Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008. The passage of this bill is about ensuring equity and fairness in respect of Medicare, which is something that senators opposite have repeatedly demonstrated they know nothing about and, quite blatantly, do not give a damn about. On 13 May this year, the Treasurer announced as part of the 2008-09 budget that the Rudd government intended to increase the income thresholds for the Medicare levy surcharge. This announcement immediately sent the opposition into a ranting frenzy, backed up by guess who: none other than the Australian Medical Association—or the doctors union—and also the private health insurance interests and the private hospitals sector, none of which could be said to be warm supporters of the Medicare scheme.

The Medicare levy surcharge tax was introduced by the Howard government in 1997, within months of coming into office. It was evident from the start that the Howard government had been hatching a plan to undermine the Medicare scheme—not in one fell swoop but by a cold and calculated process of attrition. This process continued right up to the time the Howard government left office in November last year.

In the 10 years from the time the Medicare levy surcharge was put into place, the Howard government made no move to increase the surcharge’s income threshold. This was intentional and calculated. From the outset, the Howard government never had any intention of increasing the surcharge’s income threshold levels. To the Liberals, it was the perfect plan just to let things lie and allow more and more Australians to be caught by the surcharge if they chose not to take out private health insurance. Today we have reached the point where single people and couples earning average wages have been sucked into the previous Howard government’s Medicare surcharge trap. This bill will stop that. The bill is principally about setting the income thresholds from where the surcharge will apply to levels that are fair.

There is no justifiable reason why individual Australians and families on average incomes should be penalised for not taking out private health insurance on top of their Medicare coverage. Certainly, there can be no justification for the government to legislate to require average Australian families to subsidise the healthcare costs of the most well-off people in the community, which is what this surcharge amounts to. But, apparently, this is what the opposition wants; apparently, this is what the power brokers in the federal branch of the AMA want; apparently, this is what the Australian Health Insurance Association wants; and, apparently, this is what the Australian Private Hospitals Association wants. It is important that Australian families know this.

The opposition’s stance on this matter has nothing to do with fairness or equity. I ask again: why should average Australian families be required by legislation to subsidise the health costs of top income earners in this country? The fact is they should not, and they will not while there is a federal Labor government. There can be no justification for individual Australians and families on average incomes being slugged with what is, in effect, a punitive tax for not taking out private health insurance cover.

It needs to be pointed out that, under the current Medicare levy surcharge income thresholds, a couple earning average incomes who have not taken out private health insurance coverage incur a Medicare surcharge bill of approximately $1,200. The opposition is apparently happy to slug average families and couples $1,200 a year, because they have decided that Medicare is the right choice for them as far as they and their families’ healthcare needs are concerned. Despite all the fearmongering engaged in by the opposition and their supporters, Medicare will always remain an excellent choice for Australian families while there is a Labor government in power.

For 11 years, the Howard government made a complete shambles of health policy and health funding in this country. From day one, its private health insurance premium subsidy scheme and related policies did not produce the benefits for the public hospital system that the Howard government promised. As the Australian Institute of Health and Welfare has revealed, the Howard government had been progressively reducing its share of public hospital funding for years prior to the November 2007 federal election. It did this while it played a game of vilifying state and territory governments’ management of their public hospital systems and, by implication, poured a bucket over the dedicated staff who work around the clock in Australia’s public hospitals. This is the sort of devious and destructive approach to healthcare policy and the Medicare scheme that the coalition parties have practised for years. The Liberal Party are serial offenders when it comes to stuffing up Australia’s health system. Every time the Liberal Party gets into power they wreck the health system—every time! And they wonder why they get kicked out of government.

We must not forget the reason that we have the Medicare scheme today and that before that we had the Medibank scheme is that prior to these schemes Australia’s health system, under conservative government management, was descending into chaos. It was fortunate that during the period of the Howard government we had Labor state and territory governments. It was these Labor governments that ensured that the country’s public hospital system was not permanently crippled by the lack of funding from the Howard government.

However, make no mistake, Australia’s public hospital system was badly damaged by the Howard government. That is why the Rudd Labor Government has already committed an additional $1 billion this year for hospitals. It is important that the Australian public is made fully aware of the extent of the damage that the Howard government has done to Australia’s public hospital system. The fact is that the Howard government’s private health insurance changes did not take the pressure off the public hospital system. There are a number of reasons for this. Firstly, Australian Institute of Health and Welfare statistics show that over the past five years there has been no reduction in the complexity of the patient load carried by the public hospital system. Simply put, the public hospital system continues to carry the major load with respect to patients who require the most expensive care and treatments, and this load is increasing, not decreasing. The Australian Institute of Health and Welfare statistics reinforce the impression that, rather than take on a greater share of the heavy lifting that is the daily work of the public hospital system, the private hospital system has found a comfortable niche in providing relatively low-cost, high-turnover, short-stay treatments. Obviously, patients that fall into this category are significantly more profitable than the longer stay and more medically complex patients that are predominately treated by the public hospital system.

Secondly, Australian Institute of Health and Welfare statistics show that the number of private hospital available licensed beds in Australia declined over the past five years. In comparison, over the same period, the number of public hospital available licensed beds increased by approximately 4½ thousand or almost nine per cent. I would like someone to explain to the Australian community how, with a growing and ageing population, reducing the number of private hospital licensed beds will result in increased pressure on public hospital beds. A major problem that affected the public hospital system over the period of the Howard government was the relentless growth in the demand for public hospital emergency department services. The former Howard government’s health policies did nothing to stem or redirect the flow of patients into public hospital beds via public hospital emergency departments. This flow increased substantially during the period of the Howard government—at the same time as the Howard government was reducing its share of public hospital funding.

We need to remember that many of these emergency department attendances require the person concerned to be admitted to hospital for emergency treatment, often for very complex and costly medical conditions and injuries. In 2006-07 there were 6.7 million attendances at public hospital emergency departments. That figure represents almost a million more attendances than five years ago. By comparison, the number of private hospital emergency department attendances over the past five years fell by 11 per cent. As far as hospital services are concerned, the Howard government effectively left the public hospitals and the state governments to do all the heavy lifting. What do these figures tell us? What they do say is that the Howard government’s health and hospital policies in no way took the pressure off the public hospital system. In fact the opposite occurred. The Howard government policies increased the pressure on the public hospital system.

