BILLS DIGEST NO. 109, 2014–15              1 June 2015

Tax and Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2015

Leslie Nielson
Economics Section 

Date introduced: 27 May 2015

House:  House of Representatives

Portfolio: Treasury

Commencement:  Schedule 1 commences on Royal Assent. Amendments made by Schedule 1 apply to personal income tax assessments for the 2014–15 year and future years.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

The Bills Digest at a glance

This Bill is one of an annual series that adjusts various Medicare thresholds in response to movements in the Consumer Price Index (CPI).

It has a simple structure of one schedule and simply updates relevant dollar figures in both the A New Tax System (Medicare Levy Surcharge–Fringe Benefits) Act 1999 and the Medicare Levy Act 1986.

The Bill was introduced in fulfilment of a commitment in the 2015–16 Budget and is not controversial.

Purpose of the Bill

This Bill amends the A New Tax System (Medicare Levy Surcharge–Fringe Benefits) Act 1999[1] and the Medicare Levy Act 1986[2] to increase the low-income Medicare levy thresholds for singles, couples, families, and single seniors and pensioners. The Explanatory Memorandum states that these thresholds will rise in line with increases in the CPI.

The outcome of these changes is intended to ensure that low-income households who did not pay the Medicare levy in the 2013–14 year will continue to be exempt from this levy in the 2014–15 year; but only where their income has risen at a rate either equal to or less than the CPI.

Structure of the Bill

The Bill’s amendments are contained in one schedule.

Background

Medicare provides free or subsidised health services to the Australian population. It is partly funded by a two per cent levy on taxable income.[3] High income earners who forego purchasing private hospital insurance are liable to pay an additional Medicare levy surcharge. From 1 July 2012, the surcharge was means tested so that those on higher incomes incur a higher liability, with additional rates ranging from one to 1.5 per cent, depending on assessable income for Medicare purposes.[4] The following table shows how the surcharge rates apply in the 2014–15 income year:

Table 1: Medicare levy surcharge rates: 2014–15

Annual Income

Singles

$0–90,000

$90,001–$105,000

$105,001–$140,000

$140,001 +

Families

$0–$180,000

$180,001–$210,000

$210,000–$280,000

$280,001 +

Medicare Levy Surcharge

0%

1%

1.25%

1.50%

Source: CCH, Australian Master Tax Guide, p. 48.

Exemptions to the Medicare levy and surcharge apply to individuals and families on low-incomes, as well as pensioners below age pension age.[5]

Revenue from the combined Medicare levy and surcharge is estimated to raise around $14.05 billion in
2014–15.[6] This represents about 69 per cent of the cost of the Medicare program, estimated to be $20.3 billion in that year.[7] Readers should remember that this higher Medicare revenue figure includes funding for the National Disability Insurance Scheme (NDIS).[8] In previous years the Medicare levy raised about half the cost of the Medicare program and did not fund the NDIS.[9]

Low-income thresholds and phase-in limits

The low-income threshold amounts, below which no Medicare levy or surcharge is payable, are regularly adjusted in line with movements in the CPI. These threshold amounts vary for individuals, families and pensioners below age pension age.

In addition, phase-in limits apply so that those low-income earners falling within the phase-in range pay the levy at a reduced rate.[10] Individuals with incomes above the low-income threshold, but below the phase-in upper limit, pay the Medicare levy at a reduced rate. The rate is set at ten per cent of the excess over the low-income threshold amount. These phase-in limits vary for individuals, families and pensioners below pension age.

For individuals, the low income threshold below which no Medicare levy is payable is currently set at $20,542.[11] Item 5 of Schedule 1 of the Bill would increase this to $20,896 for the 2014–15 financial year. For families, the low-income threshold is set at $34,367,[12] and item 6 would increase this to $35,261 (for those without children) for the year. This threshold amount currently increases by $3,156 for each dependent child or student.[13] Item 7 would raise this to $3,238 for each dependent child or student.

How has the CPI moved?

The following table shows the annual percentage change in the CPI from September 2013 to December 2014.

