Turnbull government abandons $8.2 billion Medicare levy increase



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Treasurer Scott Morrison will say in a speech on Thursday that with a stronger economy, the fiscal position has improved compared with a year ago.
AAP/Luis Ascui

Michelle Grattan, University of Canberra

The government is scrapping its $A8.2 billion planned increase in the Medicare levy, declaring a stronger budget outlook means it is not needed to fund the National Disability Insurance Scheme.

The levy, the biggest new revenue measure in last year’s budget, had no foreseeable prospect of passing the Senate in full, because Labor only supported a rise for those with incomes of more than $87,000.

Abandoning the measure will give more credibility to the budget numbers, which will be carefully scrutinised by the credit-rating agencies, and enable the government to sharpen its differences with Labor in the election battle on tax.

The increase in the levy – which would have taken it from 2% to 2.5% of taxable income – was due to start from July 1 next year. The $8.2 billion revenue was over the forward estimates.

The budget will include income tax cuts. But while it kept the levy rise on the books the government faced the criticism that it would be giving with one hand and taking with the other.

Treasurer Scott Morrison will say in a speech on Thursday that with a stronger economy, the fiscal position has improved compared with a year ago.

“That is why we are now in a position to give our guarantee to Australians living with a disability and their families and carers that all planned expenditure on the NDIS will be able to be met in this year’s budget and beyond without any longer having to increase the Medicare levy,” he will tell an Australian Business Economists function.

The government has not abandoned its argument that Labor left a gap in the funding of the NDIS – which the ALP flatly denies. Morrison will stress: “What I am announcing today is that gap can now be made up over time by continuing to deliver a stronger economy and by ensuring the government lives within its means”.

In an upbeat address just under two weeks out from the May 8 budget, Morrison will say that the economy “is finally shaking off the dulling effects of the downturn in the mining investment boom.”

“Naturally, a stronger economy provides for a stronger budget.”

He will say that company profits were “savaged” in the long come-down from the mining investment boom. This took a heavy toll including on government revenues.

“During this time, businesses put their hands in their own pockets to keep their employees in jobs and provide the modest wage increases they could.

“Since then, the clouds have been lifting. The tangible evidence of this is found in the increased tax receipts to the Commonwealth.

“Tax receipts up until February were running $4.8 billion higher than we estimated at MYEFO in December, including $1.2 billion in higher individual tax receipts and $3 billion in higher company tax receipts.”

Morrison will also emphasise the government’s action in controlling spending, and point out that it has not relied on commodity price assumptions to prop up the budget.

Outlining some themes for the budget, Morrison will say it will see the government “living within its means”. It will continue to give priority to strengthening the economy, and that will “enable us to shore up the nation’s finances and guarantee the essential services that Australians rely on both now and into the future.

“Only a stronger economy, backed up by a government that knows how to live within its means, can provide a real guarantee on these essential services – Medicare, schools, hospitals, aged care and disability services.”

Morrison will say Labor’s proposal to raise the Medicare levy for those earning more than $87,000 and to increase the top marginal tax rate were not to fund the NDIS, but “just another tax increase on working Australians”.

“This is in addition to Labor already boasting of and getting ready to hike more than $200 billion in additional new taxes on Australians if they win power.

“Taxes on small businesses, taxes on retirees and pensioners, taxes on family trusts, taxes on mums and dads who negatively gear their investment properties and taxes on workers.

He will say Labor plans for higher taxes will weaken the economy, ”‘putting at risk the benefits, the jobs, the wages, the incomes and the essential services that depend on a stronger economy. And we all know Labor can never live within their means”.

The ConversationLabor is now expected to abandon its commitment to a rise in the levy for higher income earners.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

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Labor to oppose Medicare levy for lower- and middle-income earners


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Bill Shorten arrives to deliver the budget reply speech.
Mick Tsikas/AAP

Michelle Grattan, University of Canberra

Opposition Leader Bill Shorten has said Labor will oppose the budget’s increase in the Medicare levy hitting taxpayers on incomes under A$87,000. The Conversation

And he has flagged a Labor government would reimpose the deficit levy on high-income earners, that automatically expires on June 30. “Labor will not support spending $19.4 billion on the wealthiest 2% of Australians,” he said in his budget reply on Thursday night.

Labor says that a combination of the pared back levy rise and the deficit levy would deliver an extra $4.5 billion over ten years “without putting the burden onto families earning modest incomes”.

The combination would mean that, under Labor’s proposal, those on incomes of more than $180,000 would pay a 49.5% marginal tax rate.

