Shorten’s policy puts average workers out of pocket: Turnbull

Malcolm Turnbull has accused Bill Shorten of ‘punishing’ middle-­income earners.

Malcolm Turnbull has accused Bill Shorten of “punishing” middle-­income earners by trying to amend the government’s $8.2 billion increase in the Medicare Levy, escalating the political fight over who should pay to fund the ­National Disability Insurance Scheme.

The Prime Minister claimed the Opposition Leader would force Australians on average incomes­ to pay an extraordinary tax rate on earnings over $87,000 a year, setting up a contest over which side of politics was helping workers on average salaries.

Mr Shorten defended his proposal to waive the new 0.5 per cent increase in the levy for people earning up to $87,000, declaring it would be unfair to ask them to pay more.

The government seized on a key design feature in the Labor policy that means anyone earning one dollar more than the ­threshold would pay the higher Medicare Levy on his or her entire income — a sharp increase in the tax burden.

The $435 in additional tax on the worker’s entire income would be triggered by the earning of $1 more than the threshold.

As a percentage of the extra dollar, the bill would be 43,539.5 per cent — an “effective marginal tax rate” on the ­additional earnings.

“What it is doing is providing a massive disincentive for people to do an hour’s extra work,” Mr Turnbull said of the Labor policy.

“They could find themselves, by force of circumstance, no choice of their own, earning one dollar more and losing all of that — and hundreds of dollars more — in tax.”

The Prime Minister used this feature of the Labor policy to counter Mr Shorten’s complaint about the expiration of the 2 per cent “temporary deficit levy” on June 30.

The change will benefit workers earning more than $180,000 and was built in to legislation passed in 2014. Mr Turnbull told question time that Labor had voted for the legislation that included the June 30 sunset of the deficit levy and should now focus on middle-­income workers rather than those on higher incomes.

“They can go on about their millionaires as much as they like. The reality is Labor is punishing middle-income earners, middle-income Australians — the very Australians we’re protecting and we protected with the tax cut — delivered in last year’s budget,” Mr Turnbull said.

Mr Shorten is campaigning against the end of the deficit levy on the grounds that someone with a taxable income of $1 million a year will get a $16,400 reduction in his or her tax bill when the 2 per cent levy no longer applies on earnings over $180,000.

There are about 11,000 people with taxable incomes of $1m or more, according to figures from the Australian Taxation Office. That means the $16,400 annual saving for this group sacrifices about $180m in annual revenue, a small part of the proceeds of the deficit levy.

The same wealthy workers will get a $5000 rise in their tax bill from the higher Medicare Levy, which is meant to start in July 2019 when the cost of the NDIS will grow.

About nine million adults are exempt from the Medicare Levy because they earn less than $21,000 a year or have ­concessions.

Seniors can be exempt from the levy while families with ­incomes up to about $50,000 can pay a ­reduced rate, depending on their circumstances.