Labor to match Coalition in dumping Medicare levy rise as tax battle lines redrawn
Labor will match the Turnbull government’s decision to dump plans to increase the Medicare levy to fund the national disability insurance scheme, but is expected to persist with plans to tax higher-income earners – at least until the May budget.
The ALP is expected to confirm on Thursday that it will drop its plans to increase the Medicare levy for workers earning more than $87,000 to pay for the NDIS – effectively matching the Coalition’s U-turn on the issue.
But while the Medicare levy increase proposal is now dead, Labor intends to persist for now in implementing a separate 2% deficit levy first imposed by the Coalition in the 2014 budget, with the rise applying to earnings above $180,000.
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A final decision about whether or not to lock in the tax increase for people on high incomes will be made after the budget, due on 7 May.
In its 2017 budget, the government proposed a Medicare levy increase of 0.5%, affecting every Australian earning more than $21,655, to help plug a funding gap for the NDIS.
Labor at the time refused to support the Coalition’s measure, saying the increase should only apply to workers in the top two tax brackets, not to lower-income earners.
On Thursday the shadow treasurer, Chris Bowen, claimed credit for the government’s about face, saying “taxpaying families would welcome it”.
But People with Disability Australia expressed alarm at the decision, saying there was now no mechanism to guarantee NDIS funding over the long haul.
“The revenue measures announced by the treasurer are only for this year, and will not guarantee the NDIS in the future,” said Therese Sands, the group’s chief executive. “We are back to the uncertainty around the NDIS and fighting for funding at every budget. We are sick of what is happening to the NDIS and call on the government to put people with disability back at the heart of every decision that is being made.”
Morrison will tell business economists on Thursday that the government no longer needs to increase the Medicare levy to fund the NDIS because improvements in economic conditions have led to a boost in revenue.
The treasurer will note 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.”
Before his speech, Morrison told the ABC the end goal was never a tax increase, it was to ensure the NDIS was fully funded. He said the government would lay out in the budget the reasons it could now fund the NDIS without an increase in the Medicare levy.
“A year ago we took a conservative approach to what we believed the economic performance would be, and the receipts for taxes,” he said. “That has been better than we forecast.”
Morrison said the $57bn funding gap would be filled by a stronger economy.
The government has shifted on the Medicare levy increase to sharpen the tax debate for the next federal election.
The government is expected to use the budget to unveil personal income tax cuts, but Labor was pre-positioned on that front – arguing that the Coalition would be giving with one hand and taking with another because it was planning to increase the Medicare levy for all workers earning more than $21,655.
Axing the Medicare levy clears the government’s decks politically but voters will have to wait until 7 May to learn how the NDIS can be fully funded in the absence of a specific revenue stream.