After the opposition hedged its position last week, Shorten has confirmed a Labor government would put an extra $22 billion into schools above the amount the government has pledged, going back to the original ALP plan.

In an extensive attack on key budget measures, Shorten said Labor will oppose the government’s cuts to universities, its proposed increase in student fees, and the change in the repayment threshold that “hits women, Indigenous Australians and low-income earnest the hardest”.

In power, it would reverse the government’s new cuts to TAFE.

Labor would also oppose the budget plan to give a tax break for people saving for their first home. Shorten said this was a “cruel hoax”, a joke and an insult, representing just $565 for each first home.

He said the 0.5% boost in the Medicare levy – imposed to fund the National Disability Insurance Scheme and to take effect from mid-2019 – would affect every Australian down to an income of $21,000.

It would mean a worker on $55,000 would pay $275 extra a year, while someone on $80,000 would face an extra $400.

“Labor cannot support making people on modest incomes give up even more of their pay packets,” he said. Labor would only support the levy rise for those in the top two tax brackets.

Shorten said the budget “fails the fairness test” and it “fails the generational test”.

It was a “budget of big government, higher tax and more debt” and “devoid of values altogether”.

He dismissed the government’s measures to protect Medicare, saying that Malcolm Turnbull “only discovers his heart when he feels fear in it”.

The opposition leader was at pains to counter the widespread observation in commentary that this was “a Labor budget”.

He confirmed Labor would not oppose the budget’s tax on big banks, which has sparked a furious reaction from the banking sector.

But it was worried that “the weakness of this government will turn $6 billion tax on the banks into a $6 billion charge on every Australian with a bank account or a mortgage”.

The banks knew they could run over the top of this weak prime minister, he said.

“He’s giving them a levy with one hand, a tax cut with the other and a free pass for bad behaviour. I’ll give them a royal commission.”

He said that “if the banks pass on a single dollar of this tax to Australian families then that should be the end of this treasurer, this prime minister and this government”.

Shorten said that since budget night Labor had identified $1 billion in measures it would not support, including the $170 million set aside for a marriage equality plebiscite to which the Senate has refused to agree.

Earlier, in Question Time, the opposition extracted from the government the fact that the cost of its ten-year corporate tax cut – the first part of which is already legislated – would be $65 billion over the upcoming decade, compared with nearly $50 billion over a decade when announced a year ago.

In his budget reply, Shorten said: “This is a recipe for fiscal recklessness on a grand scale. It is a threat to Australia’s triple A credit rating – and therefore a threat to every Australian mortgage holder”.

Labor’s plan to close tax loopholes that let big companies shuffle money internationally would deliver $5.4 billion over a decade.

Shorten announced that a Labor government would cap at $3,000 the amount people could deduct for the management of their tax affairs. Although affecting only one in 100 taxpayers, this would save $1.3 billion over the medium term.

Finance Minister Mathias Cormann called on Shorten to submit his speech to the Parliamentary Budget Office for costing.

“If Bill Shorten is serious he needs to come clean with the Australian people about how much bigger the deficit would be over the forward estimates period as a result of the announcements that he has made,” Cormann said.

He said Labor’s numbers did not add up and it would put the triple A credit rating at risk.

Social Services Minister Christian Porter said that Labor had not outlined enough to fund the NDIS.

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Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

Budget 2017: Medicare levy rise finances NDIS and banks hit for budget repair


Michelle Grattan, University of Canberra

Taxpayers will be hit with a rise in the Medicare levy and the big banks face a new tax in a budget that pitches to win back disillusioned voters and to reassure the rating agencies. The Conversation

The government will fully plug the funding hole in the National Disability Insurance Scheme (NDIS) with an increase of 0.5% in the Medicare levy from July 2019, taking it to 2.5%. The increase will raise A$8.2 billion over the budget period.

In the other major tax hike in the budget delivered by Treasurer Scott Morrison on Tuesday night, the five major banks will pay a levy raising $6.2 billion over the forward estimates “to support budget repair”.

Morrison cast the budget as based on the principles of “fairness, security, and opportunity”. It commits to more and better paying jobs, guaranteeing essential services, putting downward pressure on the cost of living, and Australia living within its means.

It is squarely directed at trying to undo continuing damage from the harsh Abbott government 2014 budget. Morrison confirmed a raft of so-called “zombie measures” that have failed to pass parliament have been dropped, at a cost of $13 billion. Morrison called the extra revenue raising needed to cover these measures “a Senate tax for things not going through”.