Thirdly, as well as having to deal with substantially increased demand pressure as a result of the Howard government’s health policies, the public hospital system has had to deal with severe financial pressures because of the former Howard government’s policies. One of the justifications used by the Howard government for its private insurance changes was that the changes would bring about a much higher funding contribution to Australia’s hospital service from the private sector. Sadly, this did not occur. By 2006-07, non-government contribution to the cost of hospital services in this country had fallen from 26 per cent in 1995-96 to approximately 18 per cent. In other words, the Howard government’s changes to private health insurance, including the Medicare levy surcharge, have resulted in an increase in government’s share of hospital services costs. This is crazy. Wasn’t the idea of subsiding private health insurance premiums to encourage more private money into hospitals, not less private money? Unfortunately, this is a very sad joke. I will go one step further and say that it is a complete stuff-up. And here we are having to put up with the farcical spectacle of those opposite trying to make out that they know something about health policy. They know nothing and they have learnt nothing.

Labor has repeatedly acknowledged that the private health insurance industry and the private hospital sector have the potential to play a useful role in meeting the needs of people who prefer to have access to private hospital and private in-patient medical care. If done efficiently and effectively, there is no doubt that the private health sector can play a constructive and complementary role in ensuring that Australia has an equitable, high-quality, efficient and sustainable healthcare system. However, as a result of policies of the previous, Howard government, the private health fund industry is now one the most government subsidised industries in Australia. Over 30 per cent of its revenue now comes from the Australian taxpayer, including hundreds of millions of dollars which go into subsidising the high level of administrative costs incurred which are a feature of the private health insurance industry.

Where is the accountability for expenditure of this level of taxpayers’ money by the private health insurance funds? Under arrangements set up by the Howard government, there is virtually none. There are no performance agreements between individual health funds and the government with respect to this funding. There are no performance requirements about the effectiveness of the health services that the funds buy for their members when they use this enormous level of government funding. There are no efficiency measures in regard to the services that are in effect purchased by this government funding. Unlike the public hospital system, there is no real accountability or public scrutiny of the return the taxpayer gets from subsidising private health insurance premiums.

To make matters worse, the private health funds freely admit that they have no control over what they pay for hospital and medical services for their members. If that is the case, what exactly is the point in having a whole lot of organisations that do nothing more than move money from point A to point B and, unfortunately, take a 10 per cent cut on the way through? By any definition, this is not a long-term economically sustainable situation. This is not an argument against private health insurance. It is a signal that the private health insurance funds need to get on with the job of looking after the long-term interests of their members, which make up well over 40 per cent of Australia’s population. It is not going to work if the private health insurance industry continue to be price takers whose only strategy is to rely on the taxpayer to shore up the industry with massive government subsidies.

Unfortunately, not far behind the health funds are the private hospitals that apparently now believe that they have a permanent right to taxpayer funding to shore up their bottom lines. When the Rudd Labor government recently announced that it intended to establish a $10 billion Health and Hospitals Fund to invest in health infrastructure, the Australian Private Hospitals Association immediately put in its bid for a dip in this pool of taxpayer money. If my state of Western Australia is any indication, the building work that has been undertaken by private hospitals in recent times shows there is no real shortage of funds for capital works. Again, there is no formal performance agreement between the government and the private hospitals for the funding support they get indirectly from government.

Another strong supporter of penalising Australian families on average incomes is—guess who—the  AMA. Perhaps the AMA’s position in regard to the Medicare levy surcharge has something to do with the fact that the Howard government’s private health insurance policies have turned out to be an absolute financial bonanza for the AMA and its members. In the past five years the value of medical benefit payments paid to private medical specialists has increased by no less than 75 per cent. In 2007 these payments grew by almost 15 per cent compared to the previous year. In 2007 private health funds paid out over $1.1 billion in medical benefit payments, a third of which was picked up by the taxpayer. Private medical specialists and the AMA know they have struck gold. No wonder they are vehemently opposed to anything that might slow the flow of money.

It is Medicare that ensures that all Australians have access to medical and hospital care when they need it. It is not the private health funds. It is not the AMA. It is not the private hospital sector. It is Medicare that continues to ensure that Australia has an equitable and affordable healthcare system. In summary, this bill protects the integrity of the Medicare scheme. I commend the bill to the Senate.

Annette Hurley (SA, Australian Labor Party) Share this | Link to 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.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

I rise in support of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008. As we all know, the intention of the bill is to increase the Medicare levy surcharge thresholds for both individuals and families—an increase from $50,000 to $100,000 for singles and from $100,000 to $150,000 for couples and families. That is before the imposition of an additional one per cent in tax payable by workers who have chosen not to take out private health insurance. If this bill is about one thing, it is about choice—the choice of whether or not to take out private health cover.

By way of background, the previous government introduced the Medicare levy surcharge in the late 1990s. The surcharge was part of a ‘carrot and stick’ approach to entice Australians back into the private health system, which at that stage—those of us who were around remember the complaint—was verging on becoming dysfunctional because of high dropout rates and, hence, lack of funding to private healthcare providers to provide rebates to those who chose to use their services. As I say, the surcharge was part of a carrot and stick approach to entice Australians back into the private health system. The carrot was then and remains very generous: a 30 per cent general rebate for most Australians and, for older Australians, a 35 to 40 per cent rebate. The rebate was paid by the government to private health insurance groups to mitigate the cost of premiums, which then, as now, were rising, one suspects, almost exponentially.

As well as the carrot approach to rebates, there were two sticks to the policy. The first stick, as it has become characterised, is known as Lifetime Health Cover. Unless taken out before the age of 30, premiums for new members of Lifetime Health Cover increased on the basis of age. It increased at a rate of two per cent for each year after a person’s 30th birthday. The second stick was the Medicare levy surcharge, aimed at capturing avoiders or those who chose not to take the hint with the first stick—that is, to target high-income earners who could afford to purchase health insurance but decided to play the lottery and chose to not take out private health insurance, to rely on the hope that their health would continue to be good and, hence, to rely in a health emergency on what was left in the public health system.

