Nick Xenophon’s Medicare levy plan to hit families

Nick ­Xenophon’s call for a lift in the Medicare levy to fill the NDIS gap would cost families up to $2600 a year.

Senator Nick Xenophon.

Senate powerbroker Nick ­Xenophon’s call for a lift in the Medicare levy to fill the $7 billion unfunded gap in the National Disability Insurance Scheme would cost families up to $2600 a year in extra taxes.

Modelling commissioned by The Australian yesterday revealed that even a 1 percentage point hike in the 2 per cent levy would cost average families more than the proposed cuts to family supplements that Senator Xenophon cited as his reason for rejecting the government’s now doomed childcare package.

With Scott Morrison still holding out the spectre of tax increases to fund the NDIS shortfall, a bitter dispute has erupted over how the government will plug the $13bn in further spending cuts blocked in the Senate.

Bill Shorten yesterday refused to rule out an increase in the Medicare levy as Liberal frontbencher Craig Laundy said the government would never accept it. Nor would the government break a promise to end the temporary budget repair levy imposed on high-income earners which is due to expire in June, Mr Laundy said.

Annual increase in tax paid

“You are already at 49c in the dollar … you can’t go to 55, 56c, you become a major shareholder in everyone’s life,” he said.

Raising the Medicare levy from 2 per cent to 3 per cent would raise $8bn a year in revenue but it would cost high-income earners $2600 a year and average families about $600 a year.

According to the modelling by the Australian National Univer­sity’s Centre for Social Research and Methods, an increase to a 4 per cent Medicare levy as proposed by the Queensland and Victorian governments last year as part of COAG tax reform negotiations would cost the top 20 per cent of income earners an extra $5200 a year.

A middle-income family would be hit with an extra $580 in annual taxes. This is almost double the cost to the average family that Senator Xenophon and Labor have said would be lost if the family tax benefit supplement was scrapped as part of the $6bn in savings measures attached to the government’s childcare ­omnibus bill.

The total revenue raised by a 4 per cent Medicare levy would be in excess of $16bn, the modelling showed.

The Treasurer yesterday ­accused Labor of sabotaging the budget after it was revealed in The Australian that the $13.2bn in ­savings being blocked by Labor, the Greens and the crossbench would have to be dumped from the May budget.

To prevent the budget ­deteriorating further, the government is claiming it is being left with few alternatives.

“What Labor are saying is that they want government to spend more and more on welfare and they want Australians to pay more and more in tax to pay for it … there remains $13.2bn, and half of that is in a bill which is trying to get welfare spending further under control, and the Labor Party is saying no,” Mr Morrison said. “They think we should ­continue to pay more and more out in welfare, and send the bill to our kids.

“Labor has the opportunity to mend their ways and support the savings bills to ensure that our welfare system is affordable and that Australians do not have to pay a higher tax to pay for higher spending.”

Senator Xenophon yesterday said that the government’s budget problems could be solved by a “small increase in the Medicare levy surcharge in order to help fund the NDIS, as well as deferring the company tax cuts for businesses with annual turnover of more than $10 million”.

Social Services Minister Christian Porter has claimed that Labor left a $4.1bn funding gap in the NDIS in 2019-20. That gap would expand to $7bn by 2028-29.

Mr Shorten yesterday refused to rule out Labor supporting an increase to the Medicare levy as a revenue-raising mechanism to fund the black hole created by blocked savings measures in the Senate

When asked directly whether he supported it, the Opposition Leader said: “Well, I think the first thing the government has got to do is drop the $50bn corporate tax cut.

“See, what the government says is either you pay more taxes or battling families and pensioners lose money.

“But there is a third way. Don’t reduce the corporate tax that they currently pay.

“Too many corporations aren’t paying the tax they are meant to pay now.

“Too many multinationals are sending their profits overseas. This government is soft on big companies and hard on pensioners and working families.

“So I think if the government really wants to do budget repair, it should do budget repair which is fair.”

The Turnbull government’s omnibus ­social security bill would have saved about $5.6bn over four years through cuts to family tax benefits, with part of these funds going towards funding the childcare package designed to ease childcare costs for families and encourage greater workforce participation.

As an incentive to the three Nick Xenophon Team senators to back the measures, the government said it would use the rest of the savings to fund a special account to pay for the NDIS.

Senator Xenophon has not ruled out supporting some of the savings measures but these would fall short of funding the childcare reforms.

He has also proposed cutting spending on Defence.

The government will now be forced to remove the $13.2bn in so- called zombie savings from its budget books in May due to concerns that the ratings agencies will not accept them as genuine savings and lower the nation’s AAA credit rating.

Some of the savings measures originated in former treasurer Joe Hockey’s controversial 2014-15 budget.