Net medical expenses tax offset

Budget Review 2013–14 Index

Amanda Biggs

The Budget included an announcement that the net medical expenses tax offset (NMETO) would be phased out from 1 July 2013, with a saving of $963.5 million over four years.[1] Transitional arrangements will allow taxpayers who incur medical costs for disability aids, attendant care or aged care expenses, to continue to claim the NMETO until 1 July 2019. After this date, the NMETO will cease to operate.

The NMETO allows Australian residents to annually claim a tax rebate to offset out-of-pocket medical expenses incurred above a certain threshold. The threshold is currently set at $5,000 for the 2012–13 income year (it was $2,060 for the income year 2011–12, but was raised in a 2012–13 Budget measure).[2] Net medical expenses are out-of-pocket medical expenses incurred minus any refunds received from Medicare or a private health insurer.

Medical expenses are broadly defined and can include payments: to doctors, dentists, allied health providers and opticians; for spectacles, medical aids and appliances, laser eye surgery, in vitro fertilisation (IVF) procedures, carers for the blind or wheelchair bound and maintaining a guide dog; and residential aged care costs, including daily fees and accommodation costs. Certain costs do not count towards the NMETO, including payments for: cosmetic surgery or cosmetic treatments such as teeth whitening, non-prescription vitamins, over the counter pain relievers, accommodation or travel expenses associated with medical treatment, medical examinations for the purposes of life insurance, inoculations for overseas travel, ambulance charges or funeral expenses.[3]

Australian Tax Office statistics show that in 2010–11 around 802,000 taxpayers claimed the NMETO in 2010–11, with claims totalling around $567 million.[4] The Government argues abolishing the offset is about ‘improving the sustainability of the health budget’.[5] Furthermore, the NMETO provides no direct assistance to those on the lowest incomes who incur no tax liability.[6]

Notably, most of the savings won’t be realised until later in the forward years, from 2015–16 onwards.

Reaction to this measure from stakeholder groups has been mixed, with consumer and medical groups largely critical, but others in the community sector supportive. An IVF lobby group is reportedly concerned that, without the NMETO, fertility treatment will become unattainable for many due to its often high cost.[7]

The Consumers Health Forum also expressed the view that the abolition of NMETO, combined with other proposed savings measures, could entrench high out-of-pocket medical costs.[8] The other savings measures include the lifting of the expenditure threshold for the Extended Medicare Safety Net (EMSN), and the delaying of indexation of Medicare fees (both dealt with elsewhere in this Budget Review). Among the community sector, the Australian Council of Social Services (ACOSS) is broadly supportive of the abolition of NMETO and the raising of the EMSN general threshold.[9]

Recent reports highlight that out-of-pocket costs for medical treatment in Australia are among the highest of the developed economies.[10] The Consumers Health Forum estimates that Australians pay an average of $1,075 out-of-pocket on medical services per annum, $94 above the developed countries average. Evidence is also emerging that patients are increasingly forgoing or delaying medical treatment due to cost considerations. The abolition of NMETO, combined with other measures in this budget previously mentioned, is likely to add weight to concerns around patient affordability issues.

The rationale for transitional arrangements for those with a disability or in residential aged care is that by 2019 DisabilityCare and proposed reforms to the aged care sector are expected to be fully operational, allowing these to offset any gap left by the abolition of the NMETO. However, it is not yet clear the extent to which these programs would be able to ameliorate high out-of-pocket medical costs for the disabled and the elderly. In any case legislation to establish aged care reform is currently before the Parliament, while DiabilityCare remains to be implemented.

Separate legislation will be required to enact this measure.

[1].       Australian Government, Budget measures: budget paper no. 2: 2013–14, p. 30. Unless otherwise indicated, the budget figures cited in this document are taken from this source.

[2].       The 2012–13 budget measure raised the threshold to $5,000 for the 2012–13 income year and, from July 2012, applied a means test to individuals on incomes over $84,000 and families with incomes over $168,000. These taxpayers will be reimbursed 10 per cent of their net expenses, while those on lower incomes will continue to be reimbursed at 20 per cent. Australian Government, Budget measures: budget paper no. 2: 2012–13, p. 34, accessed 16 May 2013.

[3].       Australian Taxation Office (ATO), ‘Guide to tax offsets’, ATO website, accessed 16 May 2013.

[4].       Australian Taxation Office (ATO), ‘Taxation statistics 2010–11, Individuals’ Tax, Table 9’, ATO website, accessed 16 May 2013.

[5].       S Dunlevy, ‘Treatment tax break is axed’, Herald Sun, 15 May 2013, p. 6, accessed 16 May 2013.

[6].       Australian Government, Budget 2013–14: Tax reform road map: a stronger, smarter and fairer tax system, May 2013, p. 18, accessed 16 May 2013.

[7].       J Heath, ‘Specialist procedures put in doubt’, Australian Financial Review, 16 May 2013, p. 18, accessed 16 May 2013.

[8].       Ibid.

[9].       Australian Council of Social Services (ACOSS), Budget secures landmark disability and education reforms, but gaping hole for poorest on allowances, media release, 14 May 2013, accessed 16 May 2013.

[10].      These are broadly outlined in A Biggs, ‘Health spending: patients bearing higher costs’, FlagPost weblog, 2 May 2013, accessed 16 May 2013.

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