When the surcharge was introduced in the 1997-98 financial year, 8½ per cent of single taxpayers were captured by the surcharge levy. In evidence to a recent Senate inquiry, Treasury officials estimated that in the 2008-09 financial year 36 per cent of single taxpayers will 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 go to 45 per cent of taxpayers, which is almost half of Australia’s taxpayers.

The new thresholds will restore the percentage of people captured by the surcharge to 8½ per cent of taxpayers. So, as well as this legislation being about choice and, as Senator Hurley said, about equity, it is about returning to the a priori position established by the previous government when it introduced those major reforms in 1997-98. One asks the question: why did the previous government fail to include indexation in surcharge thresholds? In 1997, a high income was deemed to be $50,000 for singles and $100,000 for couples and families. There has been no change to the threshold since that time. However, over the last 11 years, average annual earnings have increased and, in some cases, have increased quite significantly. An average annual income today is $58,000. So a full-time wage earner on the second lowest marginal tax rate of 30 per cent exceeds the current threshold. The surcharge, designed to provide a financial incentive for high-income earners to join private health insurance funds, is now a tax trap for average Australians. Indeed, returning to the figures I referred to earlier, within two years some 45 per cent of all Australian taxpayers will be caught by this threshold mess if the proposals before the chair do not become legislation in due course.

It is a tax that, if left in its present form, will eventually force all but the lowest-wage earners to take out private health insurance. That, if it does come to pass, is a fundamental shift in the concept of universal health coverage. And it was done without decision and without policy discussion. It has emerged over time and it has been done by stealth.

The proposed changes to the Medicare levy surcharge will restore balance and fairness to what is now an additional tax burden on working families. Indeed, if the legislation is passed and proclaimed in due course, we will return, as I said earlier, to the situation in 1997 where only eight or 8½ per cent of taxpayers were affected by the surcharge. This reversion to what was the case and what, we think, was the original intent of the Howard government in 1997-98 will honour the original intent of the surcharge: to target high-income earners, who can afford to make provision for their own health care.

Why all the delays? Why all the histrionics? Why the constant monitoring of this issue in the press? Why all the doom and gloom? It is a fact, as we all know, that healthcare costs right around the world—but particularly in the Western world, where in most advanced industrial democracies there is a form of universal health care—are rising and, indeed, it can fairly be said, rising well in excess of general movements in the CPI in particular domestic economies. Reasons vary, from breakthroughs in technology to increases in capital costs of medical equipment and facilities, to increases in demand with growing populations, to lack of supply adjustment, to, in some cases, excess supply adjustment—and by that I mean more and more doctors and more and more facilities shifting into well-off suburbs and hence competing to attract aged and well-off people as customers. Of course, we have that very difficult situation that is emerging with the decline in GPs, whereby large numbers of people now regard a GP as an optional extra, do not use a GP and, for routine medical demands, use the public hospital system—and the system we built over the last 10 or 15 years has in-built perverse incentives that indeed encourage such behaviour.

It is also clear—and fair to say—that, as consumers, we have an expectation that our health system can, and often does, provide miracles. Healthcare professionals have also experienced increases in income, and this has also contributed to the overall cost of healthcare services and medical services and, if we are not kidding ourselves, is likely to contribute to ongoing serious increases in healthcare costs over the coming decades.

As we all know, since 1984 Medicare has been the mainstay, the building block, if you like, of our health industry. Its purpose is to provide health services to all members of the Australian community right across our continent. It can be accessed by pensioners, the unemployed, the disadvantaged and the chronically ill, whether they are low-, middle-, or high-income earners or people who have no income at all. Taxpayers already pay a Medicare levy of 1½ per cent on their taxable income. It is this ownership, this belief in Medicare, that means clients of the private health system will continue using public health services. So where is the best place to invest our taxpayer dollars within the current health system and the health system we hope to maintain over the next 10 or 15 years? It is clear that we need a private healthcare system that supports, complements and provides a buttress to our own public system—and there is strong support right across Australia within a whole range of communities for choice in healthcare providers. So we need a public system, we need a private system and we need choice.

Today there are approximately, I am told, 11 million Australians in private health insurance funds. But we must ask ourselves: how many people are members of those funds through their own fully informed choice? Or: how many are members because they have become ensnared in a tax trap devised and allowed to grow by government over the last 10 years in this country—a tax trap created by the failure of the previous government to index surcharge thresholds? The previous government did not forget to index the luxury car tax. There is support, as we know, even amongst healthcare fund managers, for an indexation of the surcharge threshold. The hysteria appears to have arisen from the initial increase in the threshold. The Australian Health Insurance Association, in evidence given to the recent Senate inquiry, said that one-third of those with private health insurance live in households with an income of less than $48,000 per year. If that is the case—and there is no real reason to doubt that—those people presumably are at least satisfied with the product that is offered by private health funds. I emphasise that these are individuals and families who are not required to pay the surcharge under the current threshold arrangements.

There is no doubt that there will always be a market for private health insurers who are able to provide a comprehensive range of services attractive to the clients in the market in which they seek to attract business. Current public campaigns would have you believe that, when the thresholds increase, those most likely to withdraw from private health funds will be younger, healthier people. That is an argument worthy of examination. If this is true, the impact on the public health system should be absolutely minimal. After all, the young and the healthy do not draw on the private health system, so one would assume that they are unlikely to draw on the public health system, or, if some are going to shift over to the public health system, one would suggest that there is going to be an absolutely minimal number. Many who have been caught in the tax trap pay into private health funds but continue to use the public system. In cases of serious trauma, emergency surgery or long-term chronic illness care, the burden inevitably falls to the public health and the public hospital system. As a result, our public health and hospital system is crying out and will continue in the years ahead to cry out for additional funds to meet demand because the structural changes needed to change the perverse behaviour that occurs were not allowed to occur over the last 10 or 15 years by the previous government.

