Annette Hurley (SA, Australian Labor Party) Share this | Hansard source

There is some history to be learned in discussion of this Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008. It was introduced in 1997 and it formed part of the three pillars to support private health insurance at that time. The first of the three pillars was the 30 per cent rebate on private health insurance payments which was then put up to a 35 per cent rebate for those in the 65- to 69-year-old group and a 40 per cent rebate on private health insurance payments for those over 70. The second pillar of the private health insurance support was Lifetime Health Cover. That means that those who are over 30 have a cumulative penalty of two per cent of premiums up to 70 per cent. That is a very strong and—as we heard from evidence given to the Senate economics committee—a very effective pillar to support people taking up private health insurance.

The Medicare levy threshold surcharge was also introduced in the 1997-98 period. That meant that single people earning over $50,000 and not having private health insurance would have to pay one per cent of their income as a surcharge. For couples earning over $100,000 that would be similarly one per cent of income. In the year that it was introduced—in 1997-98—167,000 high-income earners paid this tax penalty because they had no private health insurance. That is, a relatively small number of high-income earners who chose not to take out private health insurance paid that levy voluntarily rather than take out private health insurance. But, by 2005-06, 465,000 people were paying this tax: nearly half a million people were in the position where they were forced to pay the one per cent surcharge on their income. Many of those would have been people earning below the average male wage of $58,600 a year. So people on or below the average wage were paying this tax that was meant to be for high-income earners.

The point of this legislation is that the situation has now become neither equitable nor in keeping with the spirit of the original policy of this legislation, which was made very clear by the Treasurer at the time. At the introduction of the legislation the then Treasurer, the Hon. Peter Costello, told the House, in August 1996:

Higher income earners who can afford to take out private health insurance will also be encouraged to do so.

He said:

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.

Nothing could be clearer than that. This was meant to be a tax for only high-income earners, and the government of the day hoped that no-one would have to pay the tax, that they would all pay private health insurance, but for those who did not then this additional one per cent tax applied. Now, 10 years later, that threshold has not been changed. The Rudd Labor government has come in and proposed to update that threshold to a reasonable level.

The immediate result of this legislation will give tax relief to almost half a million working men and women in Australia. The thresholds have become an unjust tax slug. That, to me, is the key factor of this bill: the thresholds have become an unjust tax slug; they are inequitable for 465,000 people. It is a very high tax slug. Professor Deeble noted in his submission to the economics committee the unusual nature of the surcharge. I quote him:

The surcharge is an income-related tax. However unlike almost any other income based tax, it operates in a reversionary way—that is, it applies to all of the taxable income of people earning above the thresholds, not just to the excess. I know of no other tax that works in this way and it is extraordinary that an Australian parliament should have approved it. The result is a very high marginal tax rate for people with incomes at or close to the thresholds.

Those are people who are earning average weekly earnings. Those people are paying a very high penalty for not taking out private health insurance. On the economics committee we heard a great deal of discussion among all members of the committee about econometric modelling—whether there had been enough consultation, whether the modelling had been right, whether the modelling had been peer reviewed and whether people had sufficient evidence for the modelling.

What was the science behind the Howard government’s original thresholds of $50,000 and $100,000? There was an interesting article in the West Australian by Andrew Tillett and Andrew Probyn, who interviewed the architect of the Medicare surcharge, Michael Wooldridge, who was the health minister at the time. Michael Wooldridge was quoted in this article. He confirmed that the thresholds were set only after protracted negotiation with then Tasmanian Senator Brian Harradine. He said:

I think the numbers in the end were negotiated with Senator Harradine—it was over a bottle of Jameson’s whisky late at night if I recollect correctly.

So this was the Howard government’s version of consultation: a discussion with then Senator Brian Harradine over a bottle of whisky late at night. If this is the form of consultation that the Liberal government approve of, I am sorry that they did not tell Wayne Swan this, because perhaps he would have been quite happy to do a similar sort of consultation. That was the science of the thresholds at the time: they were set by a couple of men late at night.

It appears that not only were the thresholds set in that way but also the government did not give a moment’s thought to the consequence of those thresholds in 10 years time. Michael Wooldridge was also quoted as saying:

We were happy to successfully get through 12 months, let alone worry about a problem in 10 years time or more.

