Labor Backs Down On Medicare Levy Plan

The Age

Wednesday September 24, 2008

Leo Shanahan, Canberra

HUNDREDS of thousands of Australians may have to rethink their health insurance options after the Rudd Government backed down yesterday on one of its most controversial budget proposals.

Months after announcing changes to the Medicare levy surcharge - changes that critics claimed would lead to a mass exodus from private health cover - the Government has yielded to a hostile Senate and dramatically watered down its plan.

But the compromise may still not be enough to get the budget measure passed, with the Opposition and cross-bench senators indicating they will continue to oppose the plan.

Introduced by the Howard government, the Medicare levy surcharge in effect forces people on above-average incomes to have private health cover.

Currently, singles who earn more than $50,000 a year and couples earning more than $100,000 have to pay an extra 1% in tax if they do not hold private health insurance.

In the May budget, the Government said it would increase the threshold to $100,000 for singles and $150,000 for couples - a measure it said would affect 400,000 people, saving them up to $1500 a year if they chose to drop private health cover.

Yesterday, in a surprise announcement in question time, Health Minister Nicola Roxon said the Government would cut the proposed threshold for singles from $100,000 to $75,000 - effectively forcing thousands more singles to keep their private health cover after all.

The proposed rise from $100,000 to $150,000 for couples will remain in the amended legislation, and the thresholds would in future be indexed to inflation.

The backdown came in the wake of massive opposition to the plan. Health funds, the Australian Medical Association and some health economists have argued that the changes would have led up to a million people to leave private health insurance because there would no longer be a tax incentive to stay.

A Senate committee recently heard there was likely to be at least a 5% increase in health insurance premiums as a result of the rise and a greater strain on public hospitals.

The announcement visibly stunned incoming Opposition health spokesman Peter Dutton on his second day in the portfolio. Last night Mr Dutton said that the Coalition would vote against the amended legislation.

"The Rudd Government has today announced a change to their Medicare levy surcharge thresholds, an acknowledgement that they were wrong," he said.

"The Government's original plans would have seen up to 1 million people leave private health insurance, putting pressure on public hospitals and forcing premium prices to rise. Their new levels do nothing to stop this from happening."

The Government needs the support of all the Greens, Family First's Steve Fielding and South Australian independent Nick Xenophon to pass the bill. Senator Xenophon said last night that he was likely to continue to oppose it. He has asked for threshold changes that are indexed in line with CPI changes since the levy's inception, which would have income levels set at $67,000 for singles and $135,000 for couples.

"I will continue to negotiate with the Health Minister on this issue, because I believe it is vital that we get the balance between private and public health right," Senator Xenophon said.

Senator Fielding said he still had concerns about how low-income earners would be hurt by a rise in private health insurance premiums, and suggested an increased private health insurance rebate to compensate.

KEY POINTS

Levy threshold for singles to go up to $75,000, instead of $100,000.

Proposed threshold for couples remains unchanged at $150,000.

Coalition still vows to vote against changes in Senate.

© 2008 The Age

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