Senate debates

Wednesday, 15 October 2008

Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008

Second Reading

Debate resumed from 14 October, on motion by Senator Carr:

That this bill be now read a second time.

10:10 am

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

I rise to speak on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008. Less than three weeks ago the Senate voted down the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill 2008 because it was a fundamentally flawed piece of legislation. It would have put pressure on private health insurance premiums. It would have put additional pressure on public hospitals. It would have seen hundreds of thousands of Australians drop their private health insurance. It would have taken billions of dollars out of our health system. The measure would have remained fundamentally flawed even if the amendments circulated by the government at the time to reduce the proposed threshold for singles only to $75,000 had been successful.

The government introduced this measure without any attempt to assess its impact on our health system. For us to properly consider the merits of this measure, we have to assess it in the health policy context in which it was introduced. The overall health policy objective of a government is to ensure that all Australians can have timely and affordable access to quality hospital care. That is a challenge. In Australia we seek to achieve that through a mixed health system. For our unique health system to be successful, it needs a strong and well funded public system and a strong and well supported private health system.

Our private health system is also underpinned by the principle of community rating, which means that health funds across Australia are not allowed to charge more because a person is sicker, older or more likely to need access to hospital care. They are not allowed to charge more for an old, sick person than for a young and healthy person. That makes it harder to keep young people in private health insurance, making sure that private health insurance premiums remain affordable. To maintain the balance in our health system, to ensure that private health insurance remains a viable and affordable option for older Australians, we need to ensure that as many Australians as possible participate. We need to make sure that many young and healthy people as possible choose to take up private health insurance.

In 1996, when the coalition came into government, the system was totally out of balance. Private health insurance membership was in freefall. Membership was at 63 per cent in 1983. By the time we came into government it was in the low 30 per cent range. It went down to 30 per cent before we were able to turn the ship around through a range of policy measures, one of which was the Medicare levy surcharge as it exists today.

Lifetime health cover, the 30 per cent rebate and the Medicare levy surcharge were the three policies that worked together to turn around private health insurance membership, which had been in freefall before that. What has been the experience? Membership went up by 13 per cent and, in recent years, it has started to go up again with 400,000 additional Australians choosing to take out private health insurance in the 12 months to June 2008. I put it to the Senate that in the last two or three years it has been the Medicare levy surcharge thresholds in particular that have been driving the increase in private health insurance membership.

When I say that in 1996 the system was out of balance, do not take my word for it. We were not the first to realise the problem at hand. After 10 years of failed Labor Party policy on health, the then federal Minister for Health, Senator Graham Richardson—and I am sure that Senator Carr would remember him well—actually realised that things could not continue the way they were going. You would remember Senator Graham Richardson, Mr Acting Deputy President Hutchins, I am sure. I will read out a few quotes of what then federal health minister Graham Richardson said in 1993:

We cannot continue to have private health insurance bleed in the way that it has in the past years, because this does increase the strains on the public system. That being the case, one of the things that I will probably be suggesting—

listen to this—

in a package that I shall put to my party later on in the year will include a levy for those on higher incomes in lieu of private health insurance.

Sound familiar? I will read a couple of other quotes from that period 1993-94:

One of the ways we will have to explore in making sure that some of the pressure is taken off waiting lists is at least to put a floor under private health insurance and try to get the numbers back up.

When he said that, private health insurance membership levels had just fallen below 40 per cent. They were at 39.4 per cent. He essentially warned what would happen if the government were not to go along with his proposals:

There ought to be a commitment by sensible thinking people to looking at the numbers in private health insurance and understanding that you cannot have those numbers in free-fall. If it is two per cent a year, that means by the end of this decade only 25 per cent of Australians are covered by private health insurance. You are starting to get below a critical mass point for private medicine. You will see the closures of many private hospitals or many beds in private hospitals.

Thank God there was a change of government two years after he said this so that there was a government that actually was able to make some decisions to restore the balance in the health system. Former Senator Richardson went on to say:

As everyone drops out, you are seeing healthier, younger people drop out, and that feeds into higher premiums. So as the two per cent go out each year they will push premiums up much higher. By the end of the decade, those premiums will be so high that the increase in the numbers leaving will not be two per cent; it will be more like three or four or even more than that. That is what I fear, the free-fall in the numbers in private health insurance.

Former Senator Richardson had a solution:

Single people earning $50,000 a year or families on $74,000 a year who did not have private health cover would pay about double the Medicare levy under plans drawn up by the then federal health minister Graham Richardson.

He took that proposal to cabinet. Do you know what cabinet said to him? ‘Take it to an ACTU-caucus working party so that they can tell us what they think.’ The ACTU-caucus working party of course sank that proposal because, on ideological lines, they have never liked private health and there was no way that an ACTU-caucus working party on the reform of private health insurance would support a proposal like that, however sensible it was in terms of restoring the balance.

Senator Richardson released a discussion paper called Reform of private health insurance. I really urge the now Minister for Health and Ageing to have a very close read of the things that were said then, because those who cannot learn from history are doomed to repeat it. This minister for health would do very well to have a read of the very sensible comments that were made by Senator Richardson at the time and to remember that she is not some sort of Assistant Treasurer running a Treasury line without any regard for the impact on our health system. This is what Senator Richardson said in his discussion paper:

We have now reached a point where private coverage has fallen below 40 per cent. This is not an immediate problem, as those who have dropped out are mostly young and healthy. However, as time goes on, an increasing number of older, higher users of health services will give up their insurance.

That is a no-brainer, yet these days Treasury officials, health officials, the government—everybody—are trying to tell us that what happened last time will not happen again, that there will not be a new downward spiral. Of course there will be. If you push up the price of premiums, it becomes less affordable for the most vulnerable in our community—those older Australians who are most likely to need access to quality hospital care. To introduce a measure like this without even attempting to consider the impact on them is, quite frankly, incredible. I quote again from Senator Richardson’s discussion paper:

There are also a great many low-income families who maintain private health insurance. As premiums continue to rise, these people will come under increasing pressure to drop their cover.

I would like to think that the minister for health is listening to or reading this. I quote further:

This gives rise to the real possibility that a flashpoint will be reached where the gradual decline of the last couple of years becomes an avalanche.

And further:

As discussed in the introduction, declining rates of private health insurance membership have significant implications for the public system. As more people drop out of private insurance, the demands on the public system grow.

That is a no-brainer. I am quoting from the 1993 discussion paper called Reform of private health insurance released by the then federal Labor health minister, Graham Richardson:

Already there are problems, the most obvious being waiting lists. There are too many people waiting too long, in pain, for vital operations.

I conclude my quotations from the discussion paper with this:

Despite a perception that private health insurance is solely the province of the rich, this is not the case. Nearly one million families with incomes of $40,000 or less have private cover, as do 800,000 single people earning $25,000 or less. Many of those who maintain private insurance are pensioners or self-funded retirees with relatively small fixed incomes. Older Australians are particularly high users of health insurance.

Senator Fielding in the past said that he could not support this legislation because of the particularly harsh impact it would have on low-income earners and he said that he would be insisting on compensation from the government. I will be very interested to hear what sort of compensation the government has offered Senator Fielding for the impact on low-income earners of this very bad public policy measure.

In concluding on former senator Graham Richardson’s comments, here is a little bit of a history lesson. In 1983 the government introduced Medicare and said, ‘Yes, some people will leave private health insurance.’ Sound familiar? This is the experience of what happened, and I quote from an opinion piece in the Canberra Times,  written by then Senator Richardson, who was then the Minister for Health:

Medicare was never intended to totally replace the private system. Medicare’s architects, including John Deeble, always assumed that a healthy private system would exist alongside the public sector. Certainly it was anticipated that there would be a decline in numbers with private health insurance. This occurred most dramatically between 1983 and 1984, with a decline from 63.7 per cent of the population to 50 per cent. Since then the numbers have continued to drop steadily and are now doing so at about 2.2 per cent a year. That 2.2 per cent drop means that every year $85 million worth of private insurance contributions are being lost to the national health budget.

How much private insurance income will be lost as a result of this measure? I have asked the government. Have the government provided an answer? No, they have not, but we can come to our own conclusions.

The general point that I would make on the comments that I have just read is that at least Senator Graham Richardson was focused on what was best for the health system. He was focused on what was best for patients across Australia, who needed timely and affordable access to quality hospital care. That is in stark contrast to the current minister for health, who is out there selling Treasury propaganda without even trying to attempt to explain how this fits in with the government’s policy on health.

Let us reflect on the process. Did the government announce this policy before the election? If it is really a tax relief measure, surely it would be popular—surely it would help them win some votes. They were quiet about it. Do you know why they were quiet about it? Because before the election they actually wanted to make people in private health insurance and in the broader private health sector believe that they now liked private health and that they were no longer driven by their ideological dislike of the private health sector—they were now committed to the sound policies of the Howard government. The then Leader of the Opposition, Kevin Rudd, wrote a letter to anybody who was interested in the private health sector telling them about how he was committed to maintaining the 30 per cent rebate to Lifetime Health Cover and to the Medicare levy surcharge.

Earlier this year in estimates I asked the senator representing the minister at the table, ‘Is the government considering any changes to the Medicare levy surcharge?’ No, they were not. Did any of the health officials at the table correct the minister? No, they did not. They knew the implications of this for the private health sector and they kept their plans secret. They announced it in a pre-budget leak and they were desperate to downplay the impact. I asked the question of the minister in question time on the day of the budget: ‘What about this pre-organised budget leak announcement? This is going to be bad for the health system.’ He said, ‘Oh well, some people will leave private health insurance.’ Two days later that had become, ‘485,000 people will leave.’ Then, during the Senate inquiry, which the government said was a waste of time and was tantamount to economic vandalism, all of a sudden—oops!—‘We forgot to take children into account. It is actually 644,000 people who will be leaving the health system.’ Even with this slightly watered-down measure, which was introduced in the Senate yesterday, a staggering 583,000 people are expected to leave private health, according to the government. These are the government’s own estimates. So that is a reduction of less than 10 per cent compared to the measure that the Senate voted down three weeks ago.

