Jan McLucas (Queensland, Australian Labor Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Hansard source

I am delighted to speak today on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 which gives effect to the government’s decision to increase the thresholds for the Medicare levy surcharge. It is worth going back to 1996 to remind the Senate of what the then government said when it introduced the surcharge. It was very clear that the original policy intent of the surcharge was to encourage high-income earners to take out insurance. When it was announced on budget night in 1996, Treasurer Costello said:

… higher income earners who can afford to take out private health insurance will also be encouraged to do so. There will be a 1 per cent Medicare levy surcharge for couples with combined incomes of over $100 000 (individuals with incomes over $50 000) who do not take out health cover.

Treasurer Costello went on to say:

This is the levy which the Government hopes no-one will pay. It is entirely optional. Those who take out health insurance (with the benefits attached) will be exempt.

And when introducing the relevant legislation on 13 December 1996 then Minister for Health and Family Services, Mr Wooldridge, said:

The bill complements the private health insurance incentives being made available to lower income earners by providing encouragement to high income earners who can afford to take out private health insurance to do so.

It was clearly designed to target high-income couples and families, and singles. At that time it was estimated that 110,000 individuals and 100,000 families would be affected by the levy. This translates to about eight per cent of singles and four per cent of families. In other words, fewer than one in 10 income earners would have been affected. It would have affected all of us in the Senate. It would have affected school principals. It would have affected the senior public servants who give evidence at Senate estimates. The Hansard reporters, ordinary school teachers and junior public servants would not have been caught by the surcharge.

But, because the thresholds were not indexed, growth in incomes has meant that the threshold for a single person is now several thousand dollars less than average weekly earnings. So now the Hansard reporters, who record our debates, face the surcharge. A second-year schoolteacher will face the surcharge. Graduates who join the Public Service face the surcharge as soon as they get their first promotion. We can hardly call these people high-income earners. In fact, without this budget measure, by 2011-12 some 2.2 million singles and 1.3 million families would have been caught by the levy. This would make up about 45 per cent of taxpayers. You cannot call 45 per cent of all Australian taxpayers high-income earners. The budget measure means that in 2011-12 only nine per cent of taxpayers will be subject to the levy—restoring the original targeting of the measure to high-income earners.

The opposition leader claimed in his response to the budget in the other place that the opposition believe in choice, especially in health and education. And apparently they believe in lower taxes. They are the party of choice and lower taxes, so we are led to believe. Except, apparently, when it comes to the Medicare levy surcharge, which they have opposed in the House and are intending to oppose in this place. We do not apologise for lifting the tax burden on the 400,000 people currently paying the levy or for letting the other 2.8 million taxpayers in the range between the current thresholds and the new ones make a real choice about buying insurance.

The Greens have asked for an assurance that, in the event of increased demand on public hospital services, the Commonwealth will commit to additional funding to address this. The government does not concede that these changes to the Medicare levy surcharge thresholds will have a major impact on demand for public hospital services. However, as was agreed with state and territory health ministers at the most recent Australian Health Ministers’ Conference in July, as part of the negotiations over the new healthcare agreements, all factors driving growth in demand for public health services would be considered. COAG has also agreed that the next healthcare agreement should move to a proper long-term share of Commonwealth funding for the public hospital system.

We are confident that the new agreement, along with the additional funding already being provided through the Australian government’s elective surgery reform package and through the $1 billion additional funding for public hospitals this year, will more than compensate for any increased demand on public hospitals as a result of the Medicare levy surcharge changes.

Let us be clear that people caught by the surcharge at present are encouraged to buy the private health insurance as a tax saving. The private health insurance industry is selling products explicitly designed to avoid the levy—not to provide private health insurance but to avoid the levy. These products offer very few other benefits. One insurer’s web-site asks, ‘Why do you want health insurance?’ and offers one option: tax saving. Another insurer offers a possible main priority for buying insurance: ‘to reduce tax’. Another states ‘I’m here to save tax’ as an encouragement to purchase their product.

