Explanatory Memorandum
Circulated By the Authority of the Treasurer, the Hon Wayne Swan MpGeneral outline and financial impact
Increasing the Medicare levy surcharge thresholds
This Bill amends:
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- the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999 to:
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- increase the Medicare levy surcharge threshold for individuals from $50,000 to $75,000, and going forward this threshold will be annually indexed to wages and increase in $1,000 increments (rounding down);
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- increase the Medicare levy surcharge threshold for families from $100,000 to $150,000, and going forward will be double the single threshold; and
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- introduce transitional arrangements so that individuals who obtain appropriate private health cover before 1 January 2009 will avoid the Medicare levy surcharge for the period 1 July 2008 through to 31 December 2008.
Date of effect: The increased Medicare levy surcharge thresholds apply from the 2008-09 year of income and later years of income.
Proposal announced: This measure was announced on 23 September 2008.
Financial impact: This measure will have these revenue implications:
| 2007-08 | 2008-09 | 2009-10 | 2010-11 | 2011-12 |
| - | $129m | $79m | $68m | $78m |
This measure will have these net fiscal implications (including the effects of decreased Government expenditure on the private health insurance rebate). The overall financial impact over the forward estimates is a net saving of approximately $354 million.
Compliance cost impact: Negligible.
Chapter 1 - Increasing the Medicare levy surcharge thresholds
Outline of chapter
1.1 This Bill amends the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999 to increase the Medicare levy surcharge thresholds for individuals and families.
Context of amendments
1.2 The Medicare levy surcharge imposes a 1 per cent increase in Medicare levy liability on certain individuals who do not have private patient hospital insurance. Individuals with taxable incomes over $50,000 and couples with a combined taxable income over $100,000 may be liable for the surcharge. These thresholds have not been increased since the Medicare levy surcharge was introduced in 1997.
Summary of new law
1.3 This measure increases the thresholds below which families and individuals are not required to pay the Medicare levy surcharge.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| Individuals with taxable incomes above $75,000 who do not have appropriate private patient hospital cover are required to pay the Medicare levy surcharge. Going forward, the new threshold will be indexed to Average Weekly Ordinary Time Earnings in $1,000 increments, rounding down. | Individuals with taxable incomes above $50,000 who do not have appropriate private patient hospital cover are required to pay the Medicare levy surcharge. |
| Families with no more than one child and who have taxable incomes above $150,000 who do not have appropriate private patient hospital cover are required to pay the Medicare levy surcharge. Going forward, the families threshold will be double the singles threshold. | Families with no more than one child and who have taxable incomes above $100,000 who do not have appropriate private patient hospital cover are required to pay the Medicare levy surcharge. |
| Transitional arrangements will be introduced so that individuals who obtain appropriate private health cover before 1 January 2009 will avoid the Medicare levy surcharge for the period 1 July 2008 through to 31 December 2008. | No current provision. |
Detailed explanation of new law
1.4 This Bill increases the Medicare levy surcharge thresholds for individuals and families for the 2008-09 year of income and subsequent years of income.
1.5 The Bill amends the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999 to define the Medicare levy surcharge threshold for single people [Schedule 1, item 1] . The singles Medicare levy surcharge is $75,000 for the 2008-09 year of income. This threshold is indexed annually to the estimate of full-time adult average weekly ordinary time earnings. To avoid complex results from this indexation the amount is rounded down to the nearest $1,000 [Schedule 1, item 2] .
1.6 The threshold for families is double the singles surcharge threshold [Schedule 1, item 3] . Where a family also has dependent children the family surcharge threshold is increased to reflect the additional cost of children [Schedule 1, item 4] .
1.7 Amendments are also made to subsection 6(2) of the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999. These provisions ensure that reportable fringe benefits are taken into account in calculating income for Medicare levy surcharge purposes. If reportable fringe benefits were not taken into consideration, individuals would be able to swap cash salary for fringe benefits and therefore potentially avoid or reduce their liability to the Medicare levy surcharge.
1.8 This Bill ensures that those families whose income includes reportable fringe benefits also receive the benefit of the increase in the family threshold. [Schedule 1, items 3 and 4]
1.9 For those without dependants and who are not married at any time during the income year, the Medicare levy surcharge threshold is the singles surcharge threshold for the relevant year of income. [Schedule 1, item 5]
1.10 Amendments are also made to the Medicare Levy Act 1986 to insert similar definitions of singles and family surcharge thresholds. [Schedule 1, items 6 to 10]
Application and transitional provisions
1.11 These amendments apply to assessments for the 2008-09 year of income and later years of income. [Schedule 1, item 11]
1.12 Transitional arrangements are introduced so that individuals who obtain appropriate private health cover before 1 January 2009 will avoid the Medicare levy surcharge for the period 1 July 2008 through to 31 December 2008. [Schedule 1, item 12]