In terms of process, there was no consultation with the states and territories, even though the Rudd Labor government was elected on a promise to end the blame game and to start a new era of cooperative federalism in health. They pursued a policy measure at the federal level which clearly is going to have some negative flow-on consequences at the state and territory level in terms of the states’ and territories’ capacity to provide adequate levels of hospital services to their constituents. Despite those flow-on consequences, the government did not consult; the government did not provide access to their modelling to ensure that the states and territories could properly assess the flow-on implications and prepare for them and ensure that they could provide timely services.

The government did not do any modelling, costing or assessment of the impact on public hospitals themselves at all either. The only thing that the Commonwealth costed was the impact on the Commonwealth budget bottom line. How much money is this going to save us because we do not have to pay the private health insurance rebate to those who will be leaving? How much is it going to cost us because we lose the revenue from those who will no longer be caught by the Medicare levy surcharge? That was the only thing that the Commonwealth was interested in. Initially, the original measure was expected to save $959.7 million from not having to pay the private health insurance rebate. What is the change now in this revised measure? You would think that reducing the $100,000 threshold for singles to $75,000 would maybe create a bit of an impact. It is less than 10 per cent—in fact, it is 8.3 per cent. Now, the government still expects to save $879.3 million from not having to pay the private health insurance rebate to people it expects to leave private health.

That was a very difficult figure to get hold of, by the way, because if you look at the government’s explanatory memorandum there is hardly any information in it at all. You have to sort of go across to the press gallery and get the government’s propaganda sheet to get any information, even though a lot of the stuff in there is pretty misleading. But here we go. The government says, ‘We expect to save $879 million from not having to pay the private insurance rebate.’ Let us just reflect on that for a second. What does that actually mean for the health system, because that $879.3 million only represents the 30 per cent rebate? The government tells us that it is the young and healthy who leave; the young and healthy attract 30 per cent of the rebate, so this only represents the 30 per cent rebate. There is also the 70 per cent currently being contributed or that otherwise would be contributed by those people with private health insurance. That is another $2 billion. We have a measure here that is going to lose the health system nationally nearly $3 billion. It was to be $3.2 billion; it has now gone down to $2.9 billion. This is $2.9 billion that, as a result of this measure, is no longer going to be available to fund hospital treatment. Where is that money going to come from? There are only two ways: either it will have to be the states and territories who cop it sweet, without any commitment so far for any compensation by the Commonwealth, or it is going to be the pensioners and the older Australians, the sicker Australians, who will not dare to leave private health insurance who will have to make up the difference through increased premiums.

It is an absolute disgrace that in introducing a measure like this the government would not seek to properly assess the impact on older Australians, on people needing access to public hospitals and on those who might choose to keep private health insurance. The government then says, ‘We have an overall saving of $354 million—because $960 million becomes $879 million and we now expect to lose $525 million worth of revenue.’ Well, that is actually totally misleading and it is a furphy because the government did not cost the impact of this measure on future premium increases. Premiums only need to increase by 2.43 per cent for that $354 million to be totally wiped out. You make the calculations. The government has allocated $14.5 billion over the forward estimates for the private health insurance rebate, 2.43 per cent of that without any compounding or anything, and that alleged saving is wiped out. I hope that Senator Fielding has a very close look at this because he has told us that he thinks that he needs to support this measure because it is going to help build a surplus. It will not do anything of the sort.

Professor John Deeble of Access Economics told us that under the original measure premiums would have gone up by about by at least an additional five per cent. Industry experts said possibly up to 10 per cent. A five per cent increase would equal $728 million in additional expenditure on the rebate. And where is that? It is not in the budget; it is hidden in the contingency reserve—very convenient. So we can make this measure look like a win-win situation—people have tax relief, we are going to save some money, it is going to be good for the economy. Never mind all these pensioners who will have to pay five to 10 per cent more for their health insurance premiums, because there is a saving. And the true cost of the measure is hidden in the contingency reserve. I am close to running out of time so I will just sum up. (Time expired)

10:30 am

Photo of Rachel SiewertRachel Siewert (WA, Australian Greens) Share this | | Hansard source

Mr Acting Deputy President Ellison, I think this is the first time you have been in the chair while I have being speaking, so welcome!

Photo of Rachel SiewertRachel Siewert (WA, Australian Greens) Share this | | Hansard source

As I pointed out in my speech on the earlier version of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008, the Greens believe this is an important bill that introduces measures that directly and indirectly go to the heart of health policy in this country. The Greens support the intention of this bill, in the same way we indicated our support for the previous bill, but note that the debates on its impact have raised critical issues about healthcare provisions in Australia.

The bill itself will address some of the inequities of policies brought about by the Howard government in its ideological efforts to promote and build a private health sector. The stick of the Medicare levy surcharge, introduced by the previous government in 1997 to encourage middle-income earners into purchasing private health insurance, was without indexation and has continued without indexation and is now capturing people on much lower incomes in relative terms. We agree that in the interests of fairness this should be addressed; however, we note that this bill does not go to the extent of reform that the Greens would like to see.

Raising the threshold has resulted in an outcry, largely from the private health insurance sector. They are claiming that the sky will fall in, public hospital waiting lists will grow, private health insurance premiums will rise and the Australian health sector will be in chaos. This bill has focused our attention on the question of private health insurance and the notion of a balanced health system—and, importantly, the need for a strong, viable, properly resourced public health system as the best means to provide health care, which is a key policy concern for the Greens.

Written submissions and presentations to the committee inquiring into the previous bill have restored this debate once again to centre stage and raised important issues that we believe the parliament needs to consider. Firstly, I would like to look at the thresholds. Yes, we agree that the levy surcharge threshold should reflect the increases in average income over the previous 11 years. Individuals and families on lower incomes should be given a choice about whether to purchase private health insurance or opt for the public health system. They should be able to make the choice based on their own budget and life priorities, not forced to make a choice between expensive health insurance and a punitive one per cent levy on their limited income. I note that, generally, where these people on low incomes do choose private health insurance, they do go for the lower end of the private health insurance, which I have been told by many people they do not believe gives them an adequate product. It is fair and equitable to restore the intention of the policy by lifting the threshold on income levels. Of course, the Greens argue that the fairest outcome would be to remove the Medicare levy surcharge altogether so that all Australians had the same choices about private health insurance; however, given the current context, lifting the threshold removes an unfair burden on lower income Australians.

I will make the point here that the Greens were supporting the previous threshold of $100,000 but we indicate our reluctant support for the compromise position that has been reached of $75,000 for singles. It remains at $150,000 for couples. This measure will ensure that 330,000 Australians will have immediate tax relief, and that will have a significant benefit for those individuals and families. Obviously, this does not go as far as we would like, but we have been prepared to reach this compromise position in the interests of seeing these important benefits delivered to many Australians, albeit fewer than the original threshold would have delivered benefits to.

The Greens were concerned that the original bill did not include provisions for indexation of the threshold into the future. People may recall that the Greens tabled amendments to address that lack in the bill. We are pleased that, through negotiations with the government, the government is now including indexation in this version of the bill. We welcome the measures in this bill to index the threshold to the full-time adult average weekly ordinary-time earnings. The arguments against these measures have come predominantly from the private health insurance industry.

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

And National Seniors Australia.

Photo of Rachel SiewertRachel Siewert (WA, Australian Greens) Share this | | Hansard source

I said ‘predominantly’ from the private health insurance industry. Their argument is that this will force people onto the already struggling public health sector and that the only way to balance the illness burden between public and private health is to continue the carrot and stick policies to force people into private health insurance. The Greens reject this position on a number of grounds. I would also like to point out that it is no wonder that the private health insurance industry is complaining. The privileged position given to them under the previous government’s position is being challenged. As the committee inquiry found, there is no conclusive modelling to gauge the impact of these measures on the public health sector—in fact, the department admitted during the inquiry that they had done no modelling of the impacts on public hospitals. We simply do not know how many people will choose to exit private health insurance. However, given that many low-income people feel they are on substandard products and that quality service is not there, I think this will also encourage people to not necessarily want to continue with those lower quality products. There are Treasury estimates and there are estimates based on modelling commissioned by the private health insurance sector. The figures differ dramatically. As I said earlier, we almost have duelling models here.

In evidence to the Senate Standing Committee on Economics, Professor John Deeble, emeritus fellow at the Australian National University and the father of Medibank, calculates that the overall impact on the public health system is likely to be an increase of approximately two per cent per annum. Others point out that those most likely to be affected by this measure are the young and the healthy, and those least likely to require hospitalisation. The fact is that it is not possible to accurately estimate the impact. As Dr Woodruff, President of the Doctors Reform Society, pointed out in his presentation to the committee, the purchase of private health insurance is not an objective, rational or measurable act; it is highly subjective. Research shows that the cost as a premium or as a tax incentive or disincentive is rated lower than perceptions of security or safety. This simply means that the removal of the surcharge will have less of an impact on people’s choices about public health insurance than their age, their general health and their perception of risk and security in general and in relation to their health and wellbeing.

We believe this debate also exposes the myth of a balanced health system, and it brings me to the principal concern of the Greens around this debate—that is, the simple fact that the 30 per cent private health insurance rebate is a direct subsidy to the industry. The Greens have long argued for an end to the Howard government’s massive subsidy to the private health insurance industry. Approximately $3.2 billion are effectively poured straight into health insurance industry pockets through this massive subsidy—$3.2 billion over 12 years could have been funding our public health sector for hospitals, nurses, better facilities and health technologies and better preventative and health promotion measures. The substantial changes introduced by the Howard government since 1966 have seen the erosion of funding to the public health sector, with a consequent massive injection of funds into the promotion of private health insurance membership. I must question in particular whether low-income people are getting better health outcomes. I would suggest that, no, they are not. We still have long waiting lists in public hospitals.

