Australians to get tax penalty relief and more will qualify for health subsidy from July 1

Many Aussies will save $900 on their tax bill while others will get a higher subsidy on their health insurance under major changes on July 1. See how it affects you.

Exclusive: Hundreds of thousands of taxpayers unfairly slugged a $900 penalty because they don’t have private health insurance are in for a reprieve.

And more people will qualify for a government subsidy to help them with their health insurance costs under changes to take effect on July 1, but there is a sting in the tail.

Currently more than 411,000 Australians who don’t have health cover are hit with a tax penalty called the Medicare Levy Surcharge.

The measure introduced by the Howard Government was originally meant to hit the rich but the income at which the tax slug cuts in has not been increased for almost a decade — so it now slugs those on less than average earnings.

But under the changes, the income threshold for singles will now move from $90,000 to $93,000 before being affected by the tax penalty.

The threshold for families will increase from $180,000 to $186,000.

It also means people earning less than these amounts will get a 25 per cent subsidy on their health insurance premiums from the government, once the updated indexation kicks in.

Despite the changes, the updated tax penalty will still hit people earning less than the average wage — $94,000. They will be charged $940 in tax if they do not have private health insurance.

Thousands to avoid tax penalty for not having health insurance. Picture istock

Former Health Department chief now Melbourne University health expert Professor Stephen Duckett said the tax penalty “didn’t do very much because rich people were taking out private health insurance anyway”. He wants it abolished altogether.

The Department of Health and Aged Care is currently reviewing the effectiveness of the Medicare Levy Surcharge.

Professor Stephen Duckett wants the surcharge abolished. Picture: NCA NewsWire / Gary Ramage

For eight years, the Medicare Levy Surcharge has been one of several sneaky hip pocket slugs imposed by the federal government that have driven up the health costs for Australians.

The tricky indexation measures are pushing up the price of prescription medicines and eroding the Medicare rebate.

INCREASED MEDICINE PRICES

While wealthier Australians had their medicine charge slashed by $12.50 in January pensioners are paying 50 cents more for subsidised prescription medicines after their charge was indexed on January 1.

Advocacy group Better Access Australia, run by former senior Health department bureaucrat Felicity McNeil, has been asking for the Government to freeze the annual CPI indexation of PBS co-payments to lower medicine costs.

LOWER MEDICARE REBATES

The Medicare rebate has not been properly indexed to inflation for nearly 40 years and now covers less than half the cost of a GP visit, meaning patients at non-bulk-billing clinics can be $41 out of pocket.

The Minister for Health and Aged Care Mark Butler. Picture Martin Ollman/Getty Images

Doctors groups want the Medicare rebate increased for longer consults and others want the bulk billing incentive paid to doctors increased in the budget.

Health Minister Mark Butler said the Government had already made the Pharmaceutical benefits safety net threshold 25 per cent cheaper for millions of pensioners and concession card holders so “on average, they will pay only $5 per week for all of their medicines needs, no matter how many medicines they take”.

“In September, we cut the price of more than 2000 brands of medicine, delivering $130 million back into the pockets of hardworking Australians,” he said.

Mr Butler said in November, the government gave more self-funded retirees access to a seniors health card that would give them cheaper PBS medicines and bulk-billed GP visits.