Medicare levy increasing by 0.5% to fund national disability scheme – what you need to know

Following days of speculation, Prime Minister Julia Gillard announced today the Medicare levy will rise by 0.5% in order to fund the government’s National Disability Insurance Scheme.

The shock decision to raise the levy, after previously ruling out such a hike, follows the government’s confirmation of a $12 billion shortfall in the 2013-14 budget, with subsequent media reports pointing to a $15-16 billion deficit.

The decision will increase the total Medicare levy to 2% from July 2014, with a taxpayer earning $110,000 a year expected to pay an extra $1.51 per day under the plan.

The government expects it will raise $3.2 billion towards the government’s funding plan for the NDIS in the first year, and a total of $20 billion between 2014-2019.

Gillard confirmed the increase at a press conference this morning, admitting Labor had underestimated the amount of money which would be made available to fund the scheme.

“It is true that last year I had hoped we could fund what we needed to do for disability care out of the money that was already available to government,” she said.

Gillard also painted the increased levy as a key point in the upcoming election, saying she was asking Australians to “make a choice” in September.

“The Gillard Government will offer this choice to the Australian people, by asking them to endorse this decision at the next election.”

“If re-elected, the Government will bring legislation for this increased Medicare levy to the 44th Parliament.”

Treasurer Wayne Swan stated “this wasn’t an easy decision to make…but it was the right decision”.

Swan added that as the states start increasing the amount of funding given to the scheme, the government will draw down the funds raised from the extra levy.

The current exemptions for the levy will remain in place, including for pensioners and sickness allowance recipients. Low income earners will also be eligible for the low income thresholds.

Taxpayers earning $30,000 a year will pay an extra 41 cents per day, while those earning $70,000 a year will pay an extra 96 cents a day in the levy.

Taxpayers earning $110,000 will pay an extra $1.51 per day. However, the government attempted to play this off by suggesting taxpayers were better off overall based on the number of tax cuts introduced in previous budgets.

The fund will work by sending all the money raised by the extra levy to a new DisabilityCare Australia Fund, which Gillard says is a national reform that requires support from the states and territories.

“Agreement has already been reached with New South Wales, South Australia and the Australian Capital Territory to deliver DisabilityCare in full, and to launch in Victoria, Tasmania and the Northern Territory. Discussions are continuing with other states and territories.”

A share of the fund will be made available to states and territories.

“This will be equivalent to 25% of the revenue collected in 2014-15,” Gillard said. “This will ensure an entitlement of $9.7 billion is available to states and territories in the delivery of DisabilityCare over the next decade.”

However, Swan also pointed out the levy will not fund the full cost of DisabilityCare, and the government will need to make extra savings for that cost.

“We are asking people to pay a little more to do a lot more,” he said.

The Coalition has already announced its opposition to the scheme.

Shadow treasurer Joe Hockey told the ABC this morning the levy shouldn’t go ahead as “business and consumer confidence was fragile”.

“This levy is going to hit every household budget,” he said. “A new levy is not going to help business and consumer confidence.”