Bills Digest no. 40 2008–09
Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill
(No. 2) 2008
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date introduced:
25 September 2008
House: Representatives
Portfolio: Treasury
Commencement:
Royal
Assent
Links: The
relevant links to the Bill, Explanatory Memorandum and
second reading speech can be accessed via BillsNet, which is at
http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The purpose of
this Bill is to amend the Medicare Levy Act 1986 and the
A New Tax System (Medicare Levy Surcharge-Fringe Benefits Act)
1999 in order to increase the Medicare levy surcharge
thresholds on annual taxable income from 2008 09 and subsequent
years. The Bill proposes that the thresholds be increased: for
individuals from $50 000 to $75 000; and for families
from $100 000 to $150 000 and going forward to be double
the single threshold. The Bill proposes annual indexation of the
thresholds by applying the full-time adult average weekly ordinary
time earnings index as published by the Australian Bureau of
Statistics (rounded down in $1000 increments) to the singles
threshold.
The Bill also proposes transitional
arrangements so that individuals who obtain private health
insurance before 1 January 2009 will avoid liability for the
Medicare levy surcharge threshold for the period 1 July 2008 to 31
December 2008. Amendments to the A New Tax System (Medicare
Levy Surcharge-Fringe Benefits Act) 1999 are proposed in order
that reportable fringe benefits are taken into account when
calculating income for the Medicare levy surcharge.
This is the second attempt by the government
to give legislative effect to a 2008 09 budget measure first
proposed in the Tax Laws Amendment (Medicare Levy Surcharge
Thresholds) Bill 2008 introduced by the Hon. Chris Bowen
(Assistant Treasurer) on the 27 May 2008.[1] This earlier Bill proposed to increase
the Medicare levy surcharge thresholds for individuals from
$50 000 to $100 000, and for families from $100 000
to $150 000. These proposed changes to the thresholds
attracted considerable public debate and the Bill was referred to
the
Senate Economics Committee for inquiry. After canvassing a wide
range of views the Majority Report of the Committee recommended
that the Bill be passed unchanged. However, the Coalition remained
strongly opposed to the Bill and the Greens also indicated
opposition to the Bill in its current form .[2]
Subsequently, on the 24 September 2008 the
government introduced amendments to the Bill proposing a lower
threshold level of $75 000 for singles and double this amount
for families, annual indexation and transitional arrangements.
These amendments were broadly supported by the Greens and Senator
Xenophon. However, the amended Bill failed to win the support of
the Coalition and Senator Fielding and was voted down on 24
September 2008.[3]
This Bill proposes identical threshold
amounts, indexation and transitional arrangements that were
detailed in the amendments to the first Bill and that were rejected
by the Senate.
As noted above, the Bill proposes to give
effect to a budget commitment, albeit with revised thresholds.
This Bill has not been referred to Committee,
although, as noted previously, the original Bill was referred to
the Senate Economics Committee on 18 June 2008.
The original proposal to increase the Medicare
levy surcharge thresholds attracted considerable debate and
argument. Many of the views expressed at the time were summarised
in the Bills Digest prepared when the original Bill was
introduced.[4] This
included arguments supporting and opposing the Bill. Broadly,
opponents, including the federal opposition, argued that the
increases would lead to an exodus of members from private health
insurance and place a strain on the public hospital system. Some
further argued that this loss of membership would add upward
pressure to health insurance premiums.
Supporters of the proposed measure, including
the government, argued that the measure would reduce financial
pressure on working families, and that concerns over an exodus of
members from health insurers and its likely impact, were
over-stated.
However, since first being introduced and
subsequent to the publication of the Digest, the Bill has been
considered by a Senate Committee and further debate has ensued.
Proposals to amend the original Bill have been discussed, including
revisions to the original proposal to increase the Medicare levy
surcharge threshold levels. Much of the recent debate has moved to
discussions around these specific proposals.
The Minister for Health and Ageing, the Hon.
Nicola Roxon has continued the government s argument that the
proposed threshold changes outlined in this Bill will provide tax
relief to working families, although under the revised thresholds
fewer families are expected to benefit. The government now
estimates that this measure will provide tax relief to some
330 000 taxpayers.[5] Under the original measure some 485 000 taxpayers
were expected to benefit by no longer being liable for the
surcharge.