There is broad agreement that the increase in thresholds will lead to an exodus of members, an exodus largely of those who have taken out private health insurance. Why? Because they were caught in the tax trap. If so, there will be a corresponding reduction in government funding of the Medicare rebate. Treasury estimates put this at $960 million over the next four years. Those savings will enable the government to direct taxpayer dollars to our public health system, a public system which, for years, suffered the burden of underinvestment by previous governments. The current surcharge arrangement undermines—goes to the heart of destroying—the notion of a comprehensive universal healthcare system by directing taxpayer dollars in some cases to publicly listed funds, driven by a different endgame, that operate in a market environment.

This government supports a strong private health sector which complements our public health system. We need both. We acknowledge the contributions that both the public health system and the private health system make to the welfare and the medical health of Australians right across our country, a contribution to meeting, as I say, the health needs of our communities. The government continues to support the private health sector with the Lifetime Health Cover and the Medicare rebate schemes. There is no change to those two elements of the current system. There is also additional support for the private sector through Medicare rebates for procedures performed by medical staff. Additionally, we have the Pharmaceutical Benefits Scheme, a scheme which provides medications at a significantly reduced cost to both private and public health fund patients.

In a perverse way, through the Medicare levy surcharge the government of the day effectively imposed a penalty on those it deemed wealthy—a penalty on those who choose not to take out private health insurance. It does not allow individuals or families to choose the public health system. The penalty was imposed, is maintained and continues to be imposed to stop people making effective choices about the type of health system they wish to involve themselves and their families in. The penalty is imposed to stop you choosing wrongly, with the choice made by the government, without information, and not by the individual, family or consumer.

The current threshold is an unfair tax on what today are no more than average-income earners. In my home state of Western Australia, an estimated 27,000 persons pay the surcharge and yet continue to rely on the public health system day in and day out. A further 117,000 households are above the threshold and pay for private health insurance. Nevertheless, many of them, if not a very, very significant majority, continue to access the public health system. It is the government’s view that changes to the Medicare threshold will provide much-needed relief to average income earners.

There are always going to be lobby groups and interest groups who benefit from the way things are currently structured and who therefore will oppose any change, no matter how well intentioned or how much needed, just like those who are fundamentally opposed to the idea of a universal healthcare system. Indeed, at least until 1996 the opposition parties were opposed to a universal healthcare system in this country, which was one of the hurdles Mr Howard had to overcome when the government changed in 1996.

Through practice, usage, opinion polls and research, Australians show their continued support for a public health system and for Medicare. They have made that support known to successive governments since the Medicare system was created back in 1984. Indeed, the maintenance of a universal, well-funded and adequate public healthcare system goes to the heart of having an effective medical system in this country, and it goes to the heart of the fair go. Indeed, the entire principle that has driven the current government to bring these reforms into the parliament this week and in coming weeks is to change the threshold so that we can get some equity, some fairness and a fair go back into the system that delivers results to consumers, the public and those who most need it—that is, a well-maintained and well-funded universal healthcare system. That is manifest, as it has been manifest now since 1984— (Time expired)

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

I seek leave to incorporate Senator Carol Brown’s speech.

Leave granted.

Carol Brown (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

The incorporated speech read as follows—

I rise to speak on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 the bill tasked with the responsibility of increasing the Medicare surcharge levy threshold from $50,000 to $100,000 for singles and  from $100,000 to $150,000 for families.

It is important to correct the record on this issue and to respond to claims made by Senator Barnett, last week in his contribution to this debate

Senator Barnett seems to have suffered from a convenient lapse of memory.

He admirably claims to have taken up the cause on behalf the Tasmanian people, whose interests he represents, using his speech to point the finger at both the state and federal Labor Government’s for not doing enough to improve the public health system in Tasmania.

I agree with Senator Barnett that the health system in Tasmania is in need of attention – but need I remind him of how it got in such a dire state?

Of course what Senator Barnett failed to say in his contribution, was that, he was happy to stand back and watch as the Howard Government effectively short changed Tasmanian public hospital system by $70 million every year.

That’s right - how things can change in 9 months Senator Barnett! 9 months ago you were happy to stand back and let your government short change the Tasmanian health system to the tune of $70 million – and now you claim that the state and Federal Labor Government are to blame—Shame on you!

Truth be told, both the Federal and State Labor Governments have acted in the last 10 months since the Federal Labor Government has been in power.

The Federal Government has provided the Tasmanian Government with an extra $50 million in this year’s May Budget to improve health services in the state, and $8.1 million in additional funding to cut elective surgery waiting lists.

Further Senator Barnett’s claims, that the Tasmanian Health Minister, Lara Giddings

“…. refused to even acknowledge an invitation to appear before the Senate Standing Committee on Economic inquiry into the Medicare levy threshold.”

are completely false and misleading. It is my understanding that Minister Giddings, was never invited to make a submission or appear before the committee and Senator Barnett knows this!

When his colleague Senator Bushby was paddling this tall tale—Minister Giddings put out a statement refuting Senator Busby’s claims stating, I quote:

“I have never seen a letter inviting me to make any such submission, and I have never seen an invitation to any hearing on this issue”

In fact the letter Senator Bushby sent to Minister Giddings makes no reference at all to a meeting.  No reference at all!

Senator Barnett also knows full well the impact Minister Giddings believes the Medicare Levy Surcharge Threshold will have on Tasmanians.

In a statement she put out in response to Senator David Bushby’s, Minister Giddings said:

“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.”

“The Opposition has been stretching the truth on this issue for a while but Senator Bushby’s latest effort is pure fiction”

I also feel it necessary to respond to Senator Barnett’s ridiculous swipe at the Member for Bass Jodie Campbell.

Since elected the member for Bass has been working extremely hard for the people of Bass, delivering a number of big ticket election commitments including $ 15 million for an integrated care centre at the Launceston General Hospital.

It is time for Senator Barnett stopped playing this political charade and worked a little more constructively for the people of Tasmania.

The Medicare levy surcharge imposes a one per cent increase in Medicare levy liability on certain individuals who do not have private patient hospital cover.  For the 2008-09 income year individuals with taxable income over $50,000 and couples with a combined income of over $100,000 may be liable for the surcharge.

This increase was one of a range of measures announced as part of the Government’s economically responsible budget, aimed squarely at helping to reduce the cost of living pressures faced by average income earners in Australia.

