Government to drop Medicare levy rise

TREASURER Scott Morrison could have more tax cuts in his Budget after he announced it had dropped plans for the Medicare levy increase.

THE government will scrap plans to increase the Medicare levy by $57 billion in a powerful demonstration of faith in economic growth.

The 0.5 per cent rise on the existing two per cent levy was announced in last year’s Budget to fully fund the National Disability Insurance Scheme.

But it will be dropped in the Budget Treasurer Scott Morrison will deliver in 12 days.

The Government is set to follow its sudden scrapping of a Medicare levy with a slow whittling of income taxes to be identified in the May 8 Budget.

And Labor is preparing for a contest over tax minimisation as a central issue for the election scheduled for next year.

The Opposition began this contest today by claiming credit for the government decision to drop its policy to bump up Medicare levy, and confirmed it was jettisoning its own related plan.

Shadow treasurer Chris Bowen said the government had no option but to shed plans for a 0.5 per cent increase to the two per cent levy because it couldn’t get it through the Parliament.

The Labor Opposition had offered to back the Government’s plan to increase the levy from July next year if it was limited to those earning above $87,000 a year, protecting low and middle-income earners.

“We no longer need to proceed with that effort of compromise,” said Mr Bowen.

The government has said the levy hike, worth about $8 billion a year, had been needed to overcome a $57 billion shortfall in long-term funding for the National Disability Insurance Scheme.

But it now says tax collections boosted by economic growth will cover the NDIS gap.

That same growth will be used to fund modest personal tax cuts to be announced in 12 days. They are expected to be delivered in installments over an extended period.

‘IT DOESN’T HAPPEN LIKE THAT, KARL’

Mr Morrison went on Today this morning to explain the decision, but was questioned by host Karl Stefanovic on how the government could afford to drop the tax increase.

“Scott Morrison wakes up one morning he looks under the bed hey presto, there is $8 billion,” Stefanovic said.

Mr Morrison replied: “It doesn’t happen like that, Karl.”

“Over the last 15 months or so we have seen the economy improving,” he said.

“Over the early part of this year and the latter part of last year we started to see the tax collections that were coming from companies doing better, come into the coffers, we could have greater confidence about revenues into the future.

“As this continue to confirm as we prepared the budget it’s clear with no longer have to do this. I’m pleased as punch we don’t have to do it and pleased as punch for people with disabilities.”

It's a move that will save tax payer hundreds, if not thousands of dollars a year. This morning, the government announced they're axing the planned increase to the medicare levy. #9Today pic.twitter.com/6cTdn5KRk4

— The Today Show (@TheTodayShow) April 25, 2018

Stefanovic then asked: “If you got it so wrong 12 months ago how are you confident you got the forecast right now?”

But Mr Morrison said the government was “conservative 12 months ago”.

“Things are better than we thought they were. That’s the better place of that argument to be on. The worst place is you over assume the revenue then you end up with the deficit.”

The government is now confident it can pay for assistance to 440,000 disabled Australians through greater revenue from economic growth.

“Our economy is finally shaking off the dulling effects of the downturn in the mining investment boom,” Treasurer Scott Morrison said today in a speech prepared for the Australian Business Economists conference.

Mr Morrison revealed tax revenue for the Budget year to the end of February was $4.8 billion higher than estimated just last December.

Some $1.2 billion of that came from a rise in income tax collection.

He believes the hike in tax receipts, and savings from cost cutting, will mean crucial programs such as infrastructure building will be funded from revenue rather than new taxes.

The decision to drop the Medicare levy increase does more than give the government a concrete sign of its certainty the economy is growing steadily.

The government is dropping the Medicare Levy. Picture: Michael Dodge

It also provides political benefits, including disarming Labor of its charge the government wanted to increase taxes on the less well off.

The government is expected to reinforce its pre-Budget campaign that Labor would be the high tax alternative at the election scheduled for next year.

And Scott Morrison today appeared to already have a campaign slogan: “Tax can go too far.”

Legislation for the levy increase was introduced in August with the government arguing it was needed to repair a $57 billion shortfall in NDIS spending. But it quickly became clear it would not get through parliament unscathed.

Labor branded it a tax rise on low and middle-income earners because it started at around $26,000 a year, and insisted it only apply to those earning $87,000 and above.

The government is also indicating its enhanced revenue now means it is better placed to offer income tax cuts.

“Labor’s plans for higher taxes will make our economy weaker, not stronger, putting at risk the benefits, the jobs, the wages, the incomes and the essential services that depend on a stronger economy,” Mr Morrison told his audience.

Treasurer Scott Morrison announced pre-Budget plans today. Picture: Luis Ascui

“And we all know Labor can never live within their means.

“As economists, you are more than aware of the intrinsic link between tax and economic growth, and how creating an unnecessary tax burden squashes incentive and aspiration, and chokes demand. Tax can go too far.”

Treasurer Morrison said: “Now is the time to build upon growth, to create more jobs and ensure as a government that we can continue to guarantee the essential services Australians rely on.

“That is what this year’s Budget will be about — a stronger economy, to create more jobs and guarantee the essential services Australians rely on.

“And, as always, ensuring that the government continues to live within its means. Our economy is continuing to strengthen.”

And with a hint of stronger prospects for increases in stagnant wages he said all Australians “must and do share in the benefits of a stronger economy”.

“More than 1000 Australians have been getting jobs every single day over the past year, with the vast bulk of these jobs full-time positions,” he said.

“This has led to a tightening in the labour market which is building pressure for better

wage growth.”

Originally published as Government to drop Medicare levy rise