Medicare levy increase joins the the War on Youth

By Leith van Onselen

The Turnbull Government is optimistic that its proposed 0.5% increase in the Medicare levy will be passed by the Senate. The bill will be put before the upper house later today, although a vote is unlikely before September. The Labor Opposition is pushing for the increased levy to be restricted to people whose annual income exceeds $87,000, whereas the Government hopes to secure the support of crossbenchers. From The Australian:

…the government has been quietly negotiating with crossbenchers to sideline Labor…

Mr Morrison has dismissed the Labor argument for a $87,000 threshold for the tax by pointing to the approach taken with similar measures in the past, including four years ago when former prime minister Julia Gillard and Mr Shorten backed a 0.5 per cent increase for all workers to fund the disability scheme when Labor was in power.

A senior government source told The Australian the government was putting the package to the parliament because it was happy to debate the policy, and the need to fund the NDIS, over the objections from Labor.

Mr Morrison has already introduced safeguards in law to ensure the Medicare Levy will be waived for individuals earning up to $21,655 a year, families earning up to $36,541 or retired couples who qualify for a seniors’ tax offset and earn up to $47,670 a year. The bill also expands the “phase-in” rules that apply the Medicare Levy at a concessional rate for millions of workers ­depending on whether they have children. As an example, a family with two children and a taxable income of up to $43,253 will not pay the levy, an increase from the previous threshold of $42,613.

The increase in the exemptions will cost the budget $180 million over four years and add about 100,000 people to the nine million who are exempt from the Medicare Levy.

The increase in the levy will be $350 a year or about $1 a day for a worker earning $70,000.

While I have no issue with raising funding to pay for growing health expenditure, I do not believe that raising the Medicare Levy is the best or fairest way to do so.

Australia’s tax system is already too heavily reliant on working Australians, with 50% of the Australian Government’s tax take already coming from personal income taxes. Worse, under current arrangements, this share is forecast to rise to 56% in the decade ahead on the back of bracket creep (aka “fiscal drag”), as inflation pushes workers into higher tax thresholds (see next chart).

ScreenHunter_6771 Mar. 30 10.16

Raising the Medicare Levy would effectively worsen the income tax burden even further, punishing working Australians.

It would also have deleterious impacts from an inter-generational perspective, since it would be younger Australians who are called upon to fund public services for their retired parent’s and grandparent’s, who tend to be far wealthier than they are.

As revealed by the latest Census, more than 80% of retirees own their homes, which are conveniently excluded from the assets test to qualify for the Aged Pension (see next chart).

These 80%-plus of retirees have also enjoyed massive windfall gains in wealth, thanks to the mammoth surge in Australian home values over the past 20 year (see next chart).

And this surge in retiree housing wealth has, of course, come at the direct expense of their grand children, who are now either locked-out of housing altogether (see above chart), or are required to undergo a lifetime of debt servitude in order to afford a home.

Rather than raising the Medicare Levy, which would unduly burden younger working Australians, a better approach would be to raise the required health funding via a combination of other measures, for example:

  • Abolishing the planned cut to the company tax rate, from 30% to 25%.
  • Further tightening tax concessions, such as negative gearing, the CGT discount, and fringe benefits on company cars.
  • Abolishing the private health insurance rebate, which let’s face it is inflationary and hasn’t reduced pressure on public hospitals.
  • Tightening means testing of the Aged Pension by including one’s principal place of residence in the assets test, supported by an expansion to the Pension Loans Scheme, so that asset-rich retirees can continue to receive income support via a government-run reverse mortgage.
  • Cracking down on discretionary trusts and private companies, which allow relatively well-off individuals to avoid tax by diverting and ‘sheltering’ their income or income producing assets.
  • Implementing a broad-based Commonwealth land tax.

What Australia should not do is simply raise the tax burden on younger working Australians, while the key beneficiaries of government programs (via the Aged Pension and health and aged care expenditure) pay minimal taxes on their income and enjoy massive untaxed wealth.

Expanding health funding is fine. However, it should be done via broadening the tax system and eliminating waste in an efficient and equitable manner, so that everyone with means shares the burden.

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Comments

  1. “While I have no issue with raising funding to pay for growing health expenditure, I do not believe that raising the Medicare Levy is the best or fairest way to do so.”

    Of course the “Medicare levy” just goes into consolidated revenue the same as the rest of income tax and its dishonest to pretend it is allocated specifically for health. May as well call it the “Negative Gearing” levy as its real purpose is to cover the hole left by tax deductions for people’s interest bills on their investment properties.

    • Why call it a Medicare levy? It is not earmarked for Medicare. It is not to cover growing medical expenses but to try to fund the unfunded magic pudding that is the NDIS.
      It is just a 0.5% hike in personal taxes with the usual array of freeloaders avoiding paying it.
      As usual, the majority of the revenue raised will, like the vast bulk of personal income taxation paid, fall mainly on high income earners. Facts never addressed the conventionally unconventional economist nor the posse of commenters on MB.

  2. “bracket creep (aka “fiscal drag”), as inflation pushes workers into higher tax thresholds”

    Can’t have bracket creep without wage rises, and wages are hardly rising at all. You say this yourself in your other post that rubbishes Morrison for saying they are rising.

    And you’re wrong about the Medicare levy. People need to understand that health care is costly to provide and they more they pay directly or at least via the levy the more chance there is that they will understand it.

    • Wages are still rising, just slowly (1.9% growth) and equal to inflation. So I don’t know where you came up with that argument. Bracket creep will continue.