It is important to note that it was the Howard government’s policy narrative which linked the decline of private health insurance membership with the burden on the public health system and then made this the central problem for the financial sustainability of the Australian healthcare system. This concept of a balanced healthcare system has been accepted as an inarguable given, yet the evidence suggests that there is in fact no causal link. Dr Amanda Elliott, health policy analyst at the University of New South Wales, in her analysis of the changes to the health system under the coalition government, points out:

By claiming the health care system was, first, in disrepair, and secondly, in disrepair because of the weakening of Medicare through a decline in private health insurance; the Coalition constituted both the problem and the range of possible solutions.

And the solutions were, as we know, to build the private health insurance membership through a range of measures directly funding the private health sector. This has diverted resources out of the public health system and worked very effectively to create a powerful and wealthy private health insurance industry and lobby, to which we have all been subjected very strongly over the last couple of months. It has not taken the pressure off the public health sector. As extensive research illustrates, the consequences of this have been dire for the public health sector. Rather than taking pressure off the public health sector, the opposite has occurred with serious consequences for staff and patients in public hospitals. We know that the national hospital data shows that the pressure on public hospitals has not been reduced and that international research shows that there is no link between increased private health activity and reduced waiting lists in public hospitals. Indeed, Dr Stephen Duckett actually found that the more hospital care provided by the public sector the longer the waiting lists for public patients. Let me remind the Senate that Stephen Duckett is no slouch when it comes to health policy. He is an economist, who now heads the Queensland health reform team. He was secretary of the Australian health department from 1994 to 1996 and has held leadership positions in the Victorian health department and the La Trobe University, and is a chair of the boards governing The Alfred and the Brotherhood of St Laurence.

Public hospitals desperately need increased resources to provide the best care possible to attract and retain skilled staff, and to improve care and treatment options. In her evidence to the committee, Professor Leonie Segal had this to say about the impact of the private health insurance rebate:

If we were not supporting private health insurance and those dollars were available to go into health in other ways, they could be used to increase the Commonwealth contribution to public hospitals by one third.

The Greens could not agree more with Professor Segal’s analysis. The private health insurance industry makes a further argument that this measure will force them to increase their premiums because low-claiming members will drop their insurance, leaving a greater proportion of higher claiming members. They argued in response to the original bill that private hospitals will be adversely affected by a reduction in business of between six and eight per cent, and may have to close or reduce the services offered.

We do acknowledge the concerns raised by National Seniors in their submission to the committee that older Australians who are able to retain their private health insurance could bear the brunt of rising insurance premiums. If they are forced to drop their insurance, they will join the public hospital waiting lists. However, anecdotal evidence suggests that they are far more likely to maintain their private health insurance at the expense of the basic essentials of life—a great cost to their mental health and physical wellbeing. The issue here is about ensuring that there are no unnecessary or unfair increases in the health insurance premiums, that the profits of the private health insurance industry do not increase at a time when Australians are facing an economic downturn and increasingly difficult economic times.

The Greens find CHOICE’s response to the industry claims compelling. The consumer advocacy organisation CHOICE argues that the removal of government imposed incentives on people to take up private health insurance membership will shift the onus on to the industry to make their product more attractive to the consumer. This means the industry will operate in a market. The industry will have to come up with its own incentives to attract consumers rather than operating on government subsidisation, as it has for the past 11 years. And no doubt the market will help the industry to keep their premiums as low as possible.

Despite a lack of certainty about the actual impacts of these measures, there is no doubt that there is likely to be some increase in public hospital usage, and this is of course a matter of great concern to the Greens. The Greens believe that the public health sector should not carry the financial burden of measures which are intended to bring a tax measure into line with the current economic context. As I stated earlier, and my Green colleagues have argued in this place for years, the Greens believe that the public health system should be properly funded and that the billions of dollars which have been diverted from it over the past decade or more should be restored.

Notwithstanding that we will not achieve that goal here today, we do believe that if there is any impact on the public hospital system this should be compensated for by the federal government—and I made that point with the previous bill. The government have given us as a strong commitment that there will be no adverse impacts on the public hospital system as a result of this measure. We therefore seek from government an undertaking that they will in fact act to enforce this commitment that there will be no adverse impact on the public hospital system. We welcomed the previous commitment from Senator McLucas—which she gave when she previously gave a speech on this matter when she was representing the minister—that no public hospital service will be financially worse off in that event.

We will be moving amendments in the Committee of the Whole to ensure that any impact on public hospitals will be assessed by requiring for three years an independent annual review of any impact. This will give the government the necessary quantifiable data so that, if there is any adverse impact, the government will know what needs to be made up to the public hospital system. We believe it is incumbent on the government to undertake a review of the impact of this bill on the health sector generally and on the public and private sectors and the not-for-profit privately run hospitals, which will also potentially be affected by this measure. The government should ensure that an evaluation is undertaken as part of this legislation. That is why I have already circulated an amendment that calls for a review of the operation of this act. We believe that it is essential that the government are absolutely clear in their undertaking that the public hospital system will not be worse off because, if they do not, lower income Australians will be the ones in particular who suffer.

We believe that it is up to the government now to demonstrate their commitment to a strong public health system and to guarantee to the Australian community that this measure will have positive benefits for our public health system. We Greens believe that this is a small step in addressing the issues that need to be addressed in terms of a strong, viable public health system in Australia. As I said earlier, the Greens reluctantly support the new bill’s threshold of $75,000. But we are very pleased to see that the government has included indexation in this new bill, so we will be supporting it and we urge the government to support our amendment, which requires a review of the operation of the act annually for the next three years to look at any first, second and third impacts that are created by the implementation of these measures.

10:47 am

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party) Share this | | Hansard source

I rise to also contribute to the debate on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008. In his contribution, Senator Cormann talked about the initiatives that were put in place by the Howard government and he described a system totally out of balance. When he talked about the Medicare levy surcharge, he said that it was introduced then ‘as it exists today’. Well, that is the point: it is as it exists today. When the Medicare levy surcharge was implemented the stated aim was that it was intended for high-income earners. I do not agree with Senator Cormann on many issues but I do agree that it is exactly as it exists today. I am glad he has pointed that out because he is right; it is completely out of balance. It was implemented for high-income earners; that was the stated aim, whether it was true or not. But as it exists today it is completely out of whack.

This is the second time this initiative has been put before us in this place, and it has come here again in an amended form. However, the primary purpose of the bill remains the same: to deliver some long overdue yet ever so timely tax relief to average Australian families, who are currently feeling the pinch. Indeed, as we saw yesterday with the announcement of the government’s $10.4 billion Economic Security Strategy to strengthen the Australian economy and support families during the global financial crisis, times are tough and any measures, such as those contained in this bill, that are designed to put money in the back pockets of Australian families should be supported.

When announcing the original measure as part of the May budget, the government said its aim was to restore the application of the levy to the levels at which they were first intended, and to remove the tax trap that had been created by the Liberals, who failed to raise the threshold since its inception. This bill remains true to those aims. It does so by raising the Medicare levy thresholds from $50,000 to $75,000 for individuals and from $100,000 to $150,000 for couples and families.

However, while the aim of this measure was and remains relatively simple, it seems to have been somewhat buried under the weight of the debate that has arisen since the measure was first announced by the Treasurer in May. The aim of this measure, as pointed out, was quite simply to provide average income earners in Australia with some long overdue relief by returning the threshold levels to the approximate position that was intended when the levy was first introduced in 1997. As I have said before, what appears to have been a relatively straightforward proposition has been severely compromised by the opposition, who have made it their job to vandalise this year’s budget by blocking the passage of this and several other key budget measures.

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

That is because the measure is fundamentally flawed. Ask Senator Richardson.

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party) Share this | | Hansard source

I think I sat here and listened to Senator Cormann in silence. I did not agree with much of what he had to say but I did listen to him in silence. I am not sure if Senator Cormann has been brought up with the same set of manners as were instilled in me by my parents, but perhaps he needs to have a look at how he behaves.

Photo of Chris EllisonChris Ellison (WA, Liberal Party) Share this | | Hansard source

Order, Senator Cormann!

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party) Share this | | Hansard source

As I was saying, by initially blocking this bill and continuing to refuse to support it, those opposite have denied and continue to deny thousands of Australians the obvious financial relief that will result from its passage. The Liberal Party should be ashamed. They took advantage of hardworking Australians by effectively allowing the Medicare levy surcharge to become a tax trap and a means of draining more money out of the back pockets of average earners. They should be ashamed that by doing so they forced many working families to take up private health insurance cover that they could little afford, which was mostly packages at the lower end, and took away their ability to choose whether to purchase private health insurance. And they should be ashamed that they did all of this while chronically underfunding the public health system.

Indeed, it would seem that the Liberal Party are still in a state of denial over the corrosive effect that they have had on the health system while in power. The shadow minister for health and ageing in his contribution to this debate proceeded to blame state Labor governments for the demise of the public health system over the past 11 years. He also took the populist line, as those opposite increasingly attempt to do these days, and claimed that the changes contained in this bill are bad for older Australians. We know that the state of the public health system in Australia was a direct result of the Liberal government’s failure to properly fund it.

As I have pointed out in this place before, the reality of the former government’s underfunding of the public health system is no better reflected than in my home state of Tasmania, where the impact of chronic underfunding continues to plague our public health system. According to the health expenditure report produced last year by the Australian Institute of Health and Welfare, the former government’s share of the public hospital bill decreased by more than five per cent in the four years to June 2006. This effectively meant that the former Liberal government was short-changing the Tasmanian public hospital system by $70 million each year. That is $70 million less to spend on extra nurses, on extra beds and on cutting waiting lists. And, in contrast to the shadow minister’s claims, that is $70 million dollars less spent on providing quality health services for older Australians.

