Bills Digest No. 121, 2012–13

30 May 2013 

Tax Laws Amendment (Medicare Levy) Bill 2013

Jamie Roberts
Economics Section 

Date introduced: 15 May 2013

House: House of Representatives

Portfolio: Treasury

Commencement: On Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The purpose of the Tax Laws Amendment (Medicare Levy) Bill 2013 (the Bill) is to increase the Medicare levy low-income thresholds for families for the 2012–13 and later income years, in line with changes to the consumer price index (CPI).

Background

Medicare is Australia’s universal health insurance scheme, providing free or subsidised health care services to the Australian community. Medicare is partially funded by a 1.5 per cent levy on the taxable income of most resident individuals – though this will increase to 2.0 per cent from the 2014–15 income year to fund DisabilityCare Australia.[1]

An additional Medicare levy surcharge of either 1.0, 1.25 or 1.5 per cent (depending on the individual’s income) is generally payable by high income earning individuals who do not have an appropriate level of private hospital insurance.

All moneys generated by the Medicare levy and surcharge go into consolidated revenue; the levy and surcharge are not hypothecated. Revenue from the combined Medicare levy and surcharge was estimated to generate $9720 million in the 2012–13 financial year[2], which is far short of the estimated $18 549 million cost of the Medicare program for the same period.[3]

Low-income thresholds and phase-in limits

Resident individuals whose taxable income does not exceed a certain threshold are exempt from paying the Medicare levy (and surcharge). Phase-in limits also apply so that low-income earners earning more than this threshold amount, but within a set phase-in range, pay the Medicare levy at a reduced rate. The phase-in rate is ten per cent of the excess over the low-income threshold amount.

These thresholds and phase-in scales may vary depending an individual’s family composition and entitlement to particular tax offsets, and all are periodically adjusted to take account of movements in the CPI.

Earlier amendments to the Medicare Levy Act 1986 provided that, for individuals in the 2012–13 and later income years, the low-income threshold below which no Medicare levy is payable would be $20 542, and the phase-in limit (above which the full Medicare levy is payable) would be $24 167.[4]

However, this Bill will make further amendments to the Medicare Levy Act 1986, increasing the low-income threshold for families to $33 693 (from $32 743) for the 2012–13 and later income years. This Bill will also increase the low-income threshold for families by $3094 (from $3007) for each dependent child or student in the family, for the 2012–13 and later income years.

Full details of these changes to the low-income thresholds for families, and the resultant phase-in limits for the 2012–13 and later income years, are detailed in Table 1.1 of the Explanatory Memorandum which accompanies the Bill.[5]

Importantly, this Bill could be said to operate with retrospective effect, as it will apply to the
2012–13 income year, which commenced on 1 July 2012. However, passage of this Bill is expected to precede the time from which resident individuals can lodge tax returns for the 2012–13 income year, so the proposed amendments would only have notional retrospectivity. In any case, the amendments in this Bill are all favourable to taxpayers as they simply increase the amount of income which may be earned prior to becoming liable to the Medicare levy.

Committee consideration

At its meeting on 15 May 2013, the Senate Selection of Bills Committee determined that it would defer consideration of this Bill until its next meeting.[6] At the time of writing, the House of Representatives Selection Committee had not referred the Bill for inquiry or report.

At the time of writing, neither the Senate Standing Committee for the Scrutiny of Bills nor the Parliamentary Joint Committee on Human Rights had commented on this Bill.

Financial implications

The increase in the Medicare levy low-income threshold for families, as proposed by this Bill, is expected to cost $38.0 million over the forward estimates.[7]

The provision of Medicare levy exemptions and phased-in liabilities for residents with low incomes constitutes one of the Government’s largest tax expenditures — estimated to cost $1300 million in 2012–13.[8]

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.[9]

Key issues and provisions

Schedule 1—Medicare levy family income threshold

Items 1 and 2 propose to amend the definition of ‘family income threshold’ in the Medicare Levy Act 1986 so that the low-income threshold for a resident individual with a spouse or dependants would be increased from $32 743 to $33 693, and further increased by $3094 (currently $3007) for each dependant in that resident individual’s family.[10]

Item 3 proposes to make consequential amendments to the Medicare Levy Act 1986 in line with the increase in the low-income threshold in items 1 and 2.

Item 4 specifies that these proposed amendments would apply to income tax assessments for the 2012–13 and later income years.

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

© Commonwealth of Australia

Creative Commons

With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.

In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.

To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.

Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.

Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.

Feedback is welcome and may be provided to: web.library@aph.gov.au. Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Entry Point for referral.

ISSN 1328-8091

[1].              See the Medicare Levy Amendment (DisabilityCare Australia) Bill 2013 which passed both Houses of Parliament on 16 May 2013 but at the date of this Digest is yet to receive Royal Assent, viewed 29 May 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5039%22

[2].              Australian Government, Budget strategy and outlook: budget paper no. 1: 2013–14, Commonwealth of Australia, May 2013, p. 5–24, viewed 23 May 2013, http://www.budget.gov.au/2013-14/content/bp1/html/index.htm

[3].              Ibid., p. 6–12.

[4].              As provided for by items 3 and 5 of Schedule 2 to the Clean Energy (Tax Laws Amendments) Act 2011, viewed 29 May 2013, http://www.comlaw.gov.au/Details/C2011A00159

[5].              Explanatory Memorandum, Tax Laws Amendment (Medicare Levy) Bill 2013, p.7, viewed 29 May 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr5033_ems_18d39979-2eed-4a52-848f-f6a162a0584d%22;rec=0

[6].              Selection of Bills Committee, Report No. 5 of 2013, Senate, Canberra, 16 May 2013, p. 4, viewed 24 May 2013, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=selectionbills_ctte/reports/2013.htm

[7].              Australian Government, Budget measures: budget paper no. 2: 2013–14, Commonwealth of Australia, May 2013, p. 29, viewed 23 May 2013, http://www.budget.gov.au/2013-14/content/bp2/html/index.htm.

[8].              Australian Government, Budget strategy and outlook: budget paper no. 1: 2013–14, op. cit., p. 5-48.

[9].              The Statement of Compatibility with Human Rights can be found at pages 8–9 of the Explanatory Memorandum to the Bill. Explanatory Memorandum, Tax Laws Amendment (Medicare Levy) Bill 2013, op. cit.

[10].              Medicare Levy Act 1986, viewed 29 May 2013, http://www.comlaw.gov.au/Details/C2012C00642