      The Medicare Levy covers only a fraction of health costs. So I’d argue that it gives people the wrong impression that health costs are less than they actually are.

      There are better and fairer ways to raise tax revenue.

      • Someone on average wages ($65K per year) is in the 32.5% tax bracket. With annual wage rises of 1.9% it will take them 16 years to move into the next tax bracket (37%, $87K). Bracket creep is a non-issue at these rates of wage increase.

        The fact that the Medicare levy covers only a small part of health costs is a reason to raise it even more. Make it progressive if you want to, 5% for incomes over $250k, whatever. But it’s a universal system and everyone should be pay a minimum of 2.5%.

      • @Louis – its possible to live a pretty comfortable life in lower tax brackets if you’re self employed or a business owner. I don’t know UE’s situation, but if he is tax minimising like crazy and isn’t paid a salary by MB then he could be very wealthy but not still below the highest tax bracket.

        I knew a guy who owned a company, and pretty much everything he owned belonged to the company. House, car, everything. On paper he didn’t earn much, but you’d be a fool to think his lifestyle was anything like his taxable income would indicate.

      • Spot on Fek; anyone who actually remains in the top bracket is most likely part of the sucker class.

  3. Baby Boomers are all over the user pays until it comes to Health Care. Guess who uses it most? Chuck this trophy on the old mantlepiece alongside HECS, super concessions, exclusion of housing from assets test, and photos of the good old days when poofs were barred and Menzies was dishing out Knighthoods to crooks. Expect nothing but ruthless self interest to the grave…and even beyond if they can find the science.

      • If the offspring are assholes or vaginas as you say is it any wonder? What fabulous mentors in self-interest above equity the Boomers remain…
        Wish me luck as you wave me goodbye
        Cheerio, here I go, on my way
        Wish me luck as you wave me goodbye
        Not a tear, but a cheer, make it gay…

      • It never ceases to amaze me that gen x and y vote to give their towns away. Why should boomers be blamed for that. It’s a simple case of not being a cretin. I’m not a boomer. I don’t know what that poetry you wrote is for.

      • HadronCollision

        Can you indicate why you have elected to use the word vagina in a perjorative fashion.

        It’s an extremely poor device for what you intended.

      • Owen it’s called the Grey Vote and it is the reason governments of all persuasions are shit scared to do anything that diminishes the position of the giant Succubus that is the Baby Boomer generation. I look forward to waving them goodbye.

      • Hadron, the other day Mig said boomers were dicks, and I said yeah gen y are pussies, probably why so many of them have beards, they subconsciously want to look like vaginas, very Freudian. So it’s actually very apt.

      • I had those sentiments too Stephen but when they are gone we are gonna be old too. So it seems pointless. Also given what vaginas gen x and y is will things get any better? No. The young will still carry the shame of being beaten wholesale by a bunch of 2gb listening rednecks, whilst they spent so much time thinking and analysing and having the internet at their finger tips, yet they were too moronic to win against a bunch of greedy hillbillies. So really who’s the fuckin idiots?

  4. Pension Loan System a good idea poorly implemented. The setup costs and 5.25% interest rates are a rort. Interest rates should be much lower (current govt bond rates?), and an option of payment via sale of PPOR after death.

    • Spot on, Freddy

      That 5.25% interest rate implies a debt doubling time of 13.2 years. The couples aged pension is around $34,000 a year, not counting the value of the pensioner concessions or any land tax. Since people can live into their 90s or even past 100, it is easy to see that the interest could end up consuming the entire value of the house if people live long enough, or a lot sooner if house prices crash, even if the assets test threshold is raised (giving a free pass to retirees who don’t live in the big cities). Is this really about recovering money spent on pensions, or is it about forcing elderly people out of their homes?

  5. reusachtigeMEMBER

    A land tax would be shite. I don’t support it. It is targeted at those who are already successful and who have already given to the nation via their property investments. Best to increase the tax on food because poor people seem to be really fat and need to cut back.

  6. “Mr Morrison has already introduced safeguards in law to ensure the Medicare Levy will be waived for individuals earning up to $21,655 a year, families earning up to $36,541 or retired couples who qualify for a seniors’ tax offset and earn up to $47,670 a year.”

    – WTF ! Why the F&^% should the levy be waived for a senior couple who earn up to $47K !? WTF
    yet a younger couple will only have the levy waived if they earn less than $36K

    this is absolute bullshit….seniors in the country are taking the piss, its starting to get a little ridiculous!

    • reusachtigeMEMBER

      Oh boo hoo! Instead of whinging, why don’t you learn how to profit from their massive wealth advantage? I’m sure old ladies need entertaining!!

      • YEs! gigolo services!!! I had considered offering this to pay my rent, but I settled for investing in aged care facilities instead…I was especially attracted to Estia for their rough and tumble approach and focus on maximising profits above all else – surely you must endorse this approach?

    • You are right, there is absolutely no justification for this. This is a blatant vote buying exercise, even though no one has been calling for it. About all that any individual elderly person can do is to give the benefit to charity and put the Coalition last at the next election. If enough younger people were prepared to do that as well, this nonsense would end.

  7. Raise the luxury car tax to 50%. Put in a luxury yacht tax and a luxury hotel room tax. Raise the GST on 1st class train tickets to 20%. Charge $100k upfront for each 457 visa and PR visa.

    Legalise electronic cigarettes!

    Put in a land tax and tap water tax – with a $5000/year rebate to each poor voter.

    • Wait, you mean when I pay rates for water (connection and supply) I’m not already paying a ‘tapwater tax’?