The Medicare Levy has been dropped by the government.
The Medicare Levy has been dropped by the government.

Turnbull’s big Medicare backflip

THE government will scrap plans to increase the Medicare levy by $57 billion in a powerful demonstration of faith in economic growth.

The 0.5 per cent rise on the existing two per cent levy was announced in last year's Budget to fully fund the National Disability Insurance Scheme.

But it will be dropped in the Budget Treasurer Scott Morrison will deliver in 12 days.

The government is now confident it can pay for assistance to 440,000 disabled Australians through greater revenue from economic growth.

"Our economy is finally shaking off the dulling effects of the downturn in the mining investment boom," Treasurer Scott Morrison said today in a speech prepared for the Australian Business Economists conference.

Mr Morrison revealed tax revenue for the Budget year to the end of February was $4.8 billion higher than estimated just last December.

Some $1.2 billion of that came from a rise in income tax collection.

He believes the hike in tax receipts, and savings from cost cutting, will mean crucial programs such as infrastructure building will be funded from revenue rather than new taxes.

The decision to drop the Medicare levy increase does more than give the government a concrete sign of its certainty the economy is growing steadily.

 

The government is dropping the Medicare Levy. Picture: Michael Dodge
The government is dropping the Medicare Levy. Picture: Michael Dodge

 

It also provides political benefits, including disarming Labor of its charge the government wanted to increase taxes on the less well off.

The government is expected to reinforce its pre-Budget campaign that Labor would be the high tax alternative at the election scheduled for next year.

And Scott Morrison today appeared to already have a campaign slogan: "Tax can go too far."

Legislation for the levy increase was introduced in August with the government arguing it was needed to repair a $57 billion shortfall in NDIS spending. But it quickly became clear it would not get through parliament unscathed.

Labor branded it a tax rise on low and middle-income earners because it started at around $26,000 a year, and insisted it only apply to those earning $87,000 and above.

The government is also indicating its enhanced revenue now means it is better placed to offer income tax cuts.

"Labor's plans for higher taxes will make our economy weaker, not stronger, putting at risk the benefits, the jobs, the wages, the incomes and the essential services that depend on a stronger economy," Mr Morrison told his audience.

 

Treasurer Scott Morrison announced pre-Budget plans today. Picture: Luis Ascui
Treasurer Scott Morrison announced pre-Budget plans today. Picture: Luis Ascui

 

"And we all know Labor can never live within their means.

"As economists, you are more than aware of the intrinsic link between tax and economic growth, and how creating an unnecessary tax burden squashes incentive and aspiration, and chokes demand. Tax can go too far."

Treasurer Morrison said: "Now is the time to build upon growth, to create more jobs and ensure as a government that we can continue to guarantee the essential services Australians rely on.

"That is what this year's Budget will be about - a stronger economy, to create more jobs and guarantee the essential services Australians rely on.

"And, as always, ensuring that the government continues to live within its means. Our economy is continuing to strengthen."

And with a hint of stronger prospects for increases in stagnant wages he said all Australians "must and do share in the benefits of a stronger economy".

"More than 1000 Australians have been getting jobs every single day over the past year, with the vast bulk of these jobs full-time positions," he said.

"This has led to a tightening in the labour market which is building pressure for better

wage growth."

 

Treasurer Scott Morrison announced pre-Budget plans today. Picture: Luis Ascui
Treasurer Scott Morrison announced pre-Budget plans today. Picture: Luis Ascui

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