Table 2: annualised CPI movements, by quarter, September 2013 to December 2014

Quarter

Sept

Dec

March

June

Sept

Dec

Annualised rate

2.2

2.7

2.9

3.0

2.3

1.7

Source: Australian Bureau of Statistics (ABS), Consumer price index, Australia, March 2015, cat. no. 6401.0, ABS, Canberra, 22 April 2015, accessed 28 May 2015.

Why the Bill has been introduced

This Bill implements a measure announced in the 2015–16 Budget.[14]

Committee consideration

Senate Standing Committee for the Scrutiny of Bills and Parliamentary Joint Committee on Human Rights

As at the date of writing these Committees had not considered this Bill.

Policy position of non-government parties/independents

This Bill is one of an annual series and is not controversial.

Financial implications

The Explanatory Memorandum states that the projected impact on revenue will be minus $231 million over the forward estimates period, as shown in the following table:

Table 3: financial impact, $m

Year

2015–16

2016–17

2017–18

2018–19

Impact

-81

-50

-50

-50

Source: Explanatory Memorandum, Tax and Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2015, p. 3, accessed 1 June 2015.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[15]

Key issues and provisions

The Explanatory Memorandum provides commentary on the provisions of this Bill and the detailed operation of the relevant provisions of the Acts proposed to be amended.

Full details of the low-income thresholds and the phase-in limits that the Bill would introduce for the 2014–15 financial year are detailed in Table 1.1 of the Explanatory Memorandum,[16] however the increases proposed by the major provisions are summarised below.

Amendments

2013–14 amount

Proposed amount

Percentage change

Items 1,5 and 9-12: individual income threshold

$20,542

$20,896

1.7%

Item 3:individual phase-in limit

$24,167

$26,120

8.1%

Item 4: single seniors and pensioners income threshold

$32,279

$33,044

2.4%

Item 2: single seniors and pensioners phase-in limit

$37,975

$41,305

8.7%

Items 6 and 8: family income threshold

$34,367

$35,261

2.6%

Item 7: increase in family threshold per child/student.

$3,156

$3,238

2.6%

The Explanatory Memorandum does not indicate how the increases for each of the above categories were decided upon, beyond noting that they are intended to be ‘in line with movements in the CPI.’[17] Recent CPI figures are reproduced above in the ‘Background’ section of this Digest.

Concluding comments

The proposed amendments are stated to be linked to annual changes in the CPI and are part of a regular annual series of changes to these limits.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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[1].              A New Tax System (Medicare Levy Surcharge–Fringe Benefits) Act 1999, accessed 29 May 2015.

[2].              Medicare Levy Act 1986, accessed 29 May 2015.

[3].              Section 6 of the Medicare Levy Act. In the past the Medicare levy was 1.5 per cent. The additional half a per cent is for funding the National Disability Insurance Scheme.

[4].              Assessable income for Medicare purposes is the sum of a taxpayer’s taxable income, exempt foreign employment income, reportable fringe benefits, reportable superannuation contributions and total investment losses; less any ‘taxed’ element of a superannuation lump sum, other than a death benefit, that does not exceed the taxpayer’s low rate cap. Source: CCH, Australian Master Tax Guide, 56th edition, 2015, p. 1826.

[5].              A Biggs, Tax Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2012, Bills digest, 133, 2011–12, Parliamentary Library, Canberra, 2012, p. 2, accessed 28 May 2015.

[6].              Australian Government, Budget strategy and outlook: budget paper no. 1: 2015–16, Commonwealth of Australia, Canberra, 2015, pp. 9–25, accessed 28 May 2015.

[7].              Ibid., pp. 5–23.

[8].              Ibid., pp. 9–25.

[9].              A Biggs, op. cit.

[10].              The phase-in rates do not apply to the Medicare levy surcharge.

[11].              Medicare Levy Act 1986, subsection 3(1).

[12].              Ibid., subsection 8(5).

[13].              Ibid.

[14].              Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 26, accessed 28 May 2015.

[15].              The Statement of Compatibility with Human Rights can be found at page 10 of the Explanatory Memorandum to the Bill.

[16].              Explanatory Memorandum, Tax and Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2015, op. cit., p. 7; the preceding section has been updated from A Biggs, op. cit., p. 3.

[17].              See pages 5, 10 and 11 of the Explanatory Memorandum to the Bill.