As noted previously, the Coalition members of
the Senate Committee opposed the proposed increases to the Medicare
levy surcharge thresholds proposed in the earlier Bill. The
Coalition also opposed the government s amendments to the earlier
Bill which would have introduced the thresholds this Bill now
proposes. The Shadow Minister for Health and Ageing, the Hon. Peter
Dutton described the original measure as bad public policy that was
fundamentally flawed . He further commented that the proposed
amendments to the earlier Bill failed to fix these flaws. The
Coalition has also criticised the government for failing to make an
adequate assessment of the likely impact of the proposed threshold
changes on the health sector. [6]
As noted previously the Greens did not fully
support the original measure as proposed in the earlier Bill. They
outlined their views in their dissenting report prepared for the
Senate Economics Committee inquiry. In it they agreed with the
government that those on lower incomes should not be forced to pay
the Medicare levy surcharge and that the drop out rate from private
health insurance as a result of the increased thresholds is likely
to be exaggerated . But they also argued that the thresholds should
be indexed annually and that savings from the measure be redirected
to the public health system. They further called for an ongoing
review of the longer term impact of the threshold changes on public
hospital elective surgery waiting lists.[7]
The Greens supported the government s
amendments that would have lowered the singles threshold to
$75 000 and provided for annual indexation, in return for an
ongoing review of the impact of the raised thresholds.[8]
While Senator Xenophon expressed broad support
for the original proposal to raise the thresholds, he noted there
were legitimate concerns over the possible impact of the raised
threshold levels.[9]
Senator Xenophon also questioned the need to lift the threshold
levels so far above the levels that would have applied if the
thresholds had been indexed from the beginning. He estimated that
if the threshold levels had been indexed to the Consumer Price
Index they now would be between $67 000 and $76 000 for
individuals and around $134 000 for families.[10] Subsequently, Senator Xenophon
also indicated support for the government s amendment to revise the
threshold for singles down to $75 000 and index the
thresholds.[11]
Senator Fielding opposed the original measure
to lift the threshold for singles to $100 000 and then opposed
the government amendment that would have revised the threshold
level for singles to $75 000. He argued that low income
families and singles on incomes below the threshold levels would be
adversely affected, because they would not benefit from the tax cut
but would face higher health insurance premiums, as a result of
fewer people taking out health insurance.[12] He also argued that the government
should provide more relief for lower income families who purchase
health insurance, by lifting the private health insurance rebate by
5 per cent for those on low incomes.[13]
Michael Armitage of the Australian Health
Insurance Association (AHIA), the peak body representing health
insurers, welcomed the Senate s rejection of the earlier Bill and
its amendments, describing it as a sensible decision .[14]
If this Bill fails to pass it will not become
a trigger for a double dissolution. A Bill must fail twice in the
Senate following an interval of at least three months, in order to
become a 'trigger' for a possible double dissolution.[15] Although proposing the
same threshold levels that were contained in government amendments
to the Tax Laws Amendment (Medicare Levy Surcharge Thresholds)
Bill 2008, and that were rejected by the Senate, this is a new
Bill and so in itself cannot trigger a double dissolution.
The revenue implications over the forward
estimates are provided in a table in the Explanatory Memorandum
that accompanied the Bill and are reproduced below.
|
2007 08
|
2008 09
|
2009 10
|
2010 11
|
2011 12
|
|
|
$129m
|
$79m
|
$68m
|
$78m
|
The government estimates that the financial
impact, which includes the effects of decreased expenditure on the
private health insurance rebate, will result in a net saving to
government of $354 million over the forward estimates. This is
slightly higher than the $299 million in net savings forecast under
the original measure. The government revenue forecasts in the
Explanatory Memorandum do not decompose the financial impact of the
revised threshold levels, making it difficult to assess the
underlying assumptions about savings to revenue and spending on the
private health insurance rebate. However, the higher net savings
forecast under the revised measure may be due to expectations that
the cost to taxation revenue of the revised threshold level for
singles will be lower.
Items 1 to 5 proposes to
amend the reportable fringe benefits threshold provisions contained
in A New Tax System (Medicare Levy Surcharge Fringe Benefits)
Act 1999.
Item 2 proposes to insert
new subsections: 5A(1) describes the singles
surcharge threshold for a person for the 2008 09 year of income as
being $75 000; 5A(2) describes how the
singles surcharge threshold will be annually indexed.