In terms of product description, one insurer lists the only benefit of its basic hospital product, saying that it ‘allows you to avoid the extra one per cent Medicare levy surcharge’. Yet another insurer states that a product ‘is suitable if you want to avoid the Medicare levy surcharge’. Another states: ‘It can save you from paying the extra one per cent tax. That’s at least $500 a year that you can save.’ And what do these products offer? The answer is: not a lot.

So what may be the cheapest product on the New South Wales market—costing $432 a year—offers benefits at the default benefit level only, meaning it only covers charges for private patients in a public hospital and requires a $400 copayment on admission to hospital. And it offers less than full cover for cardiac and related services, cataract and lens procedures, obstetrics, IVF, joint replacements and revisions, dialysis, sterilisation, non-cosmetic plastic surgery, rehabilitation, psychiatric services and palliative care—less than full cover.

Another one—priced at $496.80 a year—only pays default benefits and has an excess of $250 on admission but then requires a copayment of at least $50 a day up to a maximum of another $280 for each stay. And it offers only limited benefits for cardiac and related services, cataract and lens procedures, obstetrics, IVF, hip and knee replacements, non-cosmetic plastic surgery, rehabilitation, and psychiatric services.

People buying these products are what Access Economics calls ‘clayton’s members’. If they leave insurance they are not going to put any additional pressure on our public hospital system, because they are not using their insurance at the moment. There will not be a ‘tsunami of demand’ in public hospitals, as claimed by Senator Cormann, because these people are not using private hospitals at the moment. And, given they have to pay up to $500 when they use their insurance to go to hospital, they are not likely to be using public hospitals as private patients either. While I think of the Access Economics report, I should draw senators’ attention to page 2 of the report, where it describes the 2007-08 budget as ‘the year in which the previous government essentially lost the plot’.

The private health insurance industry has enunciated very mixed messages in response to the proposal from the government. On the one hand the industry spokesman, Dr Michael Armitage, is claiming that hundreds of thousands of people will leave insurance once the surcharge thresholds are increased, but in the same media release Dr Armitage claims:

It is a myth that only the wealthy have PHI. Latest ABS and PHIAC statistics show that:

• More than one million of the overall hospital insured population resided in households where gross annual income was less than $26,001.
• 27 per cent of the overall hospital insured population—2.34 million people—resided in households where gross annual income was less than $48,049.
• Almost half of the overall hospital insured population—3.9 million people—resided in households where gross annual income was less than $69,993. Almost four million people with hospital cover were in households that earned less than $69,993.

In other words, the industry has had no trouble selling products to people unaffected by the surcharge because they earned less than $50,000 but, for some reason, they will not be able to sell insurance to the people earning between $50,000 and $100,000, who would no longer be affected by the surcharge. I think the industry is perfectly able to market value for money products to people earning $50,000. And I am sure that many private health insurance executives are now thinking how to convince their existing members to stay as members even when it is no longer tax-effective to do so. They are not sitting around dreaming of days gone past; they are focusing on how to improve their product offering and their client service.

I should say that a former senior adviser to former minister Michael Wooldridge, who dreamed up the surcharge, and Minister Abbott, who refused to index it, are also encouraging private health insurers to lift their game. In a recent article in the Financial Review  Mr Terry Barnes wrote:

Health funds cannot simply highlight the worst possible membership and premium scenarios. They need to keep demonstrating the present and future value and relevance of their product to all their members. They should look hard at improving relationships with their customers, especially their good risks, and make dropping private health cover as hard a decision as possible.

I am pleased that we are going to be able to offer tax relief to millions of ordinary Australians. The fact is that the previous government was engaging in a conspiracy of silence, sitting on its hands and watching hundreds of thousands of ordinary Australians falling into a tax trap designed for high-income earners. We make no apology for changing the law to give Australians a real choice about purchasing private health insurance and relieve them from a tax they were never intended to pay. I urge those sitting opposite to consider their position on taxing ordinary Australians in this manner.

Debate interrupted.