House of Representatives

Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008

Second Reading Speech

Ms Roxon (Minister for Health and Ageing)

That this bill be now read a second time.

This bill will adjust the Medicare levy surcharge thresholds for individuals and families.

The Medicare levy surcharge is a one per cent increase on top of the Medicare levy for individuals and families who do not have private hospital cover. The thresholds are currently set at $50,000 for individuals and $100,000 for couples and families.

This bill will increase the thresholds to $75,000 for individuals and $150,000 for couples and families, and index these thresholds against wages growth into the future.

In doing so, this bill will deliver tax relief to working families struggling with household budgets.

When the Medicare levy surcharge tax was introduced it was meant to apply to high-income earners to encourage them to take out private health insurance, the rationale being that those who could afford to take out private health insurance ought to be encouraged to do so.

The then health minister, Dr Michael Wooldridge, said at the time:

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 ...

The then Treasurer, the member for Higgins, said at the time that he hoped it was a tax no-one would ever have to pay.

But since 1997, courtesy of the Liberal government's failure to adjust the thresholds, the Medicare levy surcharge has become a tax trap that has caught more and more working families, to the point where people earning below the average full-time wage are now confronted with the choice of taking out private health insurance that they cannot afford or paying a tax that is meant to apply only to high-income earners.

Indeed, in August 2006 the member for Dickson and the now shadow minister for health, in his former role as Assistant Treasurer, demonstrated the tax trap the Medicare levy surcharge has become. I quote from the Age:

The assistant treasurer, Peter Dutton, has revealed that the number of taxpayers hit by the Medicare levy surcharge has more than doubled since it was introduced in 1997.

And of course we have seen those rates increase.

In his answer to a question on notice the former Assistant Treasurer revealed that in 1997, 167,000 people paid the surcharge. By 2001 it was 198,000; by 2002, 235,000; by 2003, 282,000; by 2004, 362,000-and we know that by 2005-06 it had risen to 465,000 people.

To remove the tax trap created by the Liberals, the government announced in the budget that we would seek to raise the Medicare levy surcharge thresholds from $50,000 for individuals, and $100,000 for couples and families, to $100,000 and $150,000 respectively.

Since we announced those changes in the budget, there has been some criticism of what we proposed.

We listened carefully to that criticism. We have talked with the private health sector, with other stakeholders and with those on the cross-benches in the other place.

Having consulted, and having listened, we decided to put forward an alternative proposal. Instead of lifting the individuals threshold to $100,000 we are now proposing to increase it to $75,000, while retaining the couples threshold of $150,000 which we proposed in the budget.

We have also listened carefully to what those in the private health sector and the other place have had to say about the threshold levels into the future. That is why we are now proposing to index the thresholds against wages growth each year, to ensure that the threshold levels keep pace with wages growth rather than ever threatening to become the tax trap that the previous government's thresholds had created.

We want to provide relief from that tax trap. Unfortunately, we won't be providing tax relief to as many people as we would have liked-the Liberals saw to that in the other place last night.

But this measure will deliver immediate tax relief to 330,000 Australians-a significant number of people. For two average income earners, each earning about $60,000 a year, this will deliver a saving of $1,200 in its first year.

And it will give working families a real choice about whether they wish to take out private health insurance-rather than forcing them into it because the alternative is to pay a tax they cannot afford to pay.

The proposals we are putting forward in the bill today are sensible and they are a reasonable position. Let me take the House through what others have had to say about what we are proposing today.

Tasmanian Liberal Senator Richard Colbeck, unceremoniously dumped from his position as the shadow parliamentary secretary for health this week, has said:

If they are talking about indexation, and that is the intent of the government, then indexation of this measure would have put the threshold at about $75,000 or $76,000.

West Australian Liberal Senator Matthias Cormann, the current shadow parliamentary secretary for health, has said:

... would it be more appropriate, instead of doubling it and probably overshooting the mark, to look at what the figure would be if it had been indexed? I am talking about approximately $75,000 per annum.

The Australian Private Hospitals Association has recommended thresholds of $76,000 and $152,000, indexed thereafter.

Access Economics, in a report for the AMA, said that thresholds of $70,000 and $140,000 would have 'restored the system to previous real levels, if this was the goal'.

Terry Barnes, former senior adviser to former Health Minister Tony Abbott, suggested that thresholds of around $80,000 and $160,000 would be appropriate.

Our revised proposal is a reasonable, sensible mid-way point, and it is a measure that those opposite should get behind.

In his first press conference as the Leader of the Opposition, the new Leader of the Opposition said:

I know what it is like to be very short of money ... I know Australians are doing it tough, and some Australians, even in the years of greatest prosperity, will always do it tough.

Well now he has his very first test on whether he wants to help, and whether he really understands that some people are doing it tough in our community.

Fifty thousand dollars is not a high income. South Australian Liberal Senator Simon Birmingham conceded this in the media this morning. He said: 'It's certainly not a high salary. Indeed, it is a working salary.'

So this being the case you have to ask yourself why the Liberal Party would be opposed to putting $500 in the pocket of someone earning a working salary of $50,000 a year who is currently forced to pay the Medicare levy surcharge right now.

Why on earth would the Liberal Party continue to support slugging people on working salaries with a tax that was meant to apply only to high-income earners?

The Liberal government's failure to adjust the thresholds when they were in government, and their stubborn refusal to support our proposal to do so now, brings into question whether they ever really intended it to be a tax that just applied to high-income earners in the first place.

Is the Liberal Party for or against tax relief? That is the question. If the new Leader of the Opposition really understands that some Australians are doing it tough, the opposition will support the government's Medicare levy surcharge bill and will join with us in providing tax relief for hundreds of thousands of Australians.

I commend the bill to the House.

Debate (on motion by Mr Anthony Smith) adjourned.