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Publication: |
The Australian |
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Date: |
8 May 2009 |
Matthew Franklin, Chief political correspondent | May 08, 2009
KEVIN Rudd will strip $1.9 billion from the pockets of middle- and high-income earners by slashing their taxpayer-funded 30 per cent private health insurance rebates in Tuesday's budget.
And while the Prime Minister will honour promises of tax relief of almost $60 a week for high-income earners over the next two years, he will use his insurance reforms to claw back part of their gains.
However, while the first round of tax cuts will take effect from July 1, the health insurance rebate will not be scaled back until July next year.
In a dramatic strike against John Howard's so-called middle-class welfare, the Government will also lift penalties for well-off taxpayers who refuse to buy private insurance - boosting their Medicare levy surcharges by up to 50 per cent.
The Australian understands single people earning more than $74,000 a year and couples on more than $150,000 a year will watch their insurance rebates melt away on a sliding scale.
The payments will cut out completely at incomes of $120,000 for singles and $240,000 for couples - leaving the wealthy to pay for their own insurance in its entirety.
Confirmation of the crackdown provides a glimpse of the scale of the savings task facing the Government as it battles to counter the $200 billion, four-year collapse in the size of its revenue stream caused by the global recession.
And it came as Finance Minister Lindsay Tanner stressed - a day after Wayne Swan said all Australians would face sacrifices - that the "reasonably well-off" would face the greatest burden next week.
It also came as the Opposition said any assault on rebates - even those paid to the rich - would hurt all people with insurance by encouraging some to quit funds, leading to higher premiums for remaining members.
An average health insurance package for a family costs about $2600 a year.
The Howard government gave all insured taxpayers an annual rebate worth 30 per cent of their premiums, with those aged 65 and older eligible for a refund of up to 40per cent.
Under the carrot-and-stick approach, maintained in Labor's first budget last year, uninsured singles earning more than $70,000 a year and couples on more than $140,000 (plus $1500 for each dependent child) face a Medicare levy surcharge worth an extra 1 per cent of their income.
Tuesday's budget will repudiate Mr Howard's non-means-tested approach.
The new arrangements, taking effect from July next year, will not affect singles earning less than $74,000 a year and couples on less than $150,000 a year.
But the subsidy will tumble from 30 per cent to 20 per cent for singles earning between $74,000 and $90,000 a year and couples earning between $150,000 and $180,000 a year.
It will fall again to 10 per cent for singles earning between $90,000 and $120,000 and couples earning between $180,000 and $240,000 a year.
Singles earning more than $120,000 a year and couples on more than $240,000 will no longer receive subsidies.
However, if they refuse to take out insurance, their Medicare levy surcharge will rise to 1.5 per cent, which would lift the exposure of a couple earning $240,000 a year from $2400 a year to $3600 a year.
And the levy will increase to 1.25 per cent for singles earning between $90,000 a year and $120,000 a year and couples on between $180,000 and $240,000 a year. Only 1.5 per cent of people on high incomes do not have private health insurance.
The Government expects the changes to have little effect on the number of people covered, banking on a 99.7 per cent retention rate.
It is understood that while the Government expects Opposition criticism, it will stress that, taking into account the tax cuts, no one will be worse off in net terms.
It has based its decisions on detailed assessment of existing trends indicating that middle- and high-income earners receive a disproportionate benefit compared to those on modest incomes.
For example, it is understood that the 14 per cent of single taxpayers who have incomes above $74,000 receive 28 per cent of the total health insurance rebates paid to singles. The changes will see their payout figure fall to 12 per cent.
And the 12 per cent of couples who are high-income earners now receive 21 per cent of the money paid out on the rebates - a figure that will plunge to 9 per cent under the changes.
The Government has calculated that its changes will prevent the rebate system spiralling out of control, saving $1.9billion in its first three years and $8.7billion in the period leading up to 2019-20.
Mr Rudd's push to squeeze savings at the expense of middle- and high-income earners raises the possibility of further strikes against middle-class welfare next week, possibly through means tests on rebates for child-care rebates.
Despite guaranteeing the subsidies in the 2007 election campaign, Mr Rudd refused to say whether he would honour the promise when asked at a press conference this week.
Mr Swan refused to comment on the moves last night.
"The upcoming budget will continue to stimulate the economy and support jobs, while investing in our long-term recovery," Mr Swan said.
