Jeremy Sammut: The Medicare levy is a fiscal fiction: The real slug is much higher

BUDGET OPINION: Even those on modest incomes contribute a significant amount in ­income tax to fund Medicare, writes Jeremy Sammut.

TREASURER Scott Morrison has launched a new raid on the wallets of taxpayers who in reality are already paying almost seven times the ­official Medicare Levy rate to actually cover the costs of Medicare.

The decision to hike the Medicare levy and pour even more taxpayers’ money into the health system by ­unfreezing the indexing of Medicare rebates for GPs and specialists, will delight the Australian Medical Asso-ciation and help negate Bill Shorten’s “Mediscare” campaigning.

But voters would take a dimmer view if they knew what a fiscal fiction the official Medicare levy is — as well as what the true cost of Medicare for taxpayers amounts to.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison in parliament. Picture: Kym Smith

The levy increase is predicted to harvest an extra $3.55 billion in 2019-20, giving a total of $21.76 billion. But the three biggest federal health costs alone add up to $58.1 billion. And that’s without accounting for tens of billions of additional state expenditure.

Currently, the 2 per cent Medicare and Disability Care Australia Levy raises about $15 billion a year, with about $11 billion going towards ­Medicare.

But this covers less than 15 per cent of the $70 billion-plus total cost of doctor visits, medications, and public hospital care paid for under Australia’s ‘free’ Medicare system when the states’ costs are included.

The Budget’s additional 0.5 percentage point rise in the levy from July 2019 will not just increase the levy to 2.5 per cent of personal income.

It will actually push the ‘real’ Medicare levy — the huge chunk of income tax needed to fund the cost of Medicare — to beyond 11 per cent of taxable income (higher than the 10 per cent GST).

Even those on modest incomes contribute a significant amount in ­income tax to fund Medicare.

For example, to fully fund Australia’s Medicare system people earning $50,000 effectively pay a levy of $5200, meaning that two-thirds of the income tax they pay goes to fund Medicare alone.

Meanwhile, those earning $75,000 pay a $7800 real levy — around half their total income tax.

It’s a fiction that the nine million taxpayers who tip in for the levy each year are slugged only a small percentage of their incomes. Those who are being hammered again in the Budget already shell out a large amount of income tax to pay for ‘free’ healthcare.

Meanwhile, conservative estimates suggest 11 per cent of health spending is wasted every year, and that health reforms could potentially close this 11 per cent healthcare cost gap in Medicare.

The savings that could be produced would more than fund the estimated $7 billion funding shortfall for the NDIS by 2028.

But by hiking the levy, the Turnbull Government has given up the fight for economic reform and Budget repair via limiting expenditure and pursuing efficiencies.

The proposed Medicare Guarantee Fund — into which 80 per cent of the Medicare levy rise will be paid, plus an unspecified amount of income tax annually to cover the MBS and PBS — might be a step towards ­greater transparency in establishing the true cost of health to taxpayers.

But this could be done without ­another broken promise tax rise.

Failing to stand up to the AMA — and stare down the Mediscare — also means the new fund will more than likely become a sacred cash cow that underwrites the inefficient business models of the medical profession.

 

Jeremy Sammut is director of the Health Innovations Program at the Centre for Independent Studies and author of the report Fiscal Fiction: The Real Medicare Levy.