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Wednesday, 14 September 1983
Page: 853

Mr WILSON(2.40 a.m.) —I want to raise with the Committee the implications of what I think people will come to know as the meditax rather than the medilevy. It is not really different from a tax except that some subterfuge has been used in order to give it the appearance of having a very much lower impact on average Australian families than in fact it really has. It is well accepted these days that levies and withdrawal mechanisms on pensions are very similar to marginal rates of tax. In determining their impact on families and on households it is quite proper to aggregate those sorts of withdrawal mechanisms and find out what the effect on the incentive is and what the impact on the marginal dollar is. One finds that the effect of this meditax is quite perverse.

Although it is true that people are exempt from any levy up to the threshold which the Minister for Health said has been set on the basis of health care cards, the fact is that once the threshold is reached the taxpayer is not liable for an extra 1c in the dollar-it is not an increase in the standard tax rate from 30c to 31c-the taxpayer, be he or she a single taxpayer, or be they a married couple, is liable to pay a catch-up provision at a marginal rate of 20c in the dollar. When that is stacked on top of the standard tax we find that the marginal withdrawal rate for families on very low incomes is in fact 50c in the dollar. So a family or an individual with an income between $6,698 and $7,050 will pay tax at the marginal rate of 50c in the dollar, and a married couple with an income between $11,141 and $11,695 will pay tax over that range at a marginal rate of 50c in the dollar.

A lot of public effort by the Government has gone into selling the concept that the marginal rate of Medicare tax is 1c in the dollar. That is also a deceit of the public because when the public thinks of a rate of tax it thinks of the rate in the dollar above the tax free threshold. We know that the standard rate of tax is currently 30c in the dollar. The effect of the meditax is to raise the rate in the dollar from 30c to 50c in the catch-up area. Over a large range of incomes the average rate of tax above the normal tax threshold is not 30c in the dollar plus 1c but, because of the catch-up effects applied in the collection of the meditax, much more. Many people will pay tax at a marginal rate in the dollar far in excess of 30c in the dollar.

Let us take as an example a single person on an income of $11,293. At that level of income, in terms that the public and taxpayers understand, the marginal rate of tax being paid by the taxpayer-tax including the meditax and the standard rate of tax-is at the level of 32c in the dollar. In the case of a married couple, their income has to rise to $18,400 before the average marginal rate of tax, combined with the effect of the meditax and the standard rate of tax, falls to 32c in the dollar. Over the range from the tax threshold, once one comes into the catch-up area the marginal rate lifts to 50c in the dollar. But if one averages the marginal effect of the meditax and the standard rate tax, the average rate in the dollar, determined by the normally accepted method, is in excess of 32c in the dollar and falls to 32c in the dollar only when incomes of single people are $11,000 and of married couples are $18,402.

The average taxpayer is not the only person prejudiced by the stackup of marginal withdrawal rates. We all know of what the Government has decided to do in relation to the aged. Many aged pensioners who are part pensioners will be adversely affected by the reintroduction of an assets test. The effect will be that they will lose 50c in the dollar of their real income or notional income. If it is real income, people who are part pensioners will lose 50c in the dollar as a result of the income test, they will lose 15c in the dollar as a result of the application of the 30c standard rate of tax and they will lose 10c in the dollar in the catchup area under the mediatax levy. As a result, the marginal withdrawal rate on age pensioners will be 75c in the dollar.

For pensioners who are affected by the introduction of an assets test and who have assets that, for quite legitimate and proper reasons and not because they have been trying to dodge any obligations, are locked into low yielding investments-if, for example, those investments are yielding only 6 per cent-the marginal withdrawal rate as a result of the application of the means test on the capital value, the tax on the income that is actually received and the meditax levy in some instances will be well in excess of 90c in the dollar. So here is another way in which people with modest incomes and modest means will be adversely affected as a consequence of the aggregation of these means test levies and ordinary tax rates, all of which can properly be described and categorised as tax.

I think it is proper in these circumstances that the deviousness of the Government should be identified, because the Government will trumpet the fact that the levy is only one cent in the dollar. For most people in the range of incomes into which most taxpayers and families fall the rate of tax they will be called upon to pay will represent an increase of 2c in the dollar. In some instances the rate of increase will be 20c in the dollar or more. That will mean that marginal tax rates of in excess of 50c in some cases and 75c in others will be paid by people who are at the lower end of the income scale.

The other point I make relates to the way in which the meditax has been excluded from the State-local government formulas for the distribution of State revenues. The Minister has failed to assure this chamber of the proportion that the levy is to bear to the costs of Medicare. So States, and more particularly local government which is totally dependent upon a share of income tax, must necessarily feel gravely worried that next year when the real costs of Medicare are revealed, when the chickens come home to roost, the Government may well change the level of the levy, remove from the tax collections a cost and transfer it to the levy, and at the same time cheat local government and the States of revenue that they are now entitled to receive.

I note that the Bill in its final clauses states that unless this Parliament shall otherwise determine the rate of one per cent shall apply in the financial year 1984-85. I wonder whether the Minister can assure the Committee that the Government will not propose to the Parliament that it should otherwise provide in the financial year 1984-85. If he cannot give that assurance it is a clear signal to local government and to the States that they should be very cautious as to the implications of the possible transfer of Medicare costs to the levy.

The DEPUTY CHAIRMAN (Mr Millar) —Order! The honourable member's time has expired .

Bill, as amended, agreed to.

Bill reported with an amendment; report-by leave-adopted.