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The Medicare Levy: Rationale and Revenue: 1997 Update
Paul Mackey
Social Policy Group
and
Geoff Winter
Statistics Group
Background
The Medicare levy is imposed on the taxable incomes of people who are
residents of Australia for income tax purposes and is collected in association
with income tax. The levy is also payable by some trustees.
When Medicare began on 1 February 1984, the Medicare levy was set at
1 per cent of taxable income and a ceiling was placed on the maximum amount
of levy payable. This ceiling was removed from 1 July 1985. The Medicare
levy has been increased on three occasions: to 1.25 per cent of taxable
income from 1 December 1986, to 1.4 per cent of taxable income from 1
July 1993 and to 1.5 per cent of taxable income from 1 July 1995. In addition,
the Medicare levy has been increased to 1.7 per cent for 1996-97 only,
with the extra revenue providing funding for the gun buy-back scheme.
The levy reverts to 1.5 per cent from 1 July 1997.
A one per cent Medicare levy surcharge will apply from 1 July 1997 for
single people with taxable incomes above $50 000 and couples and families
with taxable incomes above $100 000 without private patient hospital insurance.
This will mean that people affected by this measure will incur a Medicare
levy of 2.5 per cent from 1 July 1997.
The Medicare levy is not payable below certain income levels and 'shade-in'
ranges also apply. In 1996-97, the low income thresholds will be $13 127
for individuals and $22 152 for couples and sole parents. The additional
threshold for each child will be $2 100. This means, for example, that
a family with three children and a taxable income below $28 452 will not
pay the Medicare levy in 1996-97.
Rationale
The rationale for the Medicare levy has been much misunderstood. The
levy was originally intended to offset outlays by the Commonwealth government
on Medicare (i.e. medical services and hospital services), by imposing
a levy on taxpayers through the income tax system. It was never intended
to meet all of the Commonwealth's outlays on health which also include
pharmaceutical benefits, nursing home subsidies and health services for
veterans and their dependents.
In a December 1982 Press Release the then Shadow Minister for Health,
Dr Blewett, described the role of the Medicare levy in Labor's proposal
for Medicare thus:
this levy would provide cover for medical and specialist services outside
hospitals, and accommodation and treatment without direct charge in public
hospitals by salaried or sessional doctors.
He further described it as 'simply a much fairer way of funding health
cover so that people pay according to their income'. Table 1 illustrates
this point, providing a breakdown of revenue raised by the Medicare levy
in 1994-95 (the latest year for which taxation statistics are available)
in different deciles, as well as an average levy paid per taxpayer in
each decile. As Table 1 indicates, an individual with a taxable income
above $56 979 per annum paid an average Medicare levy of $1107.62 in 1994-95
while an individual with a taxable income in the range $28 964 - $32 512
paid an average Medicare levy of $411.58.
Table 1. Taxable Income and Medicare Levy, 1994-95
Taxable Cumulative Medicare levy paid
income number of Average Total
taxpayers per
Decile ($ p.a.) (a) taxpayer ($m.)
($)
1st Under 15 065 629 276 179.57 113
2nd 15 066 - 19 509 1 258 552 243.14 153
3rd 19 510 - 22 463 1 887 828 300.35 189
4th 22 464 - 25 414 2 517 104 322.59 203
5th 25 415 - 28 963 3 146 381 409.99 258
6th 28 964 - 32 512 3 775 657 411.58 259
7th 32 513 - 37 075 4 404 933 459.26 289
8th 37 076 - 44 016 5 034 209 572.09 360
9th 44 017 - 56 979 5 663 485 613.40 386
10th 56 980 and over 6 292 761 1107.62 697
All 6 292 761 461.96 2907
(a) Each decile contains 629 276.1 taxpayers who pay the Medicare levy.
Note:
- The lowest 70% of taxable income recipients who pay the Medicare
levy pay 50.4% of total revenue from the levy.
- The highest 30% of taxable income recipients who pay the Medicare
levy pay 49.6% of total revenue from the levy.
- Excludes approximately 1.6 million taxpayers who were exempt from
paying the Medicare levy for various reasons.
- All figures are estimates only.
Source: Taxation Statistics, 1994-95, Australian Taxation Office.
Revenue
Although the Medicare levy can be described as just another means of
raising revenue, the fact that it is earmarked for Medicare tends to give
people the impression that they are paying for their health costs. However,
the levy raises only a minor portion of the funds the Commonwealth government
spends on Medicare. Table 2 below indicates the revenue raised by the
Medicare levy for each year since Medicare began in 1984 as well as Medicare
outlays and outlays by the Commonwealth government on health. The revenue
raised by the Medicare levy is expressed both as a percentage of Medicare
outlays and also as a percentage of Commonwealth health outlays.
Table 2 illustrates that revenue from the Medicare levy has consistently
failed to match spending by the Commonwealth on Medicare. The highest
proportion (still less than 35 per cent) was achieved in 1989-90.
The Medicare levy will raise less than one-third of the Commonwealth's
outlays on Medicare in 1996-97 and less than one-fifth of its outlays
on health.
Table 2. Medicare Levy and Commonwealth Health Outlays
Medicare levy Medicare levy
Commonwealth as prop. of as prop. of
Medicare Medicare health Medicare Commonwealth
levy outlays(a) outlays outlays health
outlays
[$m.] [$m.] [$m.] [(1)/(2),%] [(1)/(3),%]
Year (1) (2) (3) (4) (5)
1983-84 (b)365 (c)3 282 5 575 (d) (d)
1984-85 1 223 4 941 7 481 24.8 16.3
1985-86 1 335 5 537 8 341 24.1 16.0
1986-87 1 715 5 917 9 138 29.0 18.8
1987-88 2 080 6 390 10 062 32.6 20.7
1988-89 2 320 6 825 10 767 34.0 21.5
1989-90 2 545 7 467 11 905 34.1 21.4
1990-91 2 480 8 178 12 939 30.3 19.2
1991-92 2 385 8 657 13 842 27.5 17.2
1992-93 2 415 9 321 14 830 25.9 16.3
1993-94 2 870 10 088 16 116 28.4 17.8
1994-95 (e)3 030 (f)10 800 17 144 (f)28.1 17.7
1995-96 3 350 11 325 18 633 29.6 18.0
1996-97(f) (g)3 580 11 511 19 408 31.1 18.4
(a) Excludes outlays on Commonwealth Dental Health Scheme and medical
and hospital services for veterans.
(b) Medicare was introduced on 1 February 1984.
(c) Full-year outlays on items included under the Medicare arrangements.
(d) Not applicable.
(e) Includes collections from sources not included in Table 1.
(f) Estimate(s).
(g) Revenue from Medicare levy discounted to exclude the 0.2 per
cent increase for the 'gun levy' in 1996-97.
Source: Budget Paper No. 1, Budget Statements, various years.
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