Indeed initiatives such as those contained in this bill reflect an acknowledgement by the Government that many Australian workers and their families are under financial strain, and the Government, where it can, should be trying to ease that strain.

It is expected that the passage of this bill alone could potentially result in savings of up to $1,000 for individuals and $1,500 for families.

In effect it will free up an additional 400,000 Australian taxpayers from the burden of liability for the surcharge in the forthcoming financial year.

While the aim of this measure was and remains relatively simple, it seems to have been somewhat buried under the weight of the debate which has arisen since it was first announced by the Treasurer in May.

The aim of this measure was quite simply to provide average income earners in Australia with some long overdue relief by returning the threshold levels to the approximate position of where it was intended when it was first introduced in 1997.

However, what appeared to have been a relatively straight forward proposition, has been severely compromised by the Opposition—who have made it their job to partake in a number of acts of budget vandalism, by  blocking the passage of this, and several other key budget measures.

By initially blocking this bill and continuing to steadfastly refuse to support it, those opposite, have and continue to deny thousands of Australians of the obvious financial relief that will result from its passage.

Indeed the Prime Minister, speaking in Tasmania recently, noted that the proposed changes contained in this bill could result in a potential saving of more than $1,000 a year for a working family of a couple with incomes of 60,000 respectively.

That $1,000 extra to put toward the mortgage, and children’s education.

However sadly, in the same week as the reserve bank delivered an interest rate cut, the equivalent of which is estimated at saving $600 a year for a person with an average mortgage- those opposite have threatened to all but cancel this out by not supporting the potential more than $1,000 tax relief measures contained in this bill.

The actions of those opposite amount to nothing more than opposition for opposition sake—all at the expense of the Australian people.

Thousands of average income Australian families, when the measures were first announced by the Treasurer in May inadvertently assumed that their passage would be a given—that they would no longer have to pay the levy—only to find out that the measure had not yet passed.

Now those same families are looking down the barrel of another period of uncertainty—as those opposite, who blocked the measure when it was first introduced, continue to refuse to support its passage.

When combined with the financial implications stemming from the other budget measures, they are refusing to support, the opposition threatens not only to deny Australians the benefit of budget measures, such as those contained in this bill, but also the flow on benefits that come with a strong budget surplus.

They refuse to support this measure, which will put more money in the pockets of thousands of Australian families.

They refuse to support the Government’s proposed Fuel Watch scheme—which will give the same families a healthy degree of informed choice when it comes to how much they pay at the bowser.

One would be forgiven for thinking that those opposite don’t believe Australian families deserve a break when it comes to managing the family budget.

One would be forgiven for believing that those opposite are in fact pursuing an agenda, which has their interests first and the interests of Australian workers and their families last.

Those opposite are simply desperate to cling to some degree of power and are playing politics by refusing to support several of the Government’s key budget measures.

Now, one would also be forgiven for dismissing such tactics as harmless—if it wasn’t for the fact that the interests of thousands of Australians were on the line.

Indeed, the political games being played by those opposite can only mean more pain for working families.

On the other hand, the measures contained in this bill promise to provide some real and welcome relief to average income earners in Australia.

Indeed, when combined with the numerous other measures contained in this year’s budget, aimed at helping Australian families, such as:

• the $46.7 billion in tax cuts for low to middle income earners;
• the introduction of the education tax refund; and,
• the lifting of the childcare tax rebate from 30% to 50%.

This bill reflects a genuine commitment by this Government to do the right thing by Australian’s and provide them relief.

Indeed, the figures show that this measure is long overdue.

The Standing Committee on Economics handed down its report on the bill on the 27th August.

The Committee recommended that the bill be passed noting that the “overriding consideration is the danger of forcing an ever large number of low-income people to pay the Medicare Levy Surcharge (MLS) or to buy low value fund policies for which they have little use.”

Indeed, the report notes the key argument put forward by the Treasurer in support of this bill has been the MLS threshold levels have not been changed in a decade since its introduction and therefore it should be increased to restore the proportion of the population who are liable, for the surcharge, to 1997 levels.

In fact, this is the key objective of the measures contained in this bill—to restore the application of the MLS to the levels which it was first intended.

That is, to do what the previous Government failed to do- and increase the surcharge threshold.

In their dissenting report, those opposite have engaged in scaremongering to justify their opposition to the bill.

In their report those opposite accuse the Government of:

“…not properly thought through the flow-on implications of this measure.”

And continue by making the outlandish suggestion that:

“If this measure passes, there is a clear and imminent danger that the gains made over the past decade in securing a better balance in the Australian health system could be wiped away.”

Such accusations seem some what hypocritical considering the authors of the dissenting report where directly responsible for continuously under funding the Australian health system.

Senator Colbeck during his contribution warns of the eminent impact that this measure could have on the take up of private health insurance and public hospital waiting lists.

While such concerns are welcome, the simple truth is that Senator Colbeck and the authors of the dissenting report appear to be clutching at straws, in their desperate bid to justify their opposition to this bill, and the savings it will result in for Australian families.

In was reported in the Age, late last month that Private Hospital Operator Ramsay, said that changes to the Medicare levy would not—as it has been suggested by those opposite—“.. bring the industry to its knees” and the fundamentals for the provision of private health insurance given factors such as our ageing population, remain strong.

Their concerns relating to elective surgery waiting lists also appear to be largely unwarranted given the Government has committed to investing an additional $600 million—over four years—to dramatically reduce waiting times for elective surgery in Australia’s public hospitals.

The truth be told, this is just one of a raft of other budget measures being used to commit budget vandalism by those opposite.

When it was first introduced by the previous Government in 1997, the current Medicare levy surcharge was, according to the then Minister for Health, Dr Wooldridge, aimed at

“high income earners… the people who could afford to pay for private health insurance”

However, under the Howard Government’s neglectful, watch, the levy income threshold has remained static for over 10 years, while the average weekly earnings have increased by nearly 50%.

The previous Government’s refusal to increase the levy threshold meant that an increasing number of average-earning Australians were being slugged with the tax despite the fact that it was intended for ‘high income earners’.