For the Liberal Party and those opposite to claim that they oppose the measures contained in this bill on the grounds that they may or may not put further pressure on the public health system borders on the hypocritical. Indeed, one would be inclined to ask whether in fact it reflects just another populist tactic rather than a genuine concern for the future of the public health system. In light of the global economic crisis, such populist tactics are wearing thin and it is about time those opposite reviewed their true function in this place, which is to represent the best interests of the Australian people. If passed, the measures contained in this bill will provide immediate tax relief to around 330,000 Australians. For two average-income earners each earning around $60,000 this will deliver a saving of up to $1,200 in its first year. For many Australian couples and families that $1,200 is the difference between being able to scrape together a deposit for their first home and being able to pay for childcare and education costs. Indeed, in the current economic circumstances such a saving offers significant relief.

However, despite its obvious benefits it appears that those opposite, up until this point, have been ideologically opposed to raising the thresholds from the initial levels they originally set way back in the late nineties. As has been pointed out time and time again—but I will once again reiterate it—when it was first introduced, the stated aim of the Medicare levy was to apply to high-income earners, the people that could afford to purchase private health insurance. Indeed, at the time it was introduced the then Treasurer said that he hoped it was a tax that nobody would ever have to pay. However, despite this, since 1997, the threshold has come to represent a tax on the sly forcing an increasing number of working families—some, I might add, earning below the average full-time wage—to either pay the levy or stretch their budgets to take out private health insurance.

As the Minister for Health and Ageing, Ms Roxon, pointed out in her second reading contribution, in 1997, 167,000 Australians were liable for the surcharge. Then under the inaction of the former government, by 2005-06, this had risen to 465,000 Australians. That is 298,000 more average working Australians and mums and dads that have been forced to pay a levy, which the former Treasurer at the time of its inception claimed he hoped no-one would ever have to pay. The current government, right from the beginning, has labelled itself as economically conservative and, when delivering its first budget in May, focused on measures aimed at making savings where it could build a strong surplus for our nation’s future. Therefore the savings for Australian families contained in this bill, unlike those offered by the previous government, do not simply represent a handout or a cheap political stunt. On the contrary—they represent the actions of a government that genuinely believes in the concept of fairness and giving the Australian people, where possible, their due.

It is about restoring the balance, it is about doing what is right and it is about sticking to the original aim of the levy and not taking advantage of the Australian people by failing to act. As we saw yesterday with the Economic Security Strategy announcement, that is not this government’s way and that is certainly not the Labor way. There is no logical justification for those opposite to not support this bill. Indeed, many of those opposite have in fact previously seemed to support the amended thresholds in this bill. My fellow Tasmanian Senate colleague, Senator Richard Colbeck, stated:

If they are talking about indexation, and that is the intent of the government, then indexation of this measure would have put the threshold at about $75,000 or $76,000.

Further, Senator Cormann said: ‘Would it be more appropriate, instead of doubling it and probably overshooting the mark, to look at what the figure would be if it had been indexed? I am talking about approximately $75,000 per annum.’

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

Mr Acting Deputy President, I rise on a point of order. Senator Brown was perpetuating the same misleading statements that the Minister for Health and Ageing has perpetuated over the last three or four weeks by reading a question and presenting it as a statement. I ask you to advise her not to mislead the Senate.

Photo of Stephen ConroyStephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | | Hansard source

Mr Acting Deputy President, on the point of order: if the good senator feels that he has been misrepresented, there is an appropriate time and place for dealing with that instead of taking the time of the chamber with spurious points of order. I ask you to rule that there is no point of order at all.

The Acting Deputy President:

Senator Cormann, there is no point of order. It is a debating point.

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party) Share this | | Hansard source

I was going on to say that that was a line of discussion that was held in the Senate hearing, but Senator Cormann has beaten me to the punch. Anyway, I will repeat it and I will put the question mark in for you, Senator Cormann. I quote:

... would it be more appropriate, instead of doubling it and probably overshooting the mark, to look at what the figure would be if it had been indexed? I am talking about approximately $75,000 per annum.

The proposals contained in this bill represent the amended figures previously suggested by those opposite. By not supporting this bill their real reasons are exposed. If those opposite had previously suggested the measures contained in this bill, what is the purpose of them opposing it? How can the Australian people be expected to trust those opposite if they go back on their word? If Senators Colbeck and Cormann were serious, they would support this bill.

The proposals contained in this bill, resulting from much consultation with the private health sector, stakeholders and others in this place, represent a solid, sensible and reasonable approach—a middle way—which those opposite should get behind. Access Economics, in its report to the AMA, stated that thresholds of $70,000 and $140,000 would have ‘restored the system to the previous real levels, if this was the goal’. After the original bill was blocked, we have taken our original proposal away and listened carefully to what key stakeholders have had to say about appropriate threshold levels and we have adjusted them.

Further, an important part of the amended legislation is the introduction of annual indexation for the single threshold. This indexation will see the threshold indexed against the wages growth each year to ensure it keeps pace with growth. This will ensure that the application of the threshold will remain relevant and fair now and, importantly, into the future. This reflects the genuine commitment of the government to prevent the levy becoming a tax grab—as it exists today. It reflects a fair and balanced approach to the application of the levy.

This increase was one of a range of measures announced as part of the government’s economically responsible budget, and it is aimed squarely at helping to reduce the cost-of-living pressures faced by average income earners in Australia. Indeed, initiatives such as those contained in this bill reflect an acknowledgement by the government that many Australian workers and their families are under financial strain and the government, where it can, should be trying to ease that strain. In light of the global economic crisis and the government’s $10.4 billion Economic Security Strategy announced yesterday, any such measures that put money in the back pockets of Australian families are welcome and should be supported. Lifting the thresholds to $75,000 for singles and $150,000 for couples will provide savings to around 330,000 average earners in Australia—a significant number who, it appears, will be disappointed again by those opposing this bill. Those opposite appear to be content to continue their program of budget vandalism by once again not supporting this bill. I urge those opposite to support this bill. This bill will operate to bring the threshold levels back to roughly where they were first intended to be. The indexation measure will further ensure that the threshold levels remain relevant and fair now and, importantly, into the future. I commend the bill to the chamber and once again urge those opposite to stop politicking and stop blocking this much needed measure. Australian families need this measure, and those opposite should support the bill.

11:04 am

Photo of Julian McGauranJulian McGauran (Victoria, National Party) Share this | | Hansard source

Dear, oh dear! Was that the government’s effort to defend the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008 for the umpteenth time? It was very sad. You did not put much into that, Senator Brown, to be quite frank. I know the government put you up to it—to being the lone speaker in the dying days of this bill. You must know defeat is before you. There was no passion in that. You said that we were resisting on ideological grounds. I am pleased to be able to follow the contribution on this bill made by my Western Australian colleague, Senator Cormann. He is someone who has spent a lot of time on this issue—from the beginning through to now, its closing point.

Senator Cormann was party to the Senate inquiry and had much to do with the writing of the dissenting report—a very comprehensive report and one that was not full of cliches like the contribution by the previous speaker. I wrote a couple of the remarks down. They were so esoteric. Her argument for the government’s position was that the difference between private health insurance and public health is ‘out of whack’. That was it—‘out of whack’. So we are just supposed to take that on face value—‘out of whack’! We do not know how out of whack or what is particularly out of whack. In contrast, the previous speaker from the opposition side, Senator Cormann, backed his statements up with facts, figures, modelling and experience. Read the dissenting report, for heaven’s sake! That is the difference. We take this issue of health seriously. We know it is a No. 1 political issue for any political party. Heaven knows, the last time we were in opposition, health was a problem for the then Liberal opposition, and we had to come to grips with the issue of health and Medicare.

Senator Cormann laid down the principles for a good, healthy health system. We have probably one of the best in the world. I would defy anyone in any country to compare their health system to Australia’s. I think Australia has the best health system in the world. It is yet another legacy left by the previous government for the current government, and in the first nine months they are already starting to dismantle it. The principles laid down by the previous speaker on the opposition side are not esoteric. They are real; they are concrete.

We turned those principles into policy and action when in government. We had an affordable system, an accessible system, a modern system with the best of care. We had a health system that had a balance. To abide by those principles you need a health system that has a balance between private and public. That is what our side believe in. If you want to accuse us of ideology, our ideology is that the best system for the Australian public is a mixed system, with a balance between public health and private health, because it offers freedom of choice for the individual and for the family.

Senator Conroy, if you want to talk about ideology, we know the other side’s ideology on this. Because we have the facts and figures to prove that our ideology produced the best health system, you have to ask yourself: why would the new government take to the system as it stands now? Because of ideology. I will refer again to Senator Cormann’s speech—and I will refer to it even more when I address myself to the dissenting report, so comprehensive is it that it ought to be read into Hansard. There is enough material there to make a good speech about and mount a good case for why this bill ought to be defeated.

But I was talking on the point of Labor Party ideology. We saw it when they were last in government and we are seeing it now that they are in government again. In fact, we saw it when they were in opposition. Let us go through the history, which Senator Cormann rightly raised. He mentioned Senator Richardson. Talk about a blast from the past. Ironically, in the chair at the time we had Senator Hutchins, one of the modern day New South Wales number crunchers. He is pretty good at it, but no-one is like Senator Richardson.

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

Senator Conroy knows all about that.

Photo of Julian McGauranJulian McGauran (Victoria, National Party) Share this | | Hansard source

Senator Conroy has attempted on many occasions, Senator Cormann, to model himself on Senator Richardson. But can I just use these infamous words: he is no Senator Richardson. Senator Richardson spent most of his political career just playing politics, playing the numbers game. He wrote a book about it, if anyone cares to read it. It is called Whatever it Takes. I am sure you have read it, Mr Acting Deputy President Ellison. The point is that he was not a man who took to good management of a ministry very well. But on one occasion, to give him absolute credit, he decided to knuckle down and focus on his portfolio. I would say that the public servants burst through his door and said, ‘You’ve got to do something now about the health system. It’s starting to collapse.’ Then, as was properly mentioned by Senator Cormann, he did. He created a discussion paper on health called Reform of private health insurance.

