Government ditches planned $8bn rise in Medicare levy
The Turnbull government will use the looming May budget to dump plans to increase the Medicare levy to fund the national disability insurance scheme, in a shift intended to reframe the tax debate before the next election.
Scott Morrison will use a speech to business economists on Thursday to confirm the about face on a measure the government outlined in the 2017 budget.
While the government won’t lay out the full details of the decision until the budget, the treasurer will say the government now can afford to jettison a measure forecast to raise $8.2bn over the forward estimates, and still fund the national disability insurance scheme in the 2018 budget and “beyond”, because the strengthening economy has improved the government’s fiscal position.
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“Our economy is stronger and it is continuing to strengthen under the Turnbull government’s national economic plan,” the treasurer will say on Thursday, according to speech extracts circulated in advance.
“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.
“This is the benefit that comes from a stronger economy.”
Morrison will point to an improvement in revenue collection, noting that tax receipts until February were running $4.8bn higher than forecast by the Treasury last December, including a $1.2bn boost to income tax receipts and a $3bn boost on company tax.
Improvements in commodity prices have provided further ballast. “Our economy is finally shaking off the dulling effects of the downturn in the mining investment boom.”
The proposed Medicare levy increase of 0.5% would have impacted every Australian earning more than $21,655, and the government looked unlikely to secure Senate support to legislate it.
Labor moved in budget week last year to say it would only support an increase for workers in the top two tax brackets – people earning more than $87,000 – despite the fact that it levied a similar universal increase when in government.
The opposition is also proposing to keep a 2% deficit levy first imposed by the Coalition in the 2014 budget applying to earnings above $180,000, which the government has moved to scrap.
The government has been telegraphing for months that it wants to deliver a personal income tax cut in the looming budget to help address a cost-of-living squeeze felt by acutely by workers because wages growth has been stagnant.
Labor has also spent months foreshadowing that the government’s mooted personal income tax cut would amount to the Coalition giving with one hand and taking with another, at least for workers on low and middle incomes, given that it proposed to increase the Medicare levy.
The Coalition taking the proposed Medicare levy increase off the table could alter the dynamics of the political debate about income tax cuts over the coming months.
Morrison will tell business economists on Thursday that the government will now focus on delivering the NDIS “in the most efficient and effective way possible”.
“It still has a long way to go and there is still a lot of work to do to get it right. That is what we will be focusing on.”
He will say the latest projections indicate the funding gap for the NDIS “can now be made up over time by continuing to deliver a stronger economy and by ensuring the government lives within its means”.
“The Turnbull government has a plan to do this and can be trusted to deliver both.”
While moving to dampen expectations that the May statement will be heavy on giveaways, given the negative political environment and the possibility of an election before the year’s end, Thursday’s signal suggests the government believes it has some room to move fiscally.
The Coalition is, thus far, showing no signs of dumping its proposed tax cut for Australia’s largest businesses, despite a continuing Senate deadlock and the political complications associated with damning revelations in the banking royal commission.
The government is continuing efforts to duchess the crossbench, and the Senate is now examining the corporate tax cut package through a committee inquiry into the Business Council of Australia’s non-binding commitment that its members would increase investment if the company tax cut were passed.
The inquiry will resume on Thursday with evidence from the Australian Council of Trade Unions, BHP and Fortescue Metals, Energy Australia and further evidence from the BCA.