Proposed subsection 5A(3) specifies that the
singles surcharge threshold is not indexed if its indexation factor
is 1 or less. Proposed subsection 5A(4) proposes a
formula for calculating the indexation factor using quarterly index
numbers specified in proposed subsection 5A(6).
Proposed subsection 5A(5) specifies that the
proposed indexation factor be calculated to 3 decimal places and
then rounded up. Proposed subsection 5A(6)
specifies that the quarterly index number used to calculate the
indexation factor is the estimate of full-time adult average weekly
ordinary time earnings for the middle month of the quarter as
published by the Australian Bureau of Statistics.
Item 3 proposes to amend
subsection 6(1) that specifies the family surcharge threshold
amount, to omit the figure $100 000 and replace it with an
amount that is double the singles surcharge threshold for the year
of income.
Item 4 proposes to repeal
subsection 6(2) and replace it with a new meaning for the family
surcharge threshold amount that specifies that it be double the
singles surcharge threshold; and proposes inserting a new formula
to be used for calculating the family surcharge threshold amount
for a person with 2 or more dependents who are children.
Proposed paragraph 6(2)(b) specifies that for each
additional dependent child the threshold amount be increased by
$1,500.
Item 5 proposes to amend
paragraph 12(1)(a) that specifies the amount of surcharge for
singles, to omit the figure $50 000 and replace it with the
singles surcharge threshold for the year of income.
Items 6 to
10 proposes to amend provisions of the
Medicare Levy Act 1986.
Item 6 proposes to insert
into subsection 3(1) a definition of the singles surcharge
threshold that is consistent with the definition given under a
new subsection 3AA.
Item 7 proposes to insert a
new subsection 3AA describing the singles
surcharge thresholds: proposed subsection 3AA(1)
describes the singles surcharge threshold for a person for the 2008
09 year of income as being $75 000; proposed
subsection 3AA(2) describes the process for applying
annual indexation by multiplying the singles surcharge threshold
for the 2008 09 year of income by its indexation factor, then
rounding this amount down in $1,000 increments. Proposed
subsection 3AA(3) specifies that the singles surcharge
threshold is not indexed if its indexation factor is 1 or less.
Proposed subsections 3AA(4)-(6) provide further mathematical
formula for calculations, with specifying that the quarterly index
number used to calculate the indexation factor is the estimate of
full-time adult average weekly ordinary time earnings for the
middle month of the quarter as published by the Australian Bureau
of Statistics.
Item 8 proposes repealing
subsection 3A and replacing it with a new meaning for the family
surcharge threshold amount that specifies that it be double the
singles surcharge threshold; and proposes inserting a new formula
to be used for calculating the family surcharge threshold amount
for a person with 2 or more dependents who are children. Proposed
subsection 3A(2) specifies that for each additional dependent child
the threshold amount be increased by $1,500.
Item 9 proposes, for the
purposes of reportable fringe benefits, omitting from subsection
8B(2) the figure $50 000 and replacing it with the singles
surcharge threshold for the year of income.
Item 10 proposes, for the
purposes of beneficiary s trust income, omitting the figure
$50 000 and replacing it with the singles surcharge threshold
for the year of income.
Item 11 specifies that the
amendments made to the Schedule apply to assessments for the 2008
09 year of income and later years.
Item 12 proposes transitional
arrangements so that individuals who purchase appropriate private
health insurance before 1 January 2009, will not be liable to pay
the Medicare levy surcharge for the period 1 July 2008 to 31
December 2008.
Concluding comments
This Bill is the second attempt by the
government to give effect to its Budget commitment to lift the
thresholds on the Medicare levy surcharge and deliver tax relief.
The proposed surcharge threshold amount for singles of $75 000
is lower than was originally proposed and is to be indexed, while
the family surcharge threshold is now double the singles amount.
The Greens and Senator Xenophon supported these amended proposals
when they were introduced as amendments to the original Bill, so it
is expected that they will support this Bill. However, these
proposals failed to win the support of Senator Fielding or the
Opposition. Unless the government can win further support, the Bill
in its current form is at risk of rejection in the Senate.
Amanda Biggs
10 October 2008
Bills Digest Service
Parliamentary Library
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