Among its initiatives directed to avoiding a future “Mediscare” campaign, the budget promises to “guarantee” Medicare, progressively unfreeze the Medicare rebate, and maintain the bulk-billing incentives for pathology and diagnostic imaging services.

A Medicare Guarantee Fund will be established to pay for all expenses of the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme (PBS). Revenue from the Medicare levy will be put into this fund plus the amount from general income tax that’s needed to cover the total cost. Morrison said this would “provide transparency about what it really costs to run Medicare and the PBS and a clear guarantee on how we pay for it”.

The government is also restoring the pensioner concession card to people that were hit by the pension assets test change this year.

A housing affordability package includes a “first home super savers scheme” that will provide a tax cut for those trying to get a deposit together. They will be able from July 1 to salary sacrifice into their superannuation account, separate from their compulsory superannuation contributions.

The contributions will receive the tax advantages of superannuation, with contributions and earnings taxed at 15% rather than marginal rates. Withdrawals will be taxed at the marginal rates, less 30 percentage points. Contributions will be limited to $30,000 per person and $15,000 per year.

Morrison said this plan would mean “most first-home savers would be able to accelerate their savings by at least 30%”.

Older Australians will be encouraged to downsize by being able to make a non-concessional contribution of up to $300,000 into their superannuation fund from the sale of their home.

While the general provisions of negative gearing are untouched, the government will disallow deductions for travel expenses related to the properties. For properties bought from now it will limit plant and equipment depreciation deductions.

There will be tougher rules for foreign investors in the housing market.

Morrison painted an optimistic picture of the economic outlook, while acknowledging the pain Australians have been feeling, saying that not all people had shared the country’s economic growth and “many remain frustrated at not getting ahead”.

He said there were signs of an improving global economy and “there is clearly the potential for better days ahead”.

The budget forecasts wages growth – which has been around 2% – will increase to as much as 3.75% by the end of the budget period. This is regarded by many economists as very optimistic.

For the coming 2017-18 year, growth is forecast at 2.75% and unemployment at 5.75%.

Morrison said the budget had a “fair and responsible path” back to balance, which is due to be reached in 2020-21, with a projected surplus of $7.4 billion, somewhat higher than previously estimated. The forecast deficit for 2017-18 is $29.4 billion.

The budget contains an extensive infrastructure program, pledging to deliver $75 billion in infrastructure funding and financing over a decade.

The government will inject up to $5.3 billion into the construction of the second Sydney airport. It will provide $8.4 billion in equity into the planned Melbourne-Brisbane inland rail project.

Morrison also said that as well as the intention to further develop the Snowy Hydro, “the Commonwealth is open to acquiring a larger share or outright ownership” of the scheme from the Victorian and New South Wales governments.

The levy on the banks will be 0.06% on their liabilities, starting on July 1. Morrison said it was similar to measures in other advanced countries and “will even up the playing field for smaller banks”.

He indicated that the banks should not pass the levy onto customers, said the Australian Competition and Consumer Commission would monitor the situation, and advised people to switch to one of the smaller banks if they thought they were being shortchanged.

A Financial Complaints Authority will be set up as a one-stop-shop to deal with grievances customers have with banks and other financial institutions.

The chief executive of the Australian Bankers’ Association, Anna Bligh, slammed the plan, saying it was policy on the run, and “reckless”. “They have done it because they think banks are an easy target,” she said.

Welfare recipients have again been in the government’s sights. There will be a drug testing trial for 5,000 new welfare recipients. JobSeeker recipients testing positive would be placed on the Cashless Debit Card.

“We will no longer accept, as an excuse from repeat offenders, that the reason they could not meet their mutual obligation requirements was because they were drunk or drug-affected,” Morrison said.

The disability support pension will be denied for a disability caused solely by a person’s substance abuse.

Shadow Treasurer Chris Bowen said the government had “tried to catch up with Labor but they have failed miserably”. But Labor signalled its agreement with the bank tax.

Business Council president Jennifer Westacott said it was a budget for “a reality world”. It was “practical and workable”.

“We welcome the government’s discipline in restricting real spending growth to 1.9% over the forward estimates,” she said.

But she said “the banking levy effectively represents double-taxation of some of Australia’s most successful companies, which already pay $11 billion in company tax each year”.

The Greens attacked the planned drug testing trial for some new welfare recipients was “a violation” and a “very dangerous precedent”. They would seek advice about its legality.

https://www.podbean.com/media/player/yahw4-6a9eae?from=yiiadmin

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.