So, in an act of desperation because they were concerned about the private health insurance system, the then Howard government pushed through this levy surcharge on that much thought—a night on the whisky—and worried about getting through the next 12 months and did not think about the future. Isn’t that so typical of the way the Howard government operated? ‘Let’s do a short-term fix, let’s not worry about what happens in 10 years time, let’s not think about long-term planning or strategy; let’s just get through the immediate crisis that we think we have at the moment.’ The consequences are now with us. People on an average wage are paying that inequitable surcharge tax. When the Rudd government try to fix this inequitable tax, we find that the opposition plan to oppose it. They were the architects of this inequitable tax and they are not letting it be modified; they are not letting it be addressed. They were just intent on buying themselves a little bit more time.

We have heard many times that those leaving private health insurance are likely to be the younger, healthier people, and we have also heard valid concerns that this may affect the community rating model of our private health insurance system. But the key issue is that those on lower incomes are bearing a disproportionate burden of the overall cost of our health system. I reiterate what Professor Deeble said in his submission to the inquiry: because it is on the full income level, not just the excess above $50,000, it is a very high marginal tax rate. I have not heard a convincing reason from those opposed to this bill as to why people at around the average wage should have to pay this disproportionate burden of the cost of our health system—why we should force those people on average incomes to pay more than those on higher incomes. For a family with two average-income earners, earning a combined income of $120,000, the increase in the Medicare levy surcharge will save them $1,200 in tax immediately. In this chamber we should think carefully about denying families this choice—denying those families on average incomes the choice of whether or not they take out private health insurance.

There might be an increase in premiums above the expected rate for this year—because premiums, as they have risen for many, many years now, will probably rise anyway—but why should those singles and families on lower incomes have to bear the burden of maintaining the lower rates for everyone? Should it not be shared more equitably among all of those who choose to take out private health insurance or not? With the other pillars in place—the rebate on health insurance payments and the lifetime cover—there is still a very strong incentive to take out private health insurance. This is not an attack on the private health insurance system. Those pillars are still in place, and strong evidence was heard by the economics committee that it was the Lifetime Health Cover that was the strongest of those pillars.

Around eight per cent of single taxpayers were estimated to exceed the Medicare levy surcharge threshold in 1997-98, when it was introduced. This proportion will be restored to about 8.5 per cent exceeding the threshold at the end of the forward estimates period in three to four years time, and that was made very clear by Mr Chris Bowen, the Assistant Treasurer, in his second reading speech. So this bill is about restoring equity, restoring the levels at which this policy was put in place and restoring fairness to the system. It is also about restoring a bit of long-term planning to the health system.

The accusation by many opposing this bill that it would impact adversely on the public hospital system by having people leave private health insurance in droves and go to the public health insurance system does not really stack up either. The government is currently in negotiation with the states on public hospital cover. It has a number of very hard objectives to work through with the states there, but it has already put $1 billion into that elective surgery waiting list. It is addressing these issues in the public health system. It is difficult to see from any kind of modelling what effect this move will have on the public health system or, indeed, the private hospital system.

We on the economics committee heard quite a lot of evidence from various private health providers. Some of the—admittedly smaller—private health providers, particularly those who are part of industry funds such as the teachers health fund, did not think that they would lose very many members at all. Others will probably rejig their packages. Others may well advertise more widely or reduce their administrative costs. It is extremely difficult to judge what will happen, but we do know that the Rudd Labor government has been proactive in looking at the public health system and in talking to the states.

This measure will give significant relief to working families, it fixes the short-term thinking of the past and it concentrates on long-term solutions which will be worked out in consultations with the state governments. It ends the Howard government’s short-term fixes and the blame game with the state governments where the federal government was content to blame the states for running down the public hospital system. What it does not end is the private health insurance system or substantial support for that private health insurance system. Those supports are still well and truly in place, and the government will continue to talk to the private health insurance sector to ensure the overall long-term health of Australians whether they are in private or public systems and whether they use the private health system or the public health system. So this is an important measure that delivers immediate tax relief to almost half a million Australians.

It is really difficult to believe that the Liberal opposition are going to refuse to pass a measure which gives immediate tax relief to almost half a million Australians on the average taxable wage or just above it. It is difficult to believe that they are going to make the decision to deprive so many families and single people of that choice of whether to get the tax relief in their hand or to continue with their private health insurance. We did, indeed, have evidence from people—individual citizens—who said that they wanted the choice. They did not want to be forced by the government with this punitive tax surcharge that cut in so low; they wanted to have the choice of whether they went into the private health insurance system themselves, saved and paid for their own health treatment in the private hospital system, or used the public hospital system, for which they pay their Medicare levy and other taxes. This is a measure that should be supported because it rectifies the inequities in our tax system, and I find it difficult to believe that any senator would not support such a sensible and just move.