GST or Medicare? Mike Baird and Daniel Andrews split on health

Today’s meeting of commonwealth and state leaders is shaping as two alternative visions of ­affording health services.

NSW Premier Mike Baird. Picture: Jane Dempster

Today’s meeting of commonwealth and state leaders is shaping as two alternative visions of ­affording the ever-increasing ­demand for health services.

Both NSW Premier Mike Baird and Victorian Premier ­Daniel Andrews have highlighted the challenge of funding health as the major issue facing state governments, particularly in light of the federal government’s decision to vacate responsibility for filling the looming fiscal gap caused by an ageing population and the ever-­increasing costs of medical ­technology.

Mr Baird has proposed lifting the GST from 10 per cent to 15 per cent while Mr Andrews has proposed raising the Medicare levy — now 2 per cent — by an unspecified amount. The issue is shaping as a party political divide between the Liberals’ preference for consumption taxes and Labor’s for income taxes.

Mr Baird goes to today’s meeting with modelling showing a 15 per cent GST that maintains the exemption for food, education, health and financial services would raise about $36 billion in extra revenue. After fully ­compensating households with incomes under $100,000, and partly compensating those under $150,000, this leaves about $18bn over to fund health services. But this is less than the $20bn he says the states need to fill the fiscal gap looming in 2020.

Although Mr Andrews hasn’t specified the level to which he would like to raise the Medicare level, the NSW government has done some modelling that suggests increasing it from 2 per cent to 4 per cent would raise about $29bn, of which more than $21bn would be left over for health spending after compensation.

In other words, Mr Andrews’s idea raises more net revenue than does Mr Baird’s.

Although the details of neither the compensation package nor the assumptions behind these ­figures have been made public, the greater revenue from Mr ­Andrews’s proposal appears to be because there are already exemptions for low-income earners from paying the Medicare levy, making compensation less expensive.

However, as the Medicare levy operates as a flat rate on top of income tax, raising it to 4 per cent would push the top marginal income tax rate to above 50 per cent.