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Jeremy Sammut Fiscal Fiction: the Real Medicare Levy

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Jeremy Sammut Fiscal Fiction: the Real Medicare Levy Fiscal Fiction: The Real Medicare Levy Jeremy Sammut Research Report | May 2017 National Library of Australia Cataloguing-in-Publication Data: Fiscal Fiction: The Real Medicare Levy Jeremy Sammut Research Report 27 Contents Executive Summary ...............................................................................................1 Introduction: Budget Rumours ................................................................................3 Health Taxing and Spending 2013–14 .......................................................................5 Implications ..........................................................................................................7 Conclusion: Don’t Raise Tax — Reform Health to Fund the NDIS ...................................9 Endnotes ............................................................................................................ 10 Acknowledgements Thank you to Simon Cowan, Robert Carling, Jessica Borbasi and Blaise Joseph for their helpful comments. All errors are my responsibility. Related CIS publications Research Reports RR14 Jeremy Sammut, Medi-Value: health insurance and service innovation in Australia - implications for the future of Medicare (2016). RR21 Jeremy Sammut, Peta Seaton, Gerald Thomas, Medi-Vation: ‘Health Innovation Communities’ for Medicare Payment and Service Reform (2016). Executive Summary • The Turnbull Government is reportedly considering identified for Medicare being $10.75 billion. As increasing the Medicare Levy to part fund the roll-out this covered just 14.3% of the $74.7 billion cost of the National Disability Insurance Scheme (NDIS). of Medicare, and because the full cost of Medicare accounted for 42% of total income tax, the ‘real’ • However, the Medicare Levy is a fiscal fiction — Medicare Levy remained 10.4%. the levy revenue accounts for a mere fraction of government spending on Medicare. • In reality, many taxpayers effectively paid a ‘10% levy’ on their incomes in 2014-15 and contributed • This report sets the record straight about the true a significant real dollar amount in income tax to cost of health to taxpayers by calculating the ‘real’ Medicare Levy — the actual amount and rate of fund the cost of Medicare. Single individuals earning income tax that funds Medicare. the modest amounts of $50, 000, $75,000, and $100,000 paid $5,200, $7,800, and $10, 400 in • In 2013-14, the 1.5% Medicare Levy collected just income tax respectively to pay for Medicare. $10.3 billion in revenue, and covered less than 15% of the $71 billion cost of Medicare. The total cost of • The fact that taxpayers are paying almost seven Medicare actually accounted for almost 44% of total times the official Medicare Levy to pay for Medicare income tax revenue. deserves to be better understood by the nine million income earners paying the levy each year: this is • In order to raise the full amount of income tax to essential to have an informed and honest debate meet the full cost of Medicare, the rate charged to about the speculation the levy may be hiked again in income earners would be 10.4% — rather than the the May 2017 Budget. ‘fake’ 1.5% rate. • An additional NDIS-related increase to the Medicare • The Medicare Levy was increased from 1.5% of Levy (of say another 0.5%) will not merely increase personal taxable income to 2% from July 2014 to the levy to 2.5% of personal income: it will actually help pay for the NDIS. push the real levy rate to beyond 11% of taxable • The 2% ‘Medicare and Disability Care Australia Levy’ income — higher than the 10% GST on the purchases raised $14.6 billion in 2014–15, with the amount of goods and services. Fiscal Fiction: The Real Medicare Levy | 1 2 | Fiscal Fiction: The Real Medicare Levy Introduction: Budget Rumours The Turnbull Government is reportedly considering However, the Medicare Levy is, and always has been, increasing the Medicare Levy in the May 2017 Federal a fiscal fiction. The revenue raised by the levy is not Budget to part-fund the roll-out of the National ‘hypothecated’ — dedicated specifically to fund Medicare Disability Insurance Scheme (NDIS) from 2018.1 The — but goes into general government revenue. Moreover, pre-Budget speculation about a new tax rise follows the the amount of revenue raised by the levy accounts for Gillard Government’s decision in the May 2013 Budget a mere fraction of government spending on health. to increase the Medicare Levy from 1.5% of personal Nevertheless, by fostering the myth that Medicare costs taxable income to 2% from July 2014 to help pay for taxpayers only a small percentage of their incomes, the the NDIS.2 levy creates the false impression that Medicare is a low cost and