I rise today in support of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008. The Medicare levy surcharge imposes an additional one per cent Medicare levy on single people with taxable incomes greater than $50,000 and families whose combined taxable income is greater than $100,000 and who do not have private patient hospital cover. The threshold for paying the surcharge increases by $1,500 for every child after the first child. When the Medicare levy surcharge was introduced, the policy was targeted at high-income earners and the threshold has not been increased since the surcharge was introduced on 1 July 1997. When the surcharge was introduced by the previous government, the then health minister, Michael Wooldridge, said:
High income earners will be asked to pay a Medicare levy surcharge if they do not have private health insurance. These are the people who can afford to purchase health insurance.
When it was announced on budget night in 1996, Treasurer Peter Costello said:
Higher income earners who can afford to take out private health insurance will also be encouraged to do so.
When the surcharge was introduced in 1997, 8½ per cent of single taxpayers were captured by the surcharge levy. At that time it was estimated that 110,000 individuals and 100,000 families would be affected by the levy. It was clear from the then government’s pronouncements about the surcharge and the number of individuals and families affected that this was a measure aimed at high-income earners. It was part of a carrot and stick approach to encourage those who could afford private health insurance to purchase it and relieve pressure on the public system. The other part of this approach was the 30 per cent private health insurance rebate, which Labor has retained.
I reiterate that it was not expected that ordinary Australians would be subject to the Medicare levy surcharge. The bulk of income earners were expected to be able to have the choice of using the public system without being penalised for that choice. The passage of time and the inevitable changes in earnings and inflation have resulted in a perverse outcome for working families. As wages increased, more and more people became trapped into having to pay this tax in circumstances where they had not previously anticipated that they would. The tax trap set by the previous Howard government caught more and more working families in its net, so much so that many people earning below what a lot of people would call an average wage were forced to choose between taking out private health insurance, which many could not afford, and paying a tax that was really meant to apply to high-income earners. That is what happened—a tax originally meant for the wealthy trapped nearly half a million Australians.
What used to be regarded as the threshold for a high income is now below the average. Average weekly earnings have increased by nearly 50 per cent since the Medicare levy surcharge was introduced. An average annual income today is about $58,000 to $60,000 per year. In evidence to a recent Senate inquiry, Treasury officials estimated that in the 2008-09 financial year 36 per cent of single taxpayers would exceed the threshold. By the 2011-12 financial year, current estimates are that that figure will jump to 45 per cent of taxpayers. So what started back in 1997-98 as general policy by the then government of having almost universal coverage—that is, only eight per cent of single taxpayers were captured—has increased in the current financial year to 36 per cent and within two or three years will grow to 45 per cent of taxpayers. That is almost half of Australia’s taxpayers being slugged with a one per cent levy if they do not take out private health insurance. Without this budget measure, by 2011-12 some 2.2 million singles and 1.3 million families would have been caught by the levy.
The initial measure proposed by the government would increase the Medicare levy surcharge threshold for singles from $50,000 to $100,000. It was further proposed to increase the Medicare levy surcharge threshold for couples from $100,000 to $150,000. These increases would apply to the 2008-09 and later income years. The new thresholds would restore the percentage of people captured by the surcharge to about 8½ per cent of taxpayers or nine per cent by 2011-12. This measure was to cost $660 million over the next four years. However, a decrease in government expenditure on the private insurance rebate would have resulted in a net saving of about $300 million over the forward estimates. After further consultations we have reduced the proposed threshold for singles to $75,000. Instead of the 400,000 Australian taxpayers who would have received tax relief under our initial proposal, this new measure will now provide relief for 330,000 Australians.
I do not think that the opposition have been listening. They certainly do not appear to have listened to working Australian families, but they may well have been listening to the big private health insurance companies. We in the government have been listening and we want to give tax relief to about 330,000 Australians. If you are a family on $60,000 a year, these changes will deliver about $1,200 into your pocket. I know that for very many people in Tasmania this is a lot of money. They would be very happy to have that extra cash. It is money that they could have in their pocket that would make a difference to their day-to-day living or that they could spend on items such as a holiday or something else that they have not been able to have recently.
If indexation had applied to this previously, as it should have, we would not now be looking at $76,000 for individuals and $152,000 for families. Access Economics, in a report for the AMA, said that we would be looking at a $70,000 threshold for an individual and a $140,000 threshold for a couple. As also stated by Access Economics, this would restore the system to its previous real levels if this were the goal. I question the goal of the previous government. They would not allow tax relief to the Australian public, so we have amended the threshold to $75,000 and hope that they will help the working families of Australia. They certainly did not want to help Australian working families prior to the last election, as you can tell when you take into account their Work Choices legislation in the last parliament.
The amendments do not exempt as many people as we initially hoped to help, but we have taken this pragmatic measure for the sake of gaining the support of the Senate. Senator Xenophon has suggested that the threshold should be lower than we originally proposed, while the Greens have asked for indexation. The lower threshold for singles also has the support of various stakeholders. Let me say again: $50,000 or even $60,000 is not a high income. I think most senators would agree with that—in fact, I believe Senator Birmingham has actually stated previously that it is a working salary, not a high salary. If you earn $50,000 and you have a family to support, you struggle, you find it hard to meet the costs of living. Those opposite made a hue and cry on behalf of pensioners, a cause they only seem to have worried about recently, so I say to them that it is of critical importance to provide relief for the Australian public in this regard.
