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Scrap the Medicare Levy, increase GST

We have to think outside the square. I am not suggesting this concept is THE answer, by any means. I’m merely suggesting we need to look for alternative solutions and encourage ideas and discussion.

I recently suggested scrapping the Medicare Levy totally on the basis it leads politicians to focus on the wrong aspects of Medicare. “Medicare is not sustainable” they cry, yet primary care accounts for only 10.2% of the health budget. An admission to hospital costs, on average, $5,000 – even 20 GP visits a year times the rebate is a lot cheaper than $5,000. In 2012 the University of Melbourne completed a study which showed there were 7,000,000 bed days in hospital that could have been prevented (Source: Prof John Dwyer, Insight, at 27 min mark). What a saving that could be to the health budget (although there would be costs associated with the prevention).

I’m not suggesting the nation forgo the Medicare Levy revenue stream. I am suggesting we stop allowing it to divert attention from the real areas of potential cost savings. Aside from the 7,000,000 bed days, do you know that doctors have to get a new provider number when they relocate? Think of the administrative costs. What is the rationale? What is the benefit? Isn’t Dr J. Smith the same doctor irrespective of whether she or he is located in Euroa or Williamstown? Doesn’t this make reporting and auditing of a doctor’s performance or claiming patterns over his or her career more difficult and possibly expensive?

Subsequent to my admittedly rather off-the-cuff suggestion of scrapping the Medicare Levy, I was reminded that a number of our working population still have access to forms of salary sacrificing that have disappeared for many of us due to Fringe Benefits Tax (FBT). About twenty years ago we could salary sacrifice a car, private school fees, health insurance premiums and a number of other expenses. When FBT was introduced, the salary sacrificing of old virtually disappeared. Of course CEOs still receive shares and other “indirect” remuneration, but the average management level employee suddenly had to pay their own health insurance premiums. For a while I was lucky and worked for an international company that had a global policy of paying health insurance premiums, irrespective of FBT in Australia, but it is no longer the norm for the majority of workers.

FBT doesn’t apply to all employees the same way. Not-for-profits have certain concessions, enabling them to provide salary sacrificing the commercial world no longer offers. Government department employees and politicians, for example, can take advantage. In June 2013, 16.4% of the working population in Australia were employed in the public sector. Not all of them would have access to salary sacrificing, but possibly enough to make a dint in the Medicare Levy revenue stream.

We are know there are various ways of reducing taxable income and minimising income tax. Those who have higher earnings have more opportunities to do so than the average wage earner or salaried middle manager.

When income tax in minimised, so is the Medicare Levy. After all, it is assessed on taxable income. Get taxable income below the magic threshold and receive a higher rebate for private health insurance or avoid or reduce the Medicare Levy Surcharge.

Yet there is no reduction in rebate for those who may be shirking their fair contribution. Surely a better collection mechanism would be via the GST system, for the same reasons GST was implemented in the first place: those with a higher disposable income spend more and therefore pay more in GST.

There are, therefore two major problems with the Medicare Levy as it stands. First, it is distracting, as stated above. Secondly, it can be minimised by the very taxpayers who can most afford it. Increasing the Levy places the burden on those who can least afford it and does nothing to address the question of focus.

The challenge with the concept of moving the collection to the GST collection method is that we have a massive, expensive bureaucracy “managing” the collection and claiming back of GST by business. The businesses would not, I suspect, be overly thrilled with the idea of being expected to contribute to the universal health system when paying GST that is not claimable as a tax credit under the GST legislation. Edited to clarify – I am only referring to any GST that did not qualify as a tax credit under current policy. There is no suggestion the increase would be treated any differently. Yet why not? Is it not in the interests of business to have a healthy workforce? What is the impost on business of GST not able to be claimed as a tax credit? The costs of compliance could well be higher, although I’ve never set about analysing it. The end consumer is the one paying the bulk of the GST, as illustrated very nicely by the manufacture and sale of a table on the Australian Tax Office web site. An awful lot of toing and froing for $30, if you ask me. We have some very inefficient systems, we do. That is a debate for another day.

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22 comments

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  1. abbienoiraude

    Any movement in GST hits us on DSP/carers and full pensioners more than anyone.

  2. Robyn Oyeniyi

    That is true. Perhaps there needs to be some form of exemption from GST for those on DSP or full pensions. How that could work, I have no idea, but even now perhaps worth considering. Or a compensatory increase in the DSP and pensions.

  3. Korstraw

    Sorry, but way off the mark. The only ‘distraction’ re the medicare levy is the lying low life bastards currently in power. Drop the GST, the most regressive form of tax ever invented, up the medicare levy if needs be. It’s the poor who are hit hardest by the GST. And stop subsidising the private health industry leeches. But the over riding issue is a proper income tax system so that those who own everything pay their due, that’s where the discussion (and action) needs to focus. Good luck with that as well.