Illustrative of this, in 1997 only 8% of tax payers incurred the surcharge, by the 2008-09 budget cycle this had blown out too with about 36% of single taxpayers being forced to pay the surcharge. If this measure is not passed it is estimated that this figure will jump up to 45% of single taxpayers by 2011-12.

Despite what those opposite might say—there is no good justification for why average earning Australian families should be forced to pay the surcharge.

The situation that was allowed to occur under the former Government was the exact opposite of what was intended.

There is no escaping this reality and those opposite should feel uncomfortable, you should be looking elsewhere and hanging your heads in shame—because you allowed this to continue.

In his Budget in reply address, Dr Nelson railed against what he labelled as tax bracket creep.

He said, and I quote Mr President:

“We know that, as incomes rise over time, and workers move into higher tax brackets, the value of income tax cuts will be eroded in the future. Economists call this “bracket creep”. We call it tax increases on the sly”.

However what the honourable Leader of the Opposition has ignored is that more and more people on average wages have been required to pay this tax, the Medicare levy surcharge.

So such claims are hypocritical when applied in retrospect, considering that the now Opposition did nothing—I repeat nothing—for 10 years—and in doing so effectively imposed “tax increases on the sly” on average working families in Australia by simply not increasing the Medicare surcharge threshold.

The former Government was a Government of inaction and their refusal to increase the Medicare levy threshold was effectively a tax, by inaction.

As I mentioned previously, it is estimated that the measures contained in this bill, could potentially result in $1,000 savings for individuals and $1,500 savings for families—which I am sure will come as a welcome relief for working families, but which are, as I said, long overdue.

The measures contained in this bill will increase the threshold for the Medicare levy surcharge from $50,000 for individuals to $100,000, and from $100,000 to $150,000 for families.

This has the real potential to provide genuine tax relief for ordinary working Australians, and—most importantly—this measure would return the thresholds to an income level around which they originally applied in 1997.

The proposed increase to the threshold contained in the bill will, if passed, bring the figure back to around 8%—where it was intended.

This increase will have the effect of freeing an additional 400,000 individual taxpayers from the liability of the surcharge in the forthcoming financial year.

The increase also has another important factor attached—which is to re-introduce the concept of choice into the health system when it comes to private health insurance.

While the Labor Government has and continues to support the private health system, for far too long the Australian people where held at ransom by the former Howard Government, to purchase private health insurance,  because of their failure to lift the Medicare levy threshold.

When combined with the former Howard Government’s persistent under funding of the public health system, this had the effect of creating a “user pays” system, where there was no choice and where quality universal health care was no longer easily available to all Australians.

The reality of the Howard Government’s under funding of the public health system is no where better reflected than in my home state of Tasmania, where the impact of chronic under funding continues to plague our public health system.

According to the Health Expenditure Report, produced last year by the Australian Institute of Health and Welfare, the former Government’s share of the public hospital bill decreased by more than 5% in the four years to June 2006.

This effectively meant the Howard Government were short changing the Tasmanian public hospital system by $70 million each year.

That’s $70 million less to spend on extra nurses, beds and on cutting waiting lists.

That’s $70 million less to spend on saving Tasmanian lives.

Labor has long advocated for the provision of quality health care and services for all Australians—regardless of their income.

The increase to the Medicare levy threshold is line with such a concept. It protects average income earners from being placed in the conundrum of being slugged with the levy—it gives them the freedom, and most importantly, it gives them choice.

However, lets make it clear—this bill is about providing average earning Australians with long overdue financial relief—and not, regardless of what those opposite might suggest—to remove the incentive for private health insurance. 

The provision of private health insurance provides Australians with a valuable choice when it comes to health care. It allows individuals to elect to invest privately in their, as well as their families, future, long term health needs—whatever they may be.

Regardless, the Government believes that access to quality health services, should be available to all Australians—whether they can afford to invest in private health cover or not.

This is why, the Rudd Government elected to use its first ever budget to deliver a $3.2 Billion Health and Hospitals Reform Plan aimed at building a  stronger public health system for all Australians.

The $3.2 Billion National Health and Hospitals Plan will ensure Australian families have access to affordable health care by working with the States and Territory Governments for the first time in 12 years.

This significant long-term commitment to health includes:

• $600 million to help reduce elective surgery waiting lists;
• $290 million to help state and territory Governments reduce public dental waiting lists;
• $275 million to establish 31 GP Super Clinics around the country. Which will improve access to health services and improve chronic disease management.

In addition, the Government established the Health and Hospitals Fund, with an initial allocation of $10 billion, to cater for the long term funding for hospitals, medical technology and major research facilities and projects.

Needless to say the Rudd Government, after inheriting a chronically under funded public health system, has made revitalising the public health system a national priority.

And as I pointed out earlier, Labor has also made easing the financial burden on low to middle income earners in Australia, a national priority.

For far too long the former Government neglected the needs of average, hard working Australians. As this long overdue increase to the Medicare levy threshold proves, the former Government simply turned a blind eye to the impact such things were having on average earners in Australia. 

Eleven years in power and the Howard Government and those opposite, effectively removed itself from the reality of the financial struggles faced by Australians.

It not only neglected to re-assess the real impact of measures such as the Medicare threshold on the family budget, it also ignored the real impact of other pressures such as rising interest rates and petrol prices.

We are now dealing with the stark reality of these years of neglect now.

This neglect by the former Government meant that when the Rudd Government took office it inherited an economy crippled by inflation, which was running at its highest level in 16 years and with interest rates at the second highest amongst advanced economies.

You would have been forgiven for thinking that after last year’s election, that those opposite would have learnt to pay attention to the needs of all Australians a little more carefully.

However, indications that they intend to vote against this important piece of legislation suggests otherwise.

It suggests that those opposite would still rather play party politics, than act in the best interests of the Australian people.

I thought that we had seen the end of such cheap political tactics, but it appears, even under the new leadership of Dr Nelson—this kind of game playing is set to continue.

It is time for Dr Nelson to show some real leadership and stop trying to score cheap political points by opposing measures such as these.

Australians deserve more from the opposition. They deserve to be granted the relief of measures such as these, after ten years of inaction, by Dr Nelson and his senate colleagues.

