Bills Digest no. 148 2005–06
Tax Laws Amendment (Medicare Levy and Medicare Levy
Surcharge) Bill 2006
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
Passage History
Tax Laws Amendment (Medicare Levy
and Medicare Levy Surcharge) Bill 2006
Date Introduced:
25 May 2006
House: House of Representatives
Portfolio: Treasury
Commencement:
On the date of Royal
Assent
The Bill
proposes increases to the Medicare levy low-income thresholds for
individuals and families, and to the low-income threshold in the
Medicare levy surcharge provisions, to ensure that low-income
individuals and families will continue to not have to pay the
Medicare levy or surcharge.
The amendments will apply to the 2005-06 year
of income and later years.
The Bill amends the Medicare Levy Act
1986 (MLA 1986) to raise the Medicare levy low income
threshold amounts and phase-in limits for individuals, families and
pensioners below age pension age, and amends the A New Tax
System (Medicare Levy Surcharge-Fringe Benefits) Act 1999
(MLS-FBA 1999) to increase the Medicare levy surcharge low income
threshold. The increases are in line with movements in the consumer
price index (CPI).
When Medicare was introduced in 1984 the
scheme was funded by the imposition of a Medicare levy, originally
set at 1 per cent of taxable income, with a low income cut-off
threshold below which no levy was payable. In 1995 the Medicare
levy was increased to its current level of 1.5 per cent of taxable
income.
The Medicare levy surcharge is an additional 1
per cent surcharge on taxable income imposed on high-income earners
(with household income over $100,000) who do not have private
hospital insurance, and was introduced in July 1997 as part of the
Howard government s private health insurance
reforms.(2)
The Medicare levy and surcharge only partially
fund the total cost of Medicare. In 2004-05 the levy and surcharge
raised around $6.1 billion in revenue, while the cost of Medicare
for the same period was $14.89 billion.(3)
Revenue raised from the surcharge accounts for
a small proportion (around 2 per cent) of revenue collected from
the levy.(4)
There are exemptions for low income earners
for both the Medicare levy and the Medicare levy surcharge, as well
as phase-in limits which only apply to the levy. These are detailed
below.
The taxable income levels below which no
Medicare levy is payable (known as the low income thresholds) are
regularly adjusted in line with movements in the CPI, with
different low income threshold levels set for individuals, families
(including couples with no children) and pensioners under age
pension age. The low income threshold levels for families vary
depending on the number of children.
The MLA 1986 also provides for a phasing-in or
shading out range wherein the Medicare levy applies, but at a
reduced rate. For taxpayers with incomes above the low income
threshold but below what is called the phase-in limit , the
Medicare levy is payable at a maximum rate of 20 cents in every
dollar where the taxable income exceeds the low income exemption
threshold.
The Bill proposes to raise the low income
thresholds and phase-in limits as set out in Table 1.1 of the
Explanatory Memorandum to the Bill (reproduced below) for
the 2005-06 taxation year. The current threshold levels (2004-05)
are shown in parentheses.
Table 1.1: 2005-06 Medicare levy low income threshold
amounts and shading-in ranges
|
Category of taxpayer
|
No levy payable if taxable income or family income does
not exceed (figure for 2004-05)
|
Reduced levy if taxable income or family income is
within range (inclusive)
|
Ordinary rate of levy payable where taxable income or
family income exceeds (figure for 2004-05)
|
|
Individual taxpayer
|
$16,284 ($15,902)
|
$16,285 - $17,604
|
$17,604 ($17,191)
|
|
Pensioner
under age pension age
|
$19,583 ($19,252)
|
$19,584 - $21,170
|
$21,170 ($20,812)
|
|
Families(5) with the following children/and or
students
|
(family income)
|
(family income)
|
(family income)
|
|
0
|
$27,478 ($26,834)
|
$27,479 - $29,705
|
$29,705 ($29,009)
|
|
1
|
$30,001 ($29,298)
|
$30,002 - $32,432
|
$32,432 ($31,673)
|
|
2
|
$32,524 ($31,762)
|
$32,525 - $35,159
|
$35,159 ($34,337)
|
|
3
|
$35,047 ($34,226)
|
$35,048 - $37,886
|
$37,886 ($37,001)
|
|
4
|
$37,570 ($36,690)
|
$37,571 - $40,613
|
$40,613 ($39,664)
|
|
5
|
$40,093 ($39,154)
|
$40,094 - $43,340
|
$43,340 ($42,328)
|
|
6
|
$42,616(6) ($41,618)
|
$42,617(7) - $46,067(8)
|
$46,067(9) ($44,992)
|
As described above, the surcharge is a 1 per
cent surcharge on high income earners where they do not hold
private hospital insurance and is paid in addition to the
Medicare levy. The surcharge also applies to reportable fringe
benefits in certain cases.