Such was the seriousness of the situation, the degree to which the health system had run down. When Labor first came into government, membership of the private health system was around the 70 per cent mark and was collapsing by the year. It was down towards 32 per cent when we gained office. Senator Richardson tried to alarm his government by saying that this could not possibly go on, that the system had to be addressed and that there were many people such as pensioners and people on low incomes who took up private health insurance. He said that there needed to be a mixture of public and private health—not solely private health but a mixture. A collapsing private health system quite obviously puts pressure on public hospitals and state and federal budgets and increases premiums for the disadvantaged, the pensioners.

That was Senator Richardson’s cry. It was a cry in the wilderness because, from the Prime Minister down, ideology set in. Also, no less than the ACTU stepped in to stop the plan by Senator Richardson to save private health. Ideology set in. Mr Keating, the then Prime Minister, called private health insurance a system for the rich. He believed, as did most of those from the left wing of the Labor Party at the time, in universal health care—one system, a public system.

Anyone who has any practical experience in the real world outside politics and outside public life knows that governments are not very good at running things, let alone the health system. Why would you rely solely on a public health system? Why would you rely solely on state government whims, state government budgets and federal government budgets and management? It is impractical. It is dangerous, quite frankly. We on this side of the house also say that we would not rely solely on a private health system. It has its flaws too, quite obviously. A private health system driven by returns will end up with many gaps in it, where companies will not take up certain procedures and where they probably will out-price many of those who cannot afford private health. So what you need is the mix.

But if anyone is driven by ideology it is those on the other side. When they were last in government they utterly collapsed the private health system. When they were in opposition they resisted, on each occasion, our attempts to reform the health system to get a better balance between private and public health and to lift the number of people who would go into private health insurance. They resisted when we introduced the surcharge, lifetime health insurance and the 30 per cent rebate. They held the dismantling of the 30 per cent rebate—as successful as it was shown to be—as a policy right up until 2007. They were against it for one reason when they were in opposition: ideological grounds. Now that they are in government they are attacking the private health system with all the ideological zest they can find.

Do not dress this up as some sort of tax relief when it is not tax relief. It is bad legislation. More people will be hurt by this than will ever get tax relief. It is a dangerous charade you are carrying on. I think you must have run up the white flag, since you put Senator Carol Brown up as your last speaker on this issue. She barely made her 20 minutes; she petered out towards the end and just used a whole lot of cliches. So I accept now that you have probably run up the white flag on this issue. Not that you have seen sense—we have had to knock it into you, in regard to the numbers. But the truth is that this attempt to dismantle and damage the private health insurance system is dangerous. It is dangerous to the many pensioners who take out private health insurance—hundreds of thousands of them. A figure was quoted that in 2006 there were some one million people on low-incomes of around the $20,000 mark who had some mix of private health insurance. People such as those are even below the surcharge threshold, so it is no advantage to them and they will suffer higher premiums. You have not looked into this. You have allowed some ideological bent to take hold. But, thanks to the numbers here in the Senate, this will be defeated.

One thing Australia can be proud of is its health system. There is only one reason: we have got the mix. It is not ‘out of whack’, as you would say, Senator Carol Brown. It is not ‘out of whack’ at all, whatever that is supposed to mean. Here is another one of your great cliches: you are not ‘putting money into the back pockets of families’—you are ripping it out! Does it make any sense? I see you shaking your head, Senator Carol Brown. What sense can we make of this? I know it is impossible to get through to you, even when all the facts and figures are there in the dissenting report. That report is an absolute credit to the senators who sat on that committee—

Photo of Stephen ConroyStephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | | Hansard source

Have you read it? Have you read all of it?

Photo of Julian McGauranJulian McGauran (Victoria, National Party) Share this | | Hansard source

I have read it all. Have you? Of course you have not! You have not even read your own brief—we get that from question time. We know you have not even read your own brief in your own portfolio. I will quote from this dissenting report, Senator Conroy, to save you having to go back and read it. Let me just put on the record elements of this dissenting report which sum up our case and the facts. We ought to deal with the facts when it comes to health. You can have side debates—ideological debates, philosophical debates—on other issues but not on health. It is no place to be running your left-wing ideology. And that ideology has been proven to have failed; it is not even good ideology. I see Senator Cameron has just come into the chamber. Talk about ideology! He is a man riddled with the politics of envy. He would have loved what Paul Keating said: that private health is for the rich; that we ought to have a universal health system. And he sits as one of the prominent members in the new government. This has been proven to be a failure—then, when they were in government; then, when we were in government; now, when you are in government. Yet you are still thick-headed about the whole issue.

Photo of Carol BrownCarol Brown (Tasmania, Australian Labor Party) Share this | | Hansard source

Excuse me?

Photo of Julian McGauranJulian McGauran (Victoria, National Party) Share this | | Hansard source

‘Thick’—‘thick-headed’. Let me read some things into the record:

Even on the most conservative estimates, health fund membership would plummet and premiums would rise well over the trends of recent years …

… particularly private hospitals. Fewer privately-insured people mean fewer private hospital episodes …

I am quoting selectively, I admit, and from page to page.

The savings suggested by the Government appear to be illusory at best …

Certainly, there will be a massive cost shift from the Commonwealth and the privately insured to the States through additional demand on public hospitals.

And the states have already had something to say about that.

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

All of them.

Photo of Julian McGauranJulian McGauran (Victoria, National Party) Share this | | Hansard source

All of them. Typically, they are not going to wear it. Did you ever think they would? I think this Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008 came down in budget time. I would have to say that, of what was a bad budget, this would have to be the worst policy announced on budget night. I know that in your first budget you are under pressure; you want to get things out. But this would have to have been the worst, most costly and most incompetent announcement on budget night—and there were a few of them. But you are playing in the area of health. I cannot see that the health minister, who put this up, who is responsible for this, has a very long future, with the embarrassment of it being defeated in this Senate—I assume—but also the mere fact—

Photo of Stephen ConroyStephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | | Hansard source

She will be a minister longer than you will be.

Photo of Julian McGauranJulian McGauran (Victoria, National Party) Share this | | Hansard source

Okay; good point. But that is not the point. I will tell you one thing: I would never dream of putting up such absurd, dangerous, incompetent legislation as this. So I would say to the government: when it comes to matters of health, be a little less ideological and a bit more pragmatic; look at the history. Go back and look at your own history when in government and look at the achievements of the previous government, and do not wreck what was left for you.

I should add, and it was properly pointed out by the previous speakers, that private health insurance, as was shown in the report, is not a matter for the rich—far from it. People from all levels ought to have access to private health. The inquiry heard from National Seniors Australia—to name just one body—that this legislation, should it go through, will seriously hurt older Australians and pensioners. Time does not quite permit me to read out the quote, but again I refer you to the dissenting report.

The Chief Executive Officer of Catholic Health Australia gave evidence before the inquiry, pointing out how this will hurt their hospital system—which is one-third of the hospital system. He went on to say that the Catholic hospital system itself has a mixture of private hospitals and public hospitals. The private hospitals help to fund and subsidise the public hospitals. Should this legislation go through, they will be sorely affected. The Catholic public hospital system will not be able to be subsidised as greatly. The case will be exactly the same for the state hospital system. The same thing will happen.

I hope this legislation is heading for defeat and will not be seen again. I hope the government goes back to the drawing board and takes health a little more seriously. It should when the next reshuffle comes have a look at the minister that it has put up, because this is a disgrace. This is a disgraceful piece of legislation. Of all the policy announcements in its very first budget, this ranks as the worst. And that is saying something, when you think of the luxury car tax and what a shemozzle that ended in and the alcopops tax and what a farce and a fraud that is. This will hurt more—up to one million—low income people. We reject this legislation, and we support its rejection in the Senate.

11:24 am

Photo of Nick XenophonNick Xenophon (SA, Independent) Share this | | Hansard source

I indicate that I support the second reading of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008 but reserve my position in relation to the third reading. My position has been clear from the first days after the previous version of this bill was introduced. I am not happy when what is, by the government’s own admission, a tax bill is spun as health policy. This bill should be the responsibility of the Treasurer. Having said that, I acknowledge the cooperation and the professionalism of both the health minister and her office. In my dealings with them over the last few weeks they have been very helpful in providing the information that I have requested. They were always cordial. It was always useful to meet with the minister and her advisers. I put on the record my acknowledgment of the professionalism of the minister and her office.

I am also uncomfortable about a bill being sold to Australians as putting tax money back in their pockets, when in fact it is putting more money back into the government’s coffers. Let us be honest: in its original form, this bill was to make the government a net gain of $300 million. Initially, it was claimed that Australians would get tax cuts to the value of $660 million, while savings on health insurance rebates to those who dropped out would be $959.7 million—a net gain of $299.7 million to the government over the forward estimates. This type of tax cut is equivalent to giving someone a $5 note and being certain that you will get $10 back later. This principle has not changed even though the threshold levels have.

That said, I agree that it makes sense to increase the Medicare levy surcharge thresholds on annual taxable income from $50,000, when the average Australian income is now $58,000. I believe it was a mistake of the coalition when the threshold first came into effect, back on 1 July 1997, to not have indexed it for inflation. I would urge the coalition to reconsider their position on this. This levy should not be placing many average Australians on the so-called rich list. However, we must be responsible in how we do this, particularly in these times. Any indexed change must be made according to CPI—that is, the cost of living—and not according to obscure measures favoured by Treasury officials. The government’s thresholds in this bill are based on average weekly ordinary time earnings and are to be indexed accordingly. However, in this time of financial insecurity, the purchasing power of many older Australians—that is, the main users of health services—is declining due to their not having weekly earnings and their share portfolios plummeting either directly or through their super funds.

An approach that focuses on fair health outcomes, not tax takes, is to index the thresholds against the real cost increases of CPI. This would set the threshold figure at some $69,000 for individuals and $138,000 for couples. This is a fairer benchmark for all Australians and this has been my consistent position from when this bill was first introduced. I flag now that I will be introducing an amendment. I have circulated an amendment to this effect, and I will be urging honourable senators to support that amendment and what I believe is a fair and sensible compromise. In this bill the government has rounded down the average weekly earnings index to the thresholds of $75,000 for individuals and $150,000 for couples. Why would this be, given that CPI is the index that all Australians understand? It is a fairer measure. Why would the government go for the obscure economic index it seeks in this bill? The answer is not to provide more tax cuts; rather, it is the old $5 for $10 trick of keeping a bigger surplus. With thresholds of $75,000 and $150,000, the government expects—on its own figures—583,000 people to cease to be covered by private health insurance. With thresholds of $69,000 and $138,000, government predictions are that that number will be closer to 488,000.