affordable government program. The Medicare Levy is paid by all income earners (with exemptions for the low-incomed and aged pensioners) This report sets the record straight by telling the truth to provide access to healthcare regardless of income. about the Medicare Levy. The details provided here Under Medicare — Australia’s national universal, about the ‘real’ Medicare Levy — the actual proportions taxpayer-funded health scheme — all Australians are and rate of income tax that funds Medicare entitlements entitled to receive free or subsidised access to GP and and other health-related government expenditure — other medical services, prescription medications, and deserves to be well known by the more than nine million public hospital care. These three major publicly-funded hard-working Australian taxpayers who pay the levy entitlement programs – the Medical Benefits Scheme each year.4 (MBS), the Pharmaceuticals Benefits Scheme (PBS), and A better understanding of the true cost of health to free treatment in public hospitals – account for more taxpayers is essential in order to have an informed and than two-thirds of the $105 billion spent by Australian honest debate about any plan to hike taxes by further governments on health in 2013-14.* increasing the Medicare Levy. In reality, as shown here, The Medicare Levy was established and set at 1% of the ‘real’ Medicare Levy rate being paid on income by personal taxable income when the Hawke Government Australians to fund health exceeds the 10% Goods introduced Medicare in 1984. It was raised to 1.25% and Services Tax (GST). Rather than lift the ‘real’ in December 1986, and then, under the Keating Medicare Levy even higher, the alternative approach Government, to 1.4% of income from July 1993, and recommended here is to seek efficiencies in health to 1.5% from July 1995. In July 1997, the Howard spending by undertaking reforms that can produce Government introduced a 1% Medicare Levy surcharge substantial savings and be used for other purposes such for higher income earners who did not take out private as funding the NDIS. health insurance, which has since been increased to 1.25% and 1.5% for ‘very high’ earners whose incomes exceed set thresholds.3 * While the MBS, PBS, and ‘free’ public hospitals are separate programs with separate funding streams, they collectively constitute the ‘Medicare’ scheme that parallels the UK’s ‘free and universal’ National Health Service (NHS): the comprehensive access to healthcare services hereby offered obviate the need for private health except by choice (or to avoid Medicare Levy Surcharge penalties), and enables consumers to rely on taxpayer-funded services covering the major categories of healthcare needs. Fiscal Fiction: The Real Medicare Levy | 3 Figure 1: The Medicare Levy Myth $ Billions Source: Australian Institute of Health and Welfare, Australian Health Expenditure 2013–14, (AIHW: Canberra, 2015); Australian Government, Final Budget Outcome 2013–14, (Commonwealth of Australia: Canberra, 2014). Figure 2: The Fake Medicare Levy Source: Australian Institute of Health and Welfare, Australian Health Expenditure 2013–14, (AIHW: Canberra, 2015); Australian Government, Final Budget Outcome 2013–14, (Commonwealth of Australia: Canberra, 2014). Figure 3: The Real Cost of Health Source: Australian Institute of Health and Welfare, Australian Health Expenditure 2013–14, (AIHW: Canberra, 2015); Australian Government, Final Budget Outcome 2013–14, (Commonwealth of Australia: Canberra, 2014). 4 | Fiscal Fiction: The Real Medicare Levy Health Taxing and Spending 2013–14 In 2013–14 — the year prior to the NDIS-related revenue. This represents the real share of income tax - all increase of 0.5% — the Medicare Levy was 1.5% things being equal, and as opposed to the fake Medicare (plus the Medicare Levy Surcharge where applicable) Levy - that paid for health spending in 2013-14. and the total revenue collected was $10.3 billion (not Based on these figures, we can estimate the ‘real’ including the relatively miniscule amount collected by the Medicare Levy surcharge of $232 million according Medicare Levy — the actual rate of income tax to the Australian Taxation Office’s Tax Statistics).5 By specifically imposed as the Medicare Levy in order to pay comparison (see Figure 1), ‘All Medicare Expenditure’ for Medicare. This represents the ‘real’ levy that would (federal government spending on the MBS and PBS, and apply if the principle underpinning the Medicare Levy combined federal, state and territory spending on public was strictly and accurately applied, and the levy was hospitals) topped $71 billion.** explicitly set at the rate adequate to meet the full cost of all the ‘free’ or heavily subsidised health care provided The revenue raised by the Medicare Levy thus covered under the MBS, the PBS, and in ‘free’ public hospitals.
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