The surcharge applies to both individual and
family taxable income where the taxpayers do not hold private
hospital cover. For individuals the surcharge applies when their
taxable income exceeds $50,000, while for families the surcharge
applies when their combined taxable income exceeds $100,000 (plus
$1,500 for each child after the first). The surcharge is levied on
both taxable incomes in the case of families whose total assessable
income exceeds the threshold amount. The Medicare levy surcharge
high income thresholds are not indexed to the CPI (and have
remained unchanged since their introduction in 1997); nor do
phasing-in or shading-out ranges apply.
However, an individual family member maybe
exempt from paying the surcharge if their individual income falls
below the Medicare levy low income threshold, even though the
family s combined taxable income exceeds the threshold at which the
Medicare Levy threshold applies (although the partner or spouse may
still be liable for the surcharge).
In the case of a two income family with 2
children, who are not covered by private hospital cover, and where
the combined income exceeds the surcharge threshold of $101,500
(which applies to a family with 2 children), both parents are
liable to pay the Medicare levy surcharge. However if one family
member earns less than the Medicare levy low income
threshold (that is, less than $15,902) she or he is exempt from
paying the surcharge.
This Bill proposes to increase the Medicare
levy surcharge low income exemption threshold to $16,284, in line
with the increase in the Medicare levy low income threshold.
This measure was announced in the 2006-07
Budget and in the Minister for Revenue and Assistant Treasurer s
Press Release No. 015 of 9 May 2006.
The projected cost to the government of the
increased threshold levels in foregone revenue over four years is
$96 million, as shown in the following table(10):
|
Revenue ($m)
|
|
|
2006-07
|
2007-08
|
2008-09
|
2009-10
|
|
Australian Taxation Office
|
$39m
|
$20m
|
$19m
|
$18m
|
Item 4 amends the
Medicare Levy Act 1986 to increase the low income
threshold for a pensioner under pension age from $19,252 to
$19,583.
Item 5 amends the
Medicare Levy Act 1986 to increase the low income
threshold for an individual taxpayer from $15,902 to $16,284.
Items 6 and 8 amend the
Medicare Levy Act 1986 to increase the low income
threshold for a family from $26,834 to $27,478.
Item 7 amends the
Medicare Levy Act 1986 to increase the family income
threshold from $2,464 to $2,523 for each dependent child or
student.
Item 2 amends the
Medicare Levy Act 1986 to increase the phase-in limit for
pensioners under age pension age from $20,812 to $21,170.
Item 3 amends the
Medicare Levy Act 1986 to increase the phase-in limit for
individual taxpayers from $17,191 to $17,604.
Item 1 amends the A New
Tax System (Medicare Levy Surcharge Fringe Benefits) Act 1999
to increase the Medicare levy surcharge individual low income
threshold, in relation to the surcharge payable in respect of
taxable income and reportable fringe benefits. The threshold amount
will increase from $15,902 to $16,284.
Items 9, 10, 11 and 12 amend
the Medicare Levy Act 1986 to increase the Medicare levy
surcharge individual low income threshold from $15,902 to
$16,284.
Endnotes
-
The Background and Main Provisions sections draw on previous
Bills Digests by Dr Angela Pratt Tax Laws Amendment (Medicare
Levy and Medicare Levy Surcharge) Bill 2005 (Bills
Digest No 167 2004-05) and Dr Luke Buckmaster Tax Laws
Amendment (Medicare Levy and Medicare Levy surcharge ) Bill
2004 (Bills Digest No 163 2003-04).
-
This included the Private Health Insurance Incentives Scheme,
introduced in July 1997, which subsidised private health insurance
for low and middle income earners. This Scheme was superseded by
the 30 per cent private health insurance rebate in 1999.
-
Final Budget Outcome 2004-05, p. 3 and p. 88.
-
According to the ATO s Taxation Statistics in 2001-02
revenue from the surcharge was $98 million; in 2002-03 revenue from
the surcharge was calculated at $128 million.
-
According to Footnote 1 of Table 1.1 of the Explanatory
Memorandum to the Bill these figures also apply to taxpayers
who are entitled (or would have been entitled had the laws
applicable to rebates not been amended with effect from 1 July
2000) to a sole parent, child-housekeeper or housekeeper
rebate.
-
According to Footnote 2 of Table 1.1 of the Explanatory
Memorandum to the Bill, where there are more than six
dependent children or students, add $2,523 for each extra child or
student.
-
See note 6.
-
According to Footnote 4 of Table 1.1 of the Explanatory
Memorandum to the Bill, where there are more than six
dependent children or students, add $2,727 for each child or
student.
-
See note 8.
-
Explanatory Memorandum, p. 3.
Amanda Biggs
31 May 2006
Bills Digest Service
Parliamentary Library
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ISSN 1328-8091
© Commonwealth of Australia 2006
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