So a shift of $6,000 will mean 100,000 fewer people will be exempt from the levy. Why would I not support tax relief for 100,000 Australians? The first answer is that this so-called tax cut for a few will actually result in private health insurance increases for another 10.4 million Australians. Health insurance industry figures indicate that over one million Australians with private health insurance earn less than $26,000 per year and over 30 per cent of private health insurance holders earn less than $48,000 per year. These people are paying for heath insurance to meet their real health needs, not to avoid a levy. These people cannot afford and do not deserve a premium hike to pay for tax relief for a few. There is frustration in the community that private health insurance costs seem to be constantly on the up, so why provide an excuse for another rise?

I am concerned that there will be a tipping point if you have too many people dropping out of private health insurance, even on the government’s own figures at the $75,000 figure. We have seen from the private health insurance industry estimates that this figure could be much higher. I am concerned about that tipping point, I am concerned about maintaining equilibrium—a balance between the private and public hospital systems in this country—and that is why it is important, I believe, to take a cautious approach. I think this cautious approach is justified in the context of what has happened to all financial markets when you consider that private health insurers in this country rely to a significant degree—up to half, as I understand it—on their income from their investments and these investments have taken a battering in recent times. These are the matters that must be considered.

My second answer to the question I posed in relation to the whole issue of a tax cut and its implications is because these 100,000 extra people on the public system will put extra demand on public hospitals and waiting lists. That is a real risk. That will be a cost pressure on the system. Using industry estimates of the impact of the public health system in my home state of South Australia, this difference of $6,000 will require an additional 11 public hospital beds, or one ward, per day to a total of 4,000 places a year. How would these be funded? Will this not result in longer waiting lists? The government openly admits that this is a tax bill and the extra revenue is earmarked for the surplus. But I am concerned that what 300,000 Australians will get by way of a tax cut will be more than offset by 10.4 million Australians paying more in private health insurance premiums unnecessarily as a direct consequence of this particular measure.

As I said in my previous second reading contribution, I need to be convinced that this bill is not just a tax grab spun as health policy; I have not been convinced. I appreciate the need to address the inconsistency of the current threshold below average weekly earnings and support some change. But I believe the fairest, clearest and most balanced approach is to use the CPI, which reflects actual living costs for current and future indexing of the Medicare surcharge levy threshold. As a consequence, I foreshadow amendments to this effect in the committee stage which if unsuccessful will mean that I have no choice but to oppose this bill at the third reading stage.

11:32 am

Photo of Doug CameronDoug Cameron (NSW, Australian Labor Party) Share this | | Hansard source

I raise to support the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008 and I do note that Senator McGauran in his usual quite dramatic way has raised a number of concerns from the opposition. But what should be understood is that the Medicare levy surcharge is simply a tax on income. This bill will provide tax relief for low- and middle-income individuals earning between $50,000 and $75,000 a year and for families earning up to $150,000. This bill will restore equity to the incidence of the Medicare levy surcharge and will remove a tax trap that increases each and every marginal tax rate by one per cent on each and every dollar earned by anyone earning between $50,000 and $100,000.

The government intends to redress the lack of fairness in this Medicare levy surcharge and it is a lack of fairness that the coalition did nothing about in their 11½ years of government. It has been left again to a Labor government to bring about some fairness and equity to the ordinary taxpayers of this country. We will do that by having a proper administration of the Medicare levy surcharge.

The coalition oppose this bill; it is hardly surprising that they oppose the bill. In the past few months they have caved in to just about every rent seeker that has knocked on their door. They oppose tax relief for low- and middle-income earners paying the Medicare levy surcharge while they oppose taxes on luxury cars for the rich. On private health, they have made no mention about some of the costs imposed on the community through private health insurance.

It was very interesting that during the Senate inquiry we heard from the chief executive of one of the private health funds who had gone through a process of demutualisation and, in that process of demutualisation, this chief executive was awarded $1.2 million to demutualise the health fund and turn it into a private entity. I do not see this as a good spend of public money. Why should we be supporting a 30 per cent subsidy for these health funds if this is the type of conduct that they are going to embark on? We should be saying loud and clear that if you want a private health industry in association with the public health system then we should get value for money, and $1.2 million bonuses to chief executives in private health funds is not good value for those that are paying into the private health industry or for the public, who are subsidising the private health industry.

We have seen the opposition defend an unjustifiable and unconscionable subsidy from every taxpayer in the country to the North West Shelf joint venture partners, who include some of the biggest, most powerful and most profitable corporations in Australia. The public need to know what the opposition have been about in this house. They have been supporting the big oil companies and they are supporting the private health industry and their executives with their $1.2 million-a-year bonuses. They have been supporting the Maserati drivers and the Lamborghini drivers and, at the same time, they are saying that ordinary Australians should not get a tax cut when they are being forced into paying for private health insurance at a level that was never envisioned by this policy when it was set up by the coalition when they were in government.

The bill increases the Medicare levy surcharge thresholds from an annual tax income of $50,000 to $75,000 for individuals and from $100,000 to $150,000 for families and couples. The increased thresholds will apply from the 2008-09 year of income. For 2008-09 tax returns, individual taxpayers earning $75,000 and under will not be liable to pay the Medicare levy surcharge. Currently, the surcharge is an additional one per cent of taxable income imposed on those who do not have private health insurance and who earn over $50,000 a year—or $100,000 a year for couples and families. It is not just a levy on income over and above the income threshold; for those whose income exceeds the threshold, it is levied on all of their taxable income.

If this bill is passed, a single person without health insurance on the average annual salary of $58,600 would receive a tax cut of $586 a year. This is an important tax cut when ordinary families are under pressure from the global economic crisis that we are facing. At a time when the government is taking substantive steps to reduce the burden on ordinary workers in this country, we cannot have the opposition continue to try and impose a $586 a year tax penalty on workers who do not want to be in the private health industry area.

This is a unique tax in Australia and it is not in the least bit progressive. In fact, it acts in reverse. It taxes income downward after a person’s income exceeds the threshold. In this sense, it does really carry the coalition brand of unfairness, the coalition brand of not caring about ordinary Australians, the coalition brand of looking after the big end of town when they are screwing ordinary working Australians. Only the coalition would introduce such a tax. Labor is moving to fix this by raising the threshold.

If the Medicare levy surcharge had been indexed to the CPI since it was introduced on 1 July 1997, the threshold would now be $67,000 per annum. If it had been indexed to average weekly earnings it would now be set at $76,000 per annum. Labor has accepted the amendments from the minor parties, which go to the level at which the Medicare surcharge levy should be set. We have listened to those concerns and we have made proper amendments to the first bill. The Australian Taxation Office figures show that, in 2005-06, 465,325 taxpayers incurred the surcharge—up from 436,490 in 2004-05 and only 167,330 in 1997-98.

On the government’s private health website, the policy intent of the Medicare levy surcharge is described as follows:

The surcharge aims to encourage individuals to take up private hospital cover and, where possible, to use the private health system to reduce the demand on the public system.

When the Medicare surcharge levy was introduced in 1997, it was targeted at high-income earners. The then Treasurer, the Hon. Peter Costello, told the House in August 1996:

… higher income earners who can afford to take out private health insurance will also be encouraged to do so.

          …            …            …

This is the levy which the Government hopes no-one will pay. It is entirely optional. Those who take out health insurance (with the benefits attached) will be exempt.

The coalition have moved from that principle. It is a bit like the way Senator McGauran has slipped from his principles with the National Party into new principles with the Liberal Party—you have no standing in terms of your values for the long term. Senator McGauran has the cheek and the hide to stand up and talk about principles when he has demonstrated absolutely none in his political conduct and his political career. It is an absolute joke for him to come in here and talk about principles. I am glad to say that I have some principles that I stick to. I want a strong national health system that is available to everyone in this country. There is no problem with me sticking to that principle. But Senator McGauran, in my view, will not be sticking to too many of his principles—if he can climb up that slippery pole of leadership, which he seems destined never to climb up. Never have I seen such hypocrisy in the House as I have seen from Senator McGauran.

I will now turn to Professor John Deeble, the principal architect of the Medicare system in the 1980s, who was not challenged in any way, shape or form by opposition senators when he gave evidence to the Senate Standing Committee on Economics inquiry into this legislation. In his submission to the inquiry Professor Deeble said:

The surcharge is an income-related tax. However, unlike almost any other income-based tax, it operates in a reversionary way—that is, it applies to all of the taxable income of people earning above the thresholds, not just to the excess. I know of no other tax that works in this way and it is extraordinary that an Australian parliament should have approved it. The result is a very high marginal tax rate for people with incomes at or close to the thresholds.

Professor Deeble, as I said, was unchallenged in his submissions to the inquiry. In his summary he said:

The economic effect of the proposed changes will be to reduce the cost of public hospital care by 40% for single people with incomes between $50,000 and $100,000 per annum, and for families with combined incomes of between $100,000 and $150,000 a year.

Professor Deeble understands these issues. He is a compassionate man and he is a competent public administrator with a long record. He has targeted the issues here, not only in terms of the health system but in terms of the fairness that is required for ordinary Australians to go about looking after themselves and their families in a fair and equitable manner. He went on to say:

That will have some effect on the membership of private health insurance and on the private hospitals and doctors that private insurance supports. The shift in membership is most likely to occur amongst younger people whose use of hospital services is lower than the average.However, the effects will be quite small.