  4. Robyn Oyeniyi

    Korstraw, I’m perhaps not as left wing as some. I was a Liberal voter for MANY years. No longer, however. I have private insurance and I don’t have a problem with a hybrid health or hybrid education system. We would need to raise the Medicare Levy to the point we would pay double what we pay now and I’m not at all convinced we should have it as a separate revenue stream at all – that creates all sorts of issues as we have seen recently. Politicians go off on tangents.

    Our tax system is a costly elephant. Costly to administer, compliance costs are high, it needs a radical redesign. But we have no-one with the guts to make radical changes. No-one wants to pay tax, but everyone wants roads, hospitals, education, welfare. OK, maybe not “no-one”, but those who can minimise their tax certainly do.

    The solution? I don’t have one. But I do know we need to think outside the square and come up with something.

  5. Wally

    @Robyn Oyeniyi have you had first hand experience reporting GST for your own business or as part of your employment? “I suspect, be overly thrilled with the idea of being expected to contribute to the universal health system when paying GST that is not claimable as a tax credit under the GST legislation” makes me believe you haven’t and what you propose in this statement would make GST reporting very difficult if it is possible at all. The whole idea of claiming credits for GST paid on expenditure is so we don’t pay GST twice, if no credit is claimed on any portion of the GST expended that would come out of the companies funds or increase the product price each time it is sold and that is not how GST works.

    I can see what you are trying to achieve by increasing the GST to cover the cost of medicare but the way you propose to do it means it could end up returning more tax to the government that the existing 10%. If you don’t get a credit for say 2% of a 12% GST levy that 2% compounds every time money is spent so $100 spent to by raw materials would net $2 and then the product sells for $150 wholesale would net another $3 (total = $5) and then the product sells in a shop for $300 adding another $6 (total $11) to the tax system. The GST portion of the whole process at 10% would only be $30. The 2% medicare portion nearly doubles because there is no credits given for that portion.

    This is a very simplistic example and the figures are not totally accurate but it demonstrates the compounding affect of what you propose.

  6. Robyn Oyeniyi

    Wally, I have done the odd BAS or two. I’m a CPA. Not every cent of GST paid can be claimed back as in the case of some purchases the business cannot claim – few and far between for most businesses. However – how have you determined that the Medicare portion couldn’t be claimed back? I never said that. It wouldn’t be a “Medicare” portion, it would just be GST, only at a higher rate. It may not need to be 2% higher to “replace” the Medicare Levy either, quite possibly. There would be no greater compounding effect than there is now.

    Sorry Waly, I edited this about three times – it is late and I’m tired and my brain has ceased to function!

  7. Lee

    Having a different health provider number at each location is used to identify fraud. Cheats have been found when Medicare receives claims for the same day at different locations, when it would have been impossible for the provider to be at both locations. If a provider is ordering a lot of a certain test when in a specific location, it could also identify fraud, possibly in partnership with someone else. Pathology laboratories and medical image services record provider numbers of test requestors and are also subjected to audit for their own claims to Medicare, so the doctor’s provider numbers could also be used to identify fraud committed by those other services. Doctors get questioned as to why they order high numbers of some tests. They may not actually be ordering all of them.

    The different numbers helps Medicare to keep track of who is practising where. Numbers are allocated based on population. If they determine that there are enough providers in a certain area they won’t issue any more provider numbers for that area, thus encouraging providers to practise in areas where they are needed. That does sometimes cause problems when a practise has a vacancy for another provider and needs one to alleviate every other provider’s workload. That also infringes upon the patient’s right to choose their own provider somewhat.

  8. CMMC

    Put a huge tax on those stupid hats kids wear at private schools.

    Increase the GST?

    Hello….!!

    Is anyone acting as editor on this site?

    ‘AIMN’ calls for increased GST’

  9. Leigh

    Any increase of the gst would be a far worse impost on lower income earners then what the medicare levy is now, increase the gst and we have less to spend on luxuries like food and utilities?

  10. Robyn Oyeniyi

    Leigh, yes, I know. However in the meantime those who can afford it are minimising their tax so the ones who can least afford it are ALREADY carrying a disproportionate burden. That needs to change.

    My aim with this was to be controversial. The only way we will find solutions is to challenge.

    Personally, as I stated in a comment above, I think our whole tax system is an elephant – a costly one at that. We need a new approach to taxation altogether.

    However, we want public goods like education, health, welfare, roads, law enforcement: so we have to collect taxes because we are not like places such as Qatar where the state owns the main revenue stream and no-one pays personal income tax. We have to collectively fund public goods.

    Increasing the Medicare Levy would start to become a huge impost. It would need to be 3% (excluding the NDIS component) for Medicare to break even and that is quite a lot more. If we don’t change this “Medicare must break even” objective of the politicians while the wealthier minimise their contribution (and probably are longer-lived than the poorer members of the population) the less well off will continue to bear the brunt of the funding burden.