Australians deserve not to be used as a political basketball—to be thrown around, just to score political points for those opposite. Families at home know, as I do, there is simply too much at stake.

The Rudd Government is committed to providing quality health care in this country. The Rudd Government has no intention of turning a blind eye to the reality of the financial pressures faced by Australian families.

As I mentioned earlier, the measures contained in this bill, have the potential to free an additional 400,000 individual tax payers from the burden of paying the Medicare levy.

It also has the potential to result in up to $1,000 saving for individuals and $1,500 saving for families—which will also go a long way to helping get the family bills under control.

The Medicare levy was, when it was introduced by the former Howard Government in 1997, intended to apply to “high income earners” or roughly only 8% of single taxpayers.

This measure, introduced by Labor will see the levy once again apply to the 8% of taxpayers—the high income earners, for whom it was intended.

This means bringing to an end, some of the unnecessary financial pressure placed on average middle income earners, by the former Government.

I support this and any other such measures which move to reduce the pressure on working Australians and at the same time gives them a degree of choice when it comes to access to health care.

I concur with the key recommendation of the Senate standing Committee, and commend the legislation to the Senate, and urge all Senators to support this bill.

Louise Pratt (WA, Australian Labor Party) Share this | Link to this | Hansard source

I am going to speak briefly on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 because I am eager to see this important budget measure passed. Lifting the Medicare levy surcharge thresholds is an important principle that will get rid of what is an unfair tax on average income earners. As other speakers have highlighted, 465,000 people were subject to this levy—many of them unfairly, many of them not high-income earners and in fact many of them hit by the equivalent of bracket creep as their incomes crept over the $50,000 mark. People found that, when it came to tax time, they were subject to this levy and had not even had the opportunity to question or engage in the idea of whether they wanted private health insurance. That is certainly something that has happened to people I know. They were unexpectedly hit with this tax burden because it was not a question that they had put to themselves at the time they got their pay rise.

Many people know that health insurance is not the right health choice for them, but are they supposed to take it out anyway? According to the opposition, they must. The income thresholds for the Medicare levy surcharge, as we know, have not been changed since 1997. When the surcharge was introduced by the then Minister for Health and Family Services, Michael Wooldridge, he said:

High income earners will be asked to pay a Medicare levy surcharge if they do not have private health insurance. These are people who can afford to purchase health insurance.

The opposition are jokes if they believe that those earning $50,000 are high-income earners. That is why we have raised the thresholds to give relief to average earners, who are now being forced to pay the tax. The opposition’s lack of support for this bill illustrates their inequitable approach to public policy.

For some very important reasons, I reject the notion offered by the opposition that younger, healthier people should be coerced into subsidising health insurance for others. There is significant evidence to suggest that in many instances people hold cheap health insurance simply to avoid paying the Medicare levy. This was clearly evident in the inquiry of the Senate Standing Committee on Economics into this bill. When you hold health insurance and intend to use it, there is a significant need to insure yourself above the health insurance rebates. In other words, there are significant gap payments to be made. For many, that is something they are prepared and willing to do and they know that that is what will be required if they need to utilise their private health insurance.

However, despite the fact that many hold insurance, many people cannot afford a private hospital bed or a private practitioner. They hold cheap policies that offer limited benefits simply so they can avoid the levy. Many people who hold private health insurance still have no option but to occupy a bed in a public hospital because they cannot afford these gap payments. Some will pay a smaller gap, as charged by the public hospital; others, however, will make no claim against their health insurance and simply use the public system. So I would like to ask: who is subsidising whom? Not only do we have taxpayers who are healthy and do not need to use insurance but we also have taxpayers who have paid their insurance but cannot afford to use it. People who cannot afford to use it are subsidising the health insurance rebates from health funds for those who can. That is not an equitable position to put people in; it is not logical policy. You have people who can afford private health insurance, who can afford the gap payments for their private hospital and who can afford the gap payments for their own private room and their choice of practitioner and then you have less well-off taxpayers who are paying their private health insurance but cannot afford to use it, subsidising private hospital stays for more well-off taxpayers. It is not fair.

On top of this, the taxpayer is paying twice for these patients: once in the form of the 30 per cent rebate for health insurance they do not use and a second time for the care of the public patient in a public hospital. This clearly highlights the unjust, nonsensical nature of our current private health insurance penalties for those who cannot afford insurance. It also illustrates clearly why Labor’s bill should be passed, along with the many other reasons highlighted by my colleagues on this side of the house. The government supports a mixed-use health system with both public and private sectors working in tandem to meet the health needs of the community. However, hitting average-income taxpayers is not a reasonable way of proffering this support. I believe that only Labor can be trusted to look after both the health and the tax equity concerns of all Australians.

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

Australia has ‘The best, worst health system’ in the world, according to Jim Hoggett, who wrote in the IPA Review in December 2003. Hoggett was no doubt referring to the fact that no-one is ever happy with their health service because, of course, there is always more that could be done to provide more comprehensive and equitable health care. But his article made the point that the unique features of the Australian health system, which include a balance between the public and private sectors and community rating, mean that Australia does in fact have one of the better health services in the world, if not in fact the best.

By contrast, in the United States, where health services are predominantly private and costly, and health insurance premiums weighted for risk, those who cannot afford to have private health insurance have to fall back on the United States public hospital system, which is generally regarded as woefully inadequate. In fact, this morning I heard on Radio National’s The Health Report that 45 million US citizens do not have health insurance so cannot access reasonable health care. In Canada and the United Kingdom, health services, by contrast, are largely public, with a smaller private sector. Having worked for the British National Health Service I can say that, while I admire the standard of care, hospital infrastructure is often old—many hospitals are actually converted 19th-century work houses—wards are overcrowded and waiting lists are long. ‘Why?’ we might ask. The answer to that is: because governments never provide enough funding to upgrade the facilities in the public sector. That is a point to emphasise: no matter what is stated in election promises by Labor idealists, the track record of governments in providing sufficient funding for the public health sector is very poor.