We have heard all of this doom and gloom. The doom and gloom merchants of the coalition have been at it loud and strong again on this issue. Professor Deeble said:

Based on hospital usage in the relevant age groups, the number of people covered by private insurance is expected to fall by about 8% but benefits paid would fall by only 3%. Premiums for the remaining members would rise by just over 5%. That would not threaten the viability of private insurance.

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

Senator Cormann interjecting

Photo of Doug CameronDoug Cameron (NSW, Australian Labor Party) Share this | | Hansard source

Professor Deeble has nailed your arguments. It will not threaten the viability of the health insurance system. It will not threaten it at all. All of your Chicken Little ‘sky is falling in’ arguments mean nothing when the experts come before you and destroy the arguments that you put in the committee and that you have put here. Professor Deeble went on to say:

Ultimately, public hospital admissions may rise by about 2% and expenditures may increase by a slightly lower figure. However because the Commonwealth now pays significant amounts for medical services and drugs for private patients outside the private health insurance system, and gives at least a 30% rebate on premiums, the net cost to governments will hardly rise at all.

Again, Professor Deeble shoots down the hysterical arguments that we have heard in this debate from those sitting opposite. Professor Deeble is the acknowledged expert on these issues. So what do the coalition and the industry do to try and support this unfair tax on ordinary Australians? They wheel in their guns for hire, their economists, who come in and run these crazy econometric models that just do not provide any real semblance of what can happen and what will happen in relation to the health system.

Professor Deeble again destroyed this myth that the models that were being used to try and justify this rip-off of the public funding system by some in the private health system should be continued. He argued clearly that you cannot develop a model that will model what people will do. He argued that some people will stay in a private health fund because they want to, others will stay because there is a benefit for them and others will make a choice that they will leave. He said that you cannot model what these people will do. It is quite clear that, when the modelling was put forward in the Senate Standing Committee on Economics, it was a very feeble argument that was put up to justify these models.

I think we have to be very careful about what this is about. It is about reducing the unnecessary tax burden on hundreds of thousands of Australians. It is about making sure that we have got public and private health systems that complement each other. I think it is about time those opposite stopped arguing that everything is perfect in the health system in this country. There is no doubt that the Labor government will continue to look at both the public and private health systems and assess what is required to make our system unchallengeably the best health system in the world.

It is not the best health system when chief executives are ripping $1.2 million out of the health system for their private gain. I do not believe that is what should be happening. I believe that we will need to address in the future the proper balance between the public and private health systems and we will need to take up some of the arguments that were put forward in the evidence that came before the economics committee. We must demand accountability. We must demand openness. We must demand a proper approach from the private health industry in this country so that, when they are being subsidised by 30 per cent by the public of this country, we get openness and we get accountability.

I believe that what the government is doing is the best approach to deal with fairness and equity in the public and private health systems in this country. We have had the opposition argue that there was no consultation. I have got to say I do not remember being consulted about Work Choices. I do not remember being consulted about what the opposition were about to do to rip away the basic fairness for workers in this country in the industrial relations system—absolutely no consultation there.

What we have to do is to make sure that our health system does become a beacon of fairness, equity and reasonableness for the rest of the world. We are facing tough economic circumstances because of the failures of the Liberal Party in government.

Opposition Senators:

Opposition senators interjecting

Photo of Doug CameronDoug Cameron (NSW, Australian Labor Party) Share this | | Hansard source

We are facing tough economic circumstances because of your incompetence in government on health, on education, on employment and across a whole range of issues. You have got nothing to crow about about economic capacity, because you were failures and we are paying the price. We will not continue to pay the price on health. (Time expired)

11:52 am

Photo of Catryna BilykCatryna Bilyk (Tasmania, Australian Labor Party) Share this | | Hansard source

I rise today in support of the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008. The Medicare levy surcharge imposes an additional one per cent Medicare levy on single people with taxable incomes greater than $50,000 and families whose combined taxable income is greater than $100,000 and who do not have private patient hospital cover. The threshold for paying the surcharge increases by $1,500 for every child after the first child. When the Medicare levy surcharge was introduced, the policy was targeted at high-income earners and the threshold has not been increased since the surcharge was introduced on 1 July 1997. When the surcharge was introduced by the previous government, the then health minister, Michael Wooldridge, said:

High income earners will be asked to pay a Medicare levy surcharge if they do not have private health insurance. These are the people who can afford to purchase health insurance.

When it was announced on budget night in 1996, Treasurer Peter Costello said:

Higher income earners who can afford to take out private health insurance will also be encouraged to do so.

When the surcharge was introduced in 1997, 8½ per cent of single taxpayers were captured by the surcharge levy. At that time it was estimated that 110,000 individuals and 100,000 families would be affected by the levy. It was clear from the then government’s pronouncements about the surcharge and the number of individuals and families affected that this was a measure aimed at high-income earners. It was part of a carrot and stick approach to encourage those who could afford private health insurance to purchase it and relieve pressure on the public system. The other part of this approach was the 30 per cent private health insurance rebate, which Labor has retained.

I reiterate that it was not expected that ordinary Australians would be subject to the Medicare levy surcharge. The bulk of income earners were expected to be able to have the choice of using the public system without being penalised for that choice. The passage of time and the inevitable changes in earnings and inflation have resulted in a perverse outcome for working families. As wages increased, more and more people became trapped into having to pay this tax in circumstances where they had not previously anticipated that they would. The tax trap set by the previous Howard government caught more and more working families in its net, so much so that many people earning below what a lot of people would call an average wage were forced to choose between taking out private health insurance, which many could not afford, and paying a tax that was really meant to apply to high-income earners. That is what happened—a tax originally meant for the wealthy trapped nearly half a million Australians.

What used to be regarded as the threshold for a high income is now below the average. Average weekly earnings have increased by nearly 50 per cent since the Medicare levy surcharge was introduced. An average annual income today is about $58,000 to $60,000 per year. In evidence to a recent Senate inquiry, Treasury officials estimated that in the 2008-09 financial year 36 per cent of single taxpayers would exceed the threshold. By the 2011-12 financial year, current estimates are that that figure will jump to 45 per cent of taxpayers. So what started back in 1997-98 as general policy by the then government of having almost universal coverage—that is, only eight per cent of single taxpayers were captured—has increased in the current financial year to 36 per cent and within two or three years will grow to 45 per cent of taxpayers. That is almost half of Australia’s taxpayers being slugged with a one per cent levy if they do not take out private health insurance. Without this budget measure, by 2011-12 some 2.2 million singles and 1.3 million families would have been caught by the levy.

The initial measure proposed by the government would increase the Medicare levy surcharge threshold for singles from $50,000 to $100,000. It was further proposed to increase the Medicare levy surcharge threshold for couples from $100,000 to $150,000. These increases would apply to the 2008-09 and later income years. The new thresholds would restore the percentage of people captured by the surcharge to about 8½ per cent of taxpayers or nine per cent by 2011-12. This measure was to cost $660 million over the next four years. However, a decrease in government expenditure on the private insurance rebate would have resulted in a net saving of about $300 million over the forward estimates. After further consultations we have reduced the proposed threshold for singles to $75,000. Instead of the 400,000 Australian taxpayers who would have received tax relief under our initial proposal, this new measure will now provide relief for 330,000 Australians.

I do not think that the opposition have been listening. They certainly do not appear to have listened to working Australian families, but they may well have been listening to the big private health insurance companies. We in the government have been listening and we want to give tax relief to about 330,000 Australians. If you are a family on $60,000 a year, these changes will deliver about $1,200 into your pocket. I know that for very many people in Tasmania this is a lot of money. They would be very happy to have that extra cash. It is money that they could have in their pocket that would make a difference to their day-to-day living or that they could spend on items such as a holiday or something else that they have not been able to have recently.

If indexation had applied to this previously, as it should have, we would not now be looking at $76,000 for individuals and $152,000 for families. Access Economics, in a report for the AMA, said that we would be looking at a $70,000 threshold for an individual and a $140,000 threshold for a couple. As also stated by Access Economics, this would restore the system to its previous real levels if this were the goal. I question the goal of the previous government. They would not allow tax relief to the Australian public, so we have amended the threshold to $75,000 and hope that they will help the working families of Australia. They certainly did not want to help Australian working families prior to the last election, as you can tell when you take into account their Work Choices legislation in the last parliament.

The amendments do not exempt as many people as we initially hoped to help, but we have taken this pragmatic measure for the sake of gaining the support of the Senate. Senator Xenophon has suggested that the threshold should be lower than we originally proposed, while the Greens have asked for indexation. The lower threshold for singles also has the support of various stakeholders. Let me say again: $50,000 or even $60,000 is not a high income. I think most senators would agree with that—in fact, I believe Senator Birmingham has actually stated previously that it is a working salary, not a high salary. If you earn $50,000 and you have a family to support, you struggle, you find it hard to meet the costs of living. Those opposite made a hue and cry on behalf of pensioners, a cause they only seem to have worried about recently, so I say to them that it is of critical importance to provide relief for the Australian public in this regard.

An Access Economics report for the AMA said thresholds of $70,000 and $140,000 would reflect the real levels of the original thresholds. What the government is showing through making this change is that we are willing to listen carefully and work with the senators on the cross benches. We have demonstrated through the passage of the luxury car tax changes that, through negotiation and good working relationships, we can get legislation through the Senate without the support of the opposition. It would be in the opposition’s interests, however, to support this legislation. I fail to understand what their complaints are about with regard to this legislation. I have sat here through four or five speakers and watched other speakers on the screen. What confuses me is why they did not put more money into the public health system when they were in government. Why didn’t they put in more money for elective surgery, like we have? Why didn’t they put in the extra billion dollars that we did? I can tell you the answer to those questions: because they have no commitment to the public sector. Whether it is Medicare, public health or public education, they do not have any commitment to it. They allege to support these things but they do not. They de-fund whenever they can, and will do so again if they are returned to government.

