Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP and the Minister for Health and Aged Care, the Hon Dr Michael Wooldridge, MP))Chapter 2 - Background to legislation
2.1 In the 1996-97 Budget, the Government announced details of a private health insurance incentive scheme (known as PHIIS). The scheme has operated from 1 July 1997 and provides benefits to certain persons who take out private health insurance. The benefit is provided by way of reduced premiums, or a tax offset which can be claimed in an income tax assessment.
2.2 The relevant legislation which provides for reduced premiums is the PHIIA 1997. The tax offset was provided for by amendments to the ITAA 1997.
2.3 The scheme is income tested and is available to a single individual with taxable income up to $35,000 and to a couple or a family with a combined taxable income up to $70,000. The threshold for families is increased by $3,000 for each dependent child after the first.
2.4 The benefit is only available if a minimum premium is paid. The minimum premium depends upon the type of cover provided by the policy and how many persons are covered. There is also a maximum benefit payable under PHIIS which depends on the number and kind of persons covered by the policy and whether the policy provides hospital cover, ancillary cover or combined cover.
2.5 The Government, as part of its tax reform package, announced in Tax Reform: not a new tax, a new tax system , a new form of assistance for families and individuals with private health insurance which provides for either an effective reimbursement or a discount of 30% of the cost of private health insurance cover. The new scheme which will replace PHIIS from 1 January 1999 is not income tested and there is a choice of taking the incentive in the form of a direct payment, reduced premium, or tax offset. Under the new tax system proposed in the Government's tax reform plan, this is as generous, or even more generous, than full deductibility for health insurance premiums for more than 80% of taxpayers.
2.6 The incentive provided for by the PHII Bill is complemented by amendments made to the ITAA 1997 by the TLA(PHI) Bill which provides the incentive in the form of a tax offset.
2.7 Under the new scheme, to the extent that the benefit has been obtained as a premium reduction, a claim cannot be made for either a direct payment or a tax offset. Similarly, if the benefit has been obtained as a direct payment or a tax offset, a claim cannot be made for either of the other forms of obtaining the benefit.