, Labor has never been afraid to articulate the case for a bigger government that does Labor things.
For Taylor, those tax changes are anathema. But Hastie, in a recent appearance on the ABC’s Insiders program, said he was “open” to a discussion on the changes, as well as a tax on gas producers making windfall profits now because of the war in the Middle East.
Taylor is leader. Hastie wants to lead it one day, though his allies say that won’t happen this term.
I spoke to eight MPs in the conservative faction this week and three moderate MPs to better understand the internal debate over tax. It’s not clear where the party will land on Labor’s proposed tax changes, if Labor follows through on what it has been signalling as its most ambitious budget yet.
Not one of those 11 Liberal MPs expected Taylor, instinctively, to back the tax changes but that doesn’t mean the debate is over.
Taylor found rare consensus within the Liberal Party this week. His tough-talking immigration policy was aimed more at winning back One Nation voters who have deserted the party rather than teal or Labor-voting people who left the party at the 2022 and 2025 elections.
It’s designed to put a floor under the collapse in the Liberal vote and start the painful process of rebuilding. If it wedges Labor and wins over some of its voters too, all the better, but that isn’t the point. In the context of the Farrer byelection, which many inside the opposition expect One Nation to win, it will help.
But as one of those eight conservative MPs put it, the debate over tax changes is going to be much harder.
“Gus is the classic Chicago School of Economics, small-government man. Andrew just genuinely has a different outlook. The new right is more big government conservative, they want government to have a bigger role and if that means closing some tax loopholes, or at least waving them through parliament, they will,” the MP said, adding that “the moderates tend to align with the small government conservatives”.
But another conservative argues that the days of simply sticking to the small government script are over and won’t win back government.
“We have to win back Millennials and Gen Z, they are just not listening to us. We have to do something on housing and tax that is so big it gives them whiplash,” a second conservative MP says.
A third conservative MP says that the values-based immigration policy announced during the week, which could see migrants kicked out of the country for not backing things such as democracy, freedom of religion or freedom of expression, was a good start but would not be enough to win back government one day.
“We are fighting on both flanks, both sides, One Nation and Labor. This policy is very saleable in a seat like mine but it’s not enough. I understand the politics of why Hastie said he as open-minded on those tax changes. Young people are aggrieved, they think the system is rigged against them,” the third MP says.
So what should the Liberal Party do if Labor follows through and proposes winding back negative gearing and capital gains tax breaks?
None of those three MPs liked the idea, but all of them suggest the party should wave through changes that cap the number of negatively geared properties.
“Limiting it to one house, prospectively, I would be fine with that. It still enables nurses and policemen and tradies to invest and helps them build a nest egg. I would say let’s not die in a ditch over it,” one of those three MPs said.
“I suspect Angus and Tim (shadow treasurer Tim Wilson) will want to fight it all the way but we shouldn’t. We need to focus on our agenda, not just fighting Labor.”
These discussions aren’t just idle chatter on the opposition benches. Once Labor’s budget lands and if the tax changes are confirmed, some of these MPs are ready to speak out in the party room in May and directly contradict their leader, if they have to, over the issue.
“What you’re hearing from the new right is that we need to reach people who are locked out of housing. People are ready to speak up on this, we need to have better answers on tax and on housing.”
Which brings us back to Andrew Hastie.
If Taylor follows his instincts and opposes the tax changes and Hastie remains open to them, the former soldier will face a difficult choice: maintain shadow cabinet solidarity or move to the backbench.
But the Liberal Party is finally having the serious debates it didn’t have under the leadership of Dutton. That could spell trouble for Taylor in the short term and even a stand-off with Hastie. But the looming impasse, once resolved, could also leave the party in good stead for the longer term.
James Massola is chief political commentator for the Herald and the Age.
James Massola is chief political commentator. He was previously national affairs editor and South-East Asia correspondent. He has won Quill and Kennedy awards and been a Walkley finalist. Connect securely on Signal @jamesmassola.01Connect via X or email.From our partners
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