What the opposition have demonstrated instead—as they did with the luxury car tax—is that they are not standing up for the interests of working families. They have shown that when it comes to the Medicare levy surcharge they support higher taxes for average-income earners but, when it comes to the luxury car tax, they support lower taxes for high-income earners. They are like the Sheriff of Nottingham—robbing from ordinary workers and giving to Porsche drivers. They do not support a saving of $750 for average-income-earning individuals, nor do they support a saving of $1,500 for average-income-earning families.

The opposition’s spurious argument against this measure is that it will put unmanageable pressure on the public health system—which, I repeat, they did not worry about when they were in government. This argument is flawed, and I can give at least four reasons why it is flawed. First of all, a number of people with private health insurance are young, healthy people who do not draw on the private health system. It can be similarly expected that the same people will not have to draw on the public system—or does the opposition believe that these people’s health will suddenly decline as a result of this measure? Do they think that after coming to rely on the public health system they will fall ill in droves despite not having had to draw on their private insurance?

The second reason is the current reliance on the public health system by people who already have private health insurance cover. There are many people who hold private health insurance but still have no option but to occupy a bed in a public hospital because they cannot afford gap payments. Usually they are liable to gap payments because they have purchased cheap health insurance policies to avoid paying the Medicare levy surcharge. In fact, the private health insurance industry sells products explicitly designed to avoid the levy while offering very few other benefits.

The third reason is that, unlike those who purchase these sham policies, there are many people who purchase private health insurance because they genuinely want private cover regardless of how this affects their liability to the Medicare levy surcharge. In evidence given to the recent Senate inquiry, the Australian Health Insurance Association said that one-third of those with private health insurance live in households with an income of less than $48,000 per year.

The fourth and final reason is that the Rudd government is already injecting significant resources into our public hospitals, after 12 years of neglect by the former government. Under the Australian healthcare agreements public hospitals used to be funded on a fifty-fifty basis by the Commonwealth and the states and territories. When negotiating the last five-year agreement the Howard government basically offered a ‘take it or leave it’ agreement that the states had no choice but to accept. The Health expenditure Australia 2005-06 report released by the Australian Institute of Health and Welfare showed how the funding load had shifted to the states. In my home state of Tasmania, annual Commonwealth payments to Tasmania for public hospital funding rose by just $35 million, from $168 million in 2003-04 to $203 million in 2005-06. Over the same period the Tasmanian government’s annual spending on hospitals rose by $180 million, from $299 million to $479 million. The Commonwealth’s share of the bill declined from 37 per cent to less than 31 per cent, with the state government’s share rising to more than 69 per cent. This was the equivalent of the Howard government short-changing Tasmania’s hospital system by $70 million a year.

The Rudd government’s budget presented in May this year invests $1.6 billion in the public hospital system, including $1 billion for hospitals this financial year and $600 million to cut elective surgery waiting lists. This is what Tasmanian health minister Lara Giddings said in a statement in response to the opposition’s suggestion that our proposal would put undue pressure on the public health system:

Compared with major factors such as growing chronic disease and the ageing population, the changes to the income threshold for the Medicare levy surcharge are not material.

This is just scaremongering from the opposition to try and justify their position. Let’s not forget that the Medicare levy surcharge was introduced in 1997 as a measure to target high-income earners. Once again I ask: who do the opposition now really regard as high-income earners? Do they believe that an individual with an income of $50,000 is a high-income earner, as they seem to indicate in their opposition to this bill? If so, why do they believe that an individual who can afford a $100,000 luxury car is in need of a little tax relief, as they indicated in their opposition to the luxury car tax increase?

We on this side of the chamber know precisely the real reason the opposition will not support our changes to the Medicare levy surcharge. With their opposition to this measure and to the luxury car tax increase a theme is starting to emerge. This pattern of behaviour in the Senate reveals that the opposition believe in looking after the wealthy and they do not believe in looking after ordinary Australians. They do not believe in an average-income earner accessing the public healthcare system without being penalised, yet they believe in making sports cars more affordable. It really says a lot about their philosophy on income equity.

When the Reserve Bank decided to lower interest rates by 25 basis points on 2 September this year, mortgagees saved an average of $600 per year. For a couple on incomes of $60,000 each per year, the coalition are basically saying, ‘Here, you can pay an extra $1,200 in tax.’ In other words, they are proposing to slug them with the equivalent of two interest rate rises. I do not think there is any doubt in the minds of the Australian public where those on this side of the chamber stand when it comes to protecting middle-income earners. We support a mixed healthcare system, with services being provided by both public and private healthcare providers. We also respect the choices of low- and middle-income earners when it comes to choosing between public and private health care. What we do not support is average-income earners being slugged with an unfair tax—a tax which, once again, was designed for high-income earners. I look forward to the support of all senators for this bill. I commend the bill to the Senate.

12:09 pm

Photo of Steve FieldingSteve Fielding (Victoria, Family First Party) Share this | | Hansard source

Family First have expressed concern about the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008 and the extra costs it will transfer to lower income families and earners because it will mean that health insurance premiums will increase. But, at this time of economic uncertainty and the massive global downturn, it is paramount that Australia’s economic security is the focus of any decision making by parliament. Family First believe this is the time for shoring up the economy and for the parliament to work to ensure a strong and stable economy. Family First will be supporting this bill.

Around 330,000 people will get a tax cut from the Medicare levy surcharge threshold changes, which is good, but Family First remain concerned that millions of ordinary Australians will end up paying more for their health insurance. Last month, I voted against this bill because it would slug lower income earners. We know that health premiums will rise if this bill is passed, due to the increased thresholds. That means lower income families, who are already struggling to pay health insurance and who will not get a tax cut, will be unfairly hit with higher health premiums. That is why Family First wanted the government to provide compensation for lower income families. More than 1.5 million households earning less than $50,000 a year pay for health insurance, which is as many as 2.3 million. These people bought health insurance because they need it. They make sacrifices to keep that insurance. Many pensioners have had health insurance all their lives but now when they really need it they will struggle to afford it. The changes could see some families paying an extra $200 a year for health insurance, which is money many would have difficulty finding. Professor Deeble told the Senate Standing Committee on Economics inquiry the average increase will be around $70 a year. This will mean a significant increase in costs for many people in the community.

Over the past couple of weeks we have seen the world financial crisis worsen. Overseas we have seen banks collapse and governments in the United States and Europe move quickly to spend billions of US dollars and euros to save failing financial institutions. The potential losses for families and lower income earners from difficulties in the financial system are much higher than those they face from increased health insurance costs. That is why Family First announced earlier this week that we would support this bill. Family First believe that confidence is very important to the Australian people and to the financial markets in times of crisis and that uncertainty over the government’s budget could be destabilising. Therefore, Family First believe that at this time of economic uncertainty and global economic turmoil the government should be able to pass the remaining two budget bills to provide the government’s budget with certainty. This week, one day after Family First decided to support the remaining two budget bills, the government announced the $10.4 billion Economic Security Strategy to strengthen the economy, to try to avoid some of the financial problems we have seen overseas.

Supporting this bill was not an easy decision. It is a decision that has to balance the increased health insurance costs facing many people against providing security for the government’s budget package to help shore up the economy during this financial crisis. Family First believe the financial crisis has the potential to cost Australians much more than the increase in health insurance premiums. Family First believe it has got the right balance. Family First have not forgotten those people who face high health insurance premiums, but believe they would be worse off if the government did not have the support for its budget package to help shore up the economy.

12:13 pm

Photo of Kim CarrKim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | | Hansard source

I would like to thank all those senators who have participated in this debate on the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008. This is a bill which will increase the Medicare levy surcharge thresholds for individuals and families. It is aimed at delivering immediate relief for many thousands of Australians on modest incomes. The surcharge imposes a one per cent increase in the Medicare levy liability on individuals whose incomes are above the threshold and who do not have private health insurance or hospital cover. This bill increases the thresholds from $50,000 to $75,000 for singles and from $100,000 to $150,000 for couples and families.

The amendments will apply to the 2008-09 year of income and to later income years. In addition, the singles threshold will be annually indexed for movements to average weekly ordinary-time earnings and it will increase in $1,000 increments. I note for the chamber that, in order to ensure that taxpayers are not disadvantaged by the change in the singles threshold to that proposed in the budget announcement, the law will be amended so that, as long as taxpayers obtain appropriate private health insurance cover before 1 January 2009, they will avoid the Medicare levy surcharge for the period 1 July to 31 December 2008.

The Medicare levy surcharge was introduced in 1997 by the then government, which stated that the goal was to target high-income earners. Wages have increased by more than 55 per cent since then and that is pushing many people on modest incomes, who cannot necessarily afford private health insurance, into the net. Hundreds of thousands of Australians on modest incomes have been paying this tax—more each year as the threshold lost its relevance to wages growth. Families with two income earners on $60,000 each have been paying this tax; they will get relief via this bill of $1,200, an amount not to be sneezed at even by those on the other side who seek so earnestly to defend those who obviously can afford luxury cars. The Liberals have been very dismissive of this amount of money and they are demonstrating just how out of touch they are when it comes to people in this country who are trying to make ends meet.

We need to remember that these thresholds were not developed through some scientific or empirical methodology. Former health minister Dr Wooldridge has admitted that, when negotiating this with former Senator Harradine, he did so over a bottle of Jameson whiskey.

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | | Hansard source

It is exactly the figure introduced by Senator Richardson; it was defeated by caucus.

Photo of Kim CarrKim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) Share this | | Hansard source

I do not know whether Senator Richardson enjoyed Jameson whiskey but I do know that Dr Wooldridge did.

I can say to you that the increase in the threshold, if passed, will deliver tax relief, which will help reduce financial pressures on many working families who have previously been subject to the Medicare levy surcharge. This bill provides an opportunity to actually relieve the pressure on ordinary Australians. It highlights the measure’s significance in the context of the new and dangerous phase of the global financial crisis. Two days ago the Rudd government took critical decisive action by releasing our Economic Security Strategy of some $10.4 billion to support Australians in these difficult times and to provide a boost to the economy—a boost that is essential to sustaining economic prosperity for this nation. This is an important measure and I commend this bill to the chamber.

Question agreed to.

Bill read a second time.