Turnbull government will scrap $8 billion Medicare levy increase

Scott Morrison has dumped plans for a 0.5 per cent hike in the Medicare Levy from next year.

Federal Treasurer Scott Morrison. Picture: James Croucher

Scott Morrison has dumped plans for a 0.5 per cent hike in the Medicare Levy from next year to fill Labor’s $57 billion funding shortfall for the National Disability Insurance Scheme, claiming that a stronger economy had delivered an unexpected budget revenue windfall that would now entirely cover the cost of the scheme.

The move, to be outlined in a pre-budget speech to the Australian Business Economists in Sydney today, will spare workers and their families from an added annual tax bill scheduled to start in July 2019 of between $100 for low income earners and almost $1250 at the higher end of the scale.

The Treasurer says the Government will no longer proceed with the $8 billion levy hike claiming that the budget would now be able to absorb the full cost of the scheme which had been left unfunded over the longer term by the former Gillard and Rudd governments when Labor lost office in 2013.

“As we prepared the budget it was clear that we no longer had to do this and so I’m pleased as punch that we don’t,” Mr Morrison told the Nine Network this morning.

“I’m pleased as punch for people with disabilities that we can guarantee those funds from a stronger economy.”

The better than forecast revenue projections, which it is understood will extend the $10 billion extra forecast in financial updates released last month, will provide a significant cash boost to the budget.

The loss of revenue from the dumping of the policy will be more than met with the revenue gains with the Government now able to lock in the NDIS funding while still pledging personal income tax cuts and retaining its company tax cut plans.

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

The unexpected dumping of the extra levy leaves Labor leader Bill Shorten wedged 12 days before the budget with Labor having locked itself in to a similar pledge to increase the Medicare Levy from 2 per cent to 2.5 per for workers earning above $87,000 a year.

With the Opposition’s plans to not only retain the increased levy but reinstate a two per cent debt and deficit levy on higher income earners, Labor will go to an election with an effective top marginal tax rate of 49.5 per cent.

Mr Morrison will now argue a marked point of difference between the two parties with the Coalition now being able to claim it would leave the thresholds unchanged and sparing middle income earners more tax pain.

 

While the levy rise announced as a major measure in last year’s budget was regarded as a necessary move to pay for the NDIS, the Government had faced rejection in the Senate on the bill with Labor, the Greens and several crossbenchers claiming that it would hurt lower income earners as well as the wealthy.

The Government revealed in March that financial updates since the Mid-year Economic and Fiscal Outlook had delivered $10 billion extra in expected revenue in the quarter since December last year including company tax revenue surging $3bn ahead and personal income tax receipts up $2 billion.

It is understood that this growth in revenue projections has improved further and will deliver further windfalls when the budget is handed down on May 8 with a return to surplus timetable unaffected.

Under the Turnbull government’s proposal, a single person would have started paying a higher levy at $21,000, and a family would pay when income reached just under $40,000.

“In last year’s Budget, we asked Australians to fill the $57 billion shortfall in funding for the National Disability Insurance Scheme that we inherited when we came to Government through a 0.5 per cent increase in the Medicare Levy, each according to their means,” Mr Morrison will tell the business summit tomorrow.

“We did not put forward this proposal in last year’s budget lightly, as we knew it would cost Australians more, but we had faith in the big heartedness of Australians. It was about helping your mates.

“Julia Gillard put it well when she said “everyone puts in because everyone takes out”. Labor have changed their view on this in Opposition.

“A year later, our fiscal position has improved. Our economy is stronger and it is continuing to strengthen under the Turnbull Government’s national economic plan.

“That is why we are now in a position to give our guarantee to Australians living with a disability and their families and carers that all planned expenditure on the NDIS will be able to be met in this year’s Budget and beyond without any longer having to increase the Medicare levy.

“The reason we proposed to increase the Medicare Levy was only to fully fund the gap left behind by Labor on the NDIS. We no longer believe we need to do this.”

The Government argued last year that it had been left with no choice but to impose a universal rise in the Medicare levy to fund the shortfall because of the refusal by Labor in the Senate to pass billions of dollars in other savings proposals.

Labor has argued that there was never a funding shortfall for the NDIS but has committed to a rise in the Medicare Levy.

Shadow Treasurer Chris Bowen two weeks ago re-affirmed Labor’s policy.

“Labor has a plan that is better and fairer for the Budget, and raises $4.5 billion more than the Government’s proposed tax rise over ten years,” Mr Bowen said in a statement on April 12.

“We want to increase the Medicare Levy for people earning above $87,000 and keep the Deficit Levy for those income earners earning more than $180,000.

“The Turnbull Government’s plan to increase the Medicare Levy would increase the tax burden on vulnerable people earning as little as $21,000 a year.

“It means a worker on $55,000 would pay $275 extra a year in tax, while someone on $80,000 would face an extra $400 in tax.”

Labor infrastructure and transport spokesman Anthony Albanese appeared on Sky News’ Richo,” arguing that it was only a matter of time before the government scrapped the Medicare levy.

He appeared unsurprised that the government had decided to abandon the levy, saying that Labor had lobbied for it for some time.

“It’s quite absurd and untenable for a government going to a budget, knowing they’re going to be (implementing) some income tax cuts at the same time as they’re putting this Medicare levy on for the National Disability Insurance Scheme,” Mr Albanese said.

“But planning to do so across all income levels”.

He warned that the government couldn’t “give with one hand and take with another”.