Most importantly with respect to private health insurance, in both Britain and the United States, if you have an adverse medical history, such as being diabetic, or a family history which suggests you may be at risk, should you desire to take out private health insurance your premiums will be weighted for risk and it is possible you could be refused health insurance cover. As I said, in Australia we have a system where there is a balance between public and private care. And, most importantly, in Australia, health insurance premiums are not rated for risk. This means that, regardless of your personal or family medical history, everyone pays the same premium for health insurance. This system is called community rating. Community rating works by virtue of the fact that the premiums of younger people, whose claim rate is low, go into a re-insurance pool to cover the cost of claims for treatment by older people, who have a much higher rate of claims for illness and surgery.

The Australian system is unique in the world and delivers excellent health cover to our community. But—of relevance in the context of this proposed legislation to abolish the Medicare levy surcharge—the success of the Australian system fundamentally depends on preserving the balance between the private and the public medical systems. Regrettably, the Rudd government proposal to abolish the Medicare levy surcharge will destroy the balance in the Australian health system and will result in chaos. The balance will be destroyed because abolition of the Medicare levy surcharge will result in a large number of families and individuals dropping their private health cover. As the Australian Medical Association said in their submission to the Senate economics committee inquiry:

Australia’s health system is a delicate balance between the public and private sectors. The effectiveness and efficiency of the public system relies on a strong private sector. A high rate of private health insurance membership is a key part of the private sector.

During the Senate inquiry evidence was given that, notwithstanding Treasury modelling, which is widely regarded as being flawed, other estimates show that, when all of the secondary flow-on effects come into play, somewhere between 800,000 and one million people will no longer be covered by private health insurance if this measure goes through and will therefore be unable to access the private hospital sector, so will turn to public hospitals for treatment. This, in turn, will create enormous additional pressure on the public hospital system. Inevitably, it will mean delays in treatment and longer waiting lists for elective surgery in the public hospital sector. In their submission to the Senate inquiry, Catholic Health Australia summarised the impact of the Medicare levy surcharge as follows:

The Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 is likely to have several adverse consequences which will result in new barriers in access to health care by low and middle income earners.

The summary states that these adverse impacts are likely to include:

• Increases in public hospital surgery waiting times as upwards of 200,000 new episodes of care will need to be carried out in public hospitals;
• Specific longer waiting times for older Australians requiring cataract surgery or hip and knee replacements;
• Immediate increased costs on public hospitals of a likely $400million;
• An initial decline in State and Territory public hospital revenue of $35million in direct hospital accommodation benefits and an additional $20million in other services …

I add that this is because fewer patients being treated in public hospitals will have private cover, so state governments will no longer be able to double dip—that is, receiving Medicare funding from the federal government while charging patients’ health insurance funds for the same service. Catholic Health goes on to say there will be:

• A likely initial increase in private health insurance premiums of up to 10%, which will be felt most by those low and middle income earners with private health insurance;
• Future unpredictable increases in demand on public hospitals as private health insurance becomes more expensive;
• Over $400million lost from the operational budgets of private hospitals.

The Catholic Health submission went on to describe how the workload will be transferred from the private sector to the public sector as follows:

Catholic public not-for-profit hospitals will in turn be impacted as episodes of care that would have been carried out in private settings shift across to public settings.

Catholic Health Australia further points out that it would be the low- and middle-income earners who would be most affected by this ill-considered measure by the Rudd government, saying:

The Treasury modelling of the impact of the proposed threshold changes has deficiencies. These deficiencies have partially shielded the likely consequences of the proposed threshold changes. The likely consequences will be most felt by low and middle income earners, who will bear the brunt of increased cost pressures on public hospitals if waiting times for surgery [and/or] struggle to maintain their private health insurance membership …

I think senators would agree that low- and middle-income earners are rather surprising casualties indeed for a Labor government measure. It is typical of the fact that the Rudd government does not seem to think through its policy initiatives.

What is so difficult to understand about the Rudd government introducing this measure is that these outcomes are all predictable on the basis of what happened to the Australian health system following the introduction of Medicare in 1984. Prior to the introduction of Medicare, which was touted as a universal health system, around 60 per cent of Australians had private health insurance. However, over the next 13 years, until the introduction of the Medicare levy surcharge, membership of private health insurance funds in Australia dropped to about 30 per cent of the population and because no serious steps were taken by the government of the time to increase the capacity of the public sector, the result predictably was the all-important balance between the private and the public health sectors, which I referred to earlier, was destroyed and Australia faced a crisis in health care. Because so many people had dropped their private health insurance, there was enormous pressure on the public hospital system. There were ever-increasing waiting lists, which particularly disadvantaged older people, and the public hospital sector was bursting at the seams, unable to cope with the workload. By contrast, adjacent private hospitals were empty. Theatres and wards in private hospitals were not being used while old ladies with arthritic knees and hips were on two-year waiting lists, if not longer, for their surgery to be undertaken in the public hospital sector. People suffered unnecessarily and no doubt the delays aggravated their medical conditions.

To end this unprecedented crisis, the Howard government took urgent action to encourage Australians to take up private health insurance to take the pressure off the public system. To restore balance to the Australian health system, the Howard government introduced three measures: firstly, the Medicare levy surcharge on 1 July 1997; secondly, the 30 per cent taxation rebate on private health insurance premiums on 1 January 1999; and, thirdly, Lifetime Health Cover in July 2000. Given the desperate situation in which these measures were introduced, it is quite clearly nonsense for the Rudd government to claim that the Medicare levy surcharge was introduced as a revenue-raising measure.

The history of this matter leaves no doubt that the surcharge was introduced as one of a suite of three measures designed to restore balance to the Australian health system and to overcome the crisis which we faced in 1997. Quite clearly these three measures worked, because participation rates in private health insurance have risen steadily to be over 50 per cent of the population and once again Australia has a health system which delivers high-quality health care to our citizens and is in fact the envy of the rest of the world.

It is totally beyond my comprehension why the Rudd government would want to disturb our uniquely Australian health system by introducing this legislation to abolish the Medicare levy surcharge: this is particularly so because it is clear that so many of those involved in the delivery of our health services believe this proposal will have seriously adverse consequences for the Australian health system. Accordingly, I trust that common sense will prevail and that the Senate will reject this legislation.

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