    So we need a solution.

    People are very good at highlighting what we can’t or shouldn’t do: we need more suggestions of what we COULD do. 🙂

  11. townsvilleblog

    Sorry, I disagree. I think the Medicare levy should be increased not not the GST, if the federal government taxed the multinational corporations fairly and properly our federal government would have an extra $8.4 billion (not million) to run our nation. Just think what this extra amount could pay for each and every year, half of it could be quarantined to pay off our spiraling debt under the current LNP government.

  12. townsvilleblog

    Robyn, perhaps we could increase the tax revenue to government by halving the long list of taxation deductible items for small business, so that small businesses paid a fair share of the tax burden that the rest of we mere mortals have to bear.

  13. Wally

    @Robyn Oyeniyi I may have misunderstood what you meant by “paying GST that is not claimable as a tax credit under the GST legislation” in your post. I thought you were suggesting there would be no input credit for the extra GST collected to replace the medicare levy. As you say in your comment if GST is paid on items that are not tax deductable you cannot claim an input credit. The 2% was a figure I plucked from the air for the example, I recall reading recently that medicare costs about 20% of the budget.

    I have done my own BAS since GST was introduced and the biggest problem with the system is that GST is not levied on everything so you have to do splits. If a business could simply calculate gross receipts and gross expenditure from the bank statements it would be much easier. It would also make it much easier for the tax office to check compliance.

  14. Harquebus

    Here I go again.
    The only solution to pollution, scarcity (water), resource depletion (oil, etc), climate change, the sterilization of our oceans and the destruction of our environment is population reduction and control. You can’t get any further outside the square.
    The GST screwed me. Cheaper cars and TVs. Great! I have never bought a new car in my life and only ever two new TVs and yet, every month on my bills and every quarter on my energy I now pay tax. Also, the raft of government fees and charges that were supposed to be scrapped, weren’t. Now they are making the same promise of scrapping these fees and charges in return for an increase in the GST. I can see that happening, not.
    How about a luxury tax? They were quick to remove that one when they introduced the evil GST.

  15. Anomander

    Putting a tax on lies would rake in trillions from the Abbott alone.

  16. jade

    What if Medicare levy was based on the first figure you input into the tax form for individuals, the one where you declare earnings before tax credits? (Or deductions, I’m not sure of the proper term) For example, Peter earns $120, 000 before tax, therefore his Medicare levy is $however much, Penny earns $60,0000 before tax deductions, so her Medicare levy is less than Peters, as she earns half what Peter earns……

    At the moment my family hardly ever goes to the GP, but in the last 5 years we have had appendix removal, fractured arm set and broken collar bone attended to in emergency dept. I’m grateful for the system, so will always want to contribute to keep universal health care available.

  17. Fred Martin

    Robyn Oyeniyi, problem number 1 :- The assumption that medicare is somehow unsustainable is based on a lie. In 2004 Medicare cost $8billion and our GDP was $466.5billion or 1.7% of GDP. In 2014 the cost was $19billion but our GDP was $1560.6billion or 1.2% of GDP. So in relative terms Medicare has actually gone down. Libs like quoting big numbers, gee wiz $8billion to $19billion a huge blow out…NOT.
    Problem number 2 :- If you check out this lecture by Steven Hail http://www.youtube.com/embed/qBpm5sVmGYc you would have to wonder whether tax and Government spending have anything to do with each other.
    The lecture goes for over an hour but if you really want to “think outside the square” it is worth the time.

  18. totaram

    Good one Fred Martin. For a one-time liberal voter, it might be a bridge too far. But do not underestimate the power of a good heart. We can only hope.

  19. Dion Giles

    One measure could be to abolish indirect taxes on the 99% and for income tax reintroduce the wartime practice of taxing “unearned income” at a much higher rate than personal exertion income. I put “unearned income” in quote marks because all income is earned, but that categorised as unearned income is earned not by the assessed taxpayer but by those whose personal exertion creates the wealth (goods and services) from which the “unearned income” is drawn,

  20. eli nes

    Great little piece! Wonder if we do away with the individual medicare levy but make the company pay the levy? would that catch the boys who may get paid through a company????

  21. Rex Alfie Lee

    Your problem here is that you believe the LNP that there’s a financial issue due to Medicare. This is a Liberal passion to stop giving anything out for free. We’re not economically destitute & won’t be despite Medicare. Ignore them on this subject, they just need to start taxing the rich adequately…

  22. Margaret Allen

    This is just inequitable. The Medicare levy increases with a person’s earnings. GST hits everyone and the poor are forced to pay a proportionately greater amount than the wealthy. The latest idea of increasing GST and scrapping the medicare levy but giving back to the less well off is crazy, it just increases the bureaucracy without addressing the real problem..

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