THE APPARENT PUSH by the Turnbull government to consider and hopefully attempt serious structural taxation reform is long overdue, and to be welcomed; the ostensible inclination to tackle what former Prime Minister Tony Abbott and his Treasurer, Joe Hockey, refused to tackle deserves praise. But in making the case for tax reform, the Medicare levy should be abolished: call it what it is — an income tax measure — and make it so.
I am on the run today — on the run, in fact, to Melbourne Airport to catch a plane for hopefully the last time this year — but I wanted to briefly touch upon the emerging push within the federal government to consider, design and seek electoral endorsement for wide-ranging tax reform, including broadening the GST base and lifting the rate at which it is charged.
First things first: for some additional coverage from the mainstream press, readers may peruse these articles from The Australian here and here; I think these adequately set out the options under consideration and the reasoning behind them, and I caution those philosophically disinclined to support GST change that none of these proposals is set in stone: the process is at its earliest stage, although with an election rumoured within the next few months that process is unlikely to drag on very far.
And in my own case, my views on GST reform and its absolute necessity as a tool to place national finances on a sounder footing as the PAYE income tax base shrinks are well known to readers; anyone wanting to reacquaint themselves with those, or newcomers to the discussion wanting to see where I stand and why, can access a selection of articles through the GST tag in the cloud to the right of this article.
Today, with time scant, I am not going to revisit those arguments: we will come to those in due course as, inevitable as it appears, the government’s push to reform taxation arrangements takes clearer shape.
But there is one long-overdue reform I think needs to be made and included in any tax reform package, and it is the abolition of the Medicare levy and its incorporation instead in marginal income tax rate.
One of the objectives of any program of tax reform is to make things simpler, and having add-ons that sit outside the structure of direct tax arrangements hardly satisfies that criteria.
We all know how the Medicare levy came into existence: originally set at 1% of taxable income in return for the Commonwealth meeting the cost (supposedly) of 85% of people’s medical expenses, this little tax supplement has grown, been used and abused, and in any case doesn’t even raise enough money to cover the cost of the state’s component of healthcare funding.
It has been used over the years as a mechanism to cover everything but medical costs: from natural disaster relief programs to recouping staff entitlements at failed airline Ansett, the Medicare levy has been raised, lowered, plundered, and abused by governments of both political shades as a way to lift taxes without the direct admission that that is what they have done with it.
It currently stands at 2%, supposedly to cover costs associated with the national Disability insurance Scheme: and designed by the former Labor government and projected by Labor’s own people to cost $22 billion annually when fully operational, the small lift in the Medicare levy falls a country mile short of such a ridiculous objective.
I don’t plan to get into a discussion of the NDIS today, or the damage it will do to the already-creaking federal budget — irrespective of the worthiness of the cause — when up and running.
But it seems to me that having a separate Medicare levy (which isn’t even charged for low-income earners) is ridiculous.
If the 45% top tax rate is to be cut to 40%, as some proposals suggest, then cut it to 42% instead and do away with the Medicare levy altogether.
The same adjustment to changes to tax scales should be made down the line on all tax brackets required to pay the levy.
It may sound like a small matter, but the levy doesn’t cover the outgoings it was intended to — and never did — and since the Commonwealth funds healthcare out of taxation revenue anyway, this little earner should be incorporated into the direct tax take rather than being held out as a separate item: which, in reality, it really isn’t.
In some ways, the notion of a Medicare levy itself is the ultimate piece of political spin: when is a tax not a tax? When it pays for GP visits and hospitals, of course!
But whichever way you cut it, the federal government is going to spend the money on health irrespective of what it is called, and as those monies will be drawn from the overall revenue pool it makes no sense (other than some puerile exercise in making people feel good about paying more tax in the name of “universal” healthcare) to separate it out.
It’s just a thought. It remains to be seen whether such simple common sense occurs to the present powers-that-be in Canberra. It would be interesting to know what readers think.
I will be back later in the week, and will post again after my return to Melbourne.