An Access Economics report for the AMA said thresholds of $70,000 and $140,000 would reflect the real levels of the original thresholds. What the government is showing through making this change is that we are willing to listen carefully and work with the senators on the cross benches. We have demonstrated through the passage of the luxury car tax changes that, through negotiation and good working relationships, we can get legislation through the Senate without the support of the opposition. It would be in the opposition’s interests, however, to support this legislation. I fail to understand what their complaints are about with regard to this legislation. I have sat here through four or five speakers and watched other speakers on the screen. What confuses me is why they did not put more money into the public health system when they were in government. Why didn’t they put in more money for elective surgery, like we have? Why didn’t they put in the extra billion dollars that we did? I can tell you the answer to those questions: because they have no commitment to the public sector. Whether it is Medicare, public health or public education, they do not have any commitment to it. They allege to support these things but they do not. They de-fund whenever they can, and will do so again if they are returned to government.
What the opposition have demonstrated instead—as they did with the luxury car tax—is that they are not standing up for the interests of working families. They have shown that when it comes to the Medicare levy surcharge they support higher taxes for average-income earners but, when it comes to the luxury car tax, they support lower taxes for high-income earners. They are like the Sheriff of Nottingham—robbing from ordinary workers and giving to Porsche drivers. They do not support a saving of $750 for average-income-earning individuals, nor do they support a saving of $1,500 for average-income-earning families.
The opposition’s spurious argument against this measure is that it will put unmanageable pressure on the public health system—which, I repeat, they did not worry about when they were in government. This argument is flawed, and I can give at least four reasons why it is flawed. First of all, a number of people with private health insurance are young, healthy people who do not draw on the private health system. It can be similarly expected that the same people will not have to draw on the public system—or does the opposition believe that these people’s health will suddenly decline as a result of this measure? Do they think that after coming to rely on the public health system they will fall ill in droves despite not having had to draw on their private insurance?
The second reason is the current reliance on the public health system by people who already have private health insurance cover. There are many people who hold private health insurance but still have no option but to occupy a bed in a public hospital because they cannot afford gap payments. Usually they are liable to gap payments because they have purchased cheap health insurance policies to avoid paying the Medicare levy surcharge. In fact, the private health insurance industry sells products explicitly designed to avoid the levy while offering very few other benefits.
The third reason is that, unlike those who purchase these sham policies, there are many people who purchase private health insurance because they genuinely want private cover regardless of how this affects their liability to the Medicare levy surcharge. In evidence given to the recent Senate inquiry, the Australian Health Insurance Association said that one-third of those with private health insurance live in households with an income of less than $48,000 per year.
The fourth and final reason is that the Rudd government is already injecting significant resources into our public hospitals, after 12 years of neglect by the former government. Under the Australian healthcare agreements public hospitals used to be funded on a fifty-fifty basis by the Commonwealth and the states and territories. When negotiating the last five-year agreement the Howard government basically offered a ‘take it or leave it’ agreement that the states had no choice but to accept. The Health expenditure Australia 2005-06 report released by the Australian Institute of Health and Welfare showed how the funding load had shifted to the states. In my home state of Tasmania, annual Commonwealth payments to Tasmania for public hospital funding rose by just $35 million, from $168 million in 2003-04 to $203 million in 2005-06. Over the same period the Tasmanian government’s annual spending on hospitals rose by $180 million, from $299 million to $479 million. The Commonwealth’s share of the bill declined from 37 per cent to less than 31 per cent, with the state government’s share rising to more than 69 per cent. This was the equivalent of the Howard government short-changing Tasmania’s hospital system by $70 million a year.
The Rudd government’s budget presented in May this year invests $1.6 billion in the public hospital system, including $1 billion for hospitals this financial year and $600 million to cut elective surgery waiting lists. This is what Tasmanian health minister Lara Giddings said in a statement in response to the opposition’s suggestion that our proposal would put undue pressure on the public health system:
Compared with major factors such as growing chronic disease and the ageing population, the changes to the income threshold for the Medicare levy surcharge are not material.
This is just scaremongering from the opposition to try and justify their position. Let’s not forget that the Medicare levy surcharge was introduced in 1997 as a measure to target high-income earners. Once again I ask: who do the opposition now really regard as high-income earners? Do they believe that an individual with an income of $50,000 is a high-income earner, as they seem to indicate in their opposition to this bill? If so, why do they believe that an individual who can afford a $100,000 luxury car is in need of a little tax relief, as they indicated in their opposition to the luxury car tax increase?
We on this side of the chamber know precisely the real reason the opposition will not support our changes to the Medicare levy surcharge. With their opposition to this measure and to the luxury car tax increase a theme is starting to emerge. This pattern of behaviour in the Senate reveals that the opposition believe in looking after the wealthy and they do not believe in looking after ordinary Australians. They do not believe in an average-income earner accessing the public healthcare system without being penalised, yet they believe in making sports cars more affordable. It really says a lot about their philosophy on income equity.
When the Reserve Bank decided to lower interest rates by 25 basis points on 2 September this year, mortgagees saved an average of $600 per year. For a couple on incomes of $60,000 each per year, the coalition are basically saying, ‘Here, you can pay an extra $1,200 in tax.’ In other words, they are proposing to slug them with the equivalent of two interest rate rises. I do not think there is any doubt in the minds of the Australian public where those on this side of the chamber stand when it comes to protecting middle-income earners. We support a mixed healthcare system, with services being provided by both public and private healthcare providers. We also respect the choices of low- and middle-income earners when it comes to choosing between public and private health care. What we do not support is average-income earners being slugged with an unfair tax—a tax which, once again, was designed for high-income earners. I look forward to the support of all senators for this bill. I commend the bill to the Senate.