The government is set to scrap a proposed $8 billion increase to the Medicare levy that only last year it said was needed to fund disability insurance.
In a series of drops to media outlets on Anzac night, government sources confirmed Treasurer Scott Morrison would announce on Thursday that Australia’s “fiscal position has improved” enough to allow the funding of the National Disability Insurance Scheme without the levy.
This improvement will reportedly be in the form of an extra $4.8 billion in additional tax revenue that was not forecast in the mid-year budget update in December.
“We are now in a position to give our guarantee to Australians living with a disability and their families and carers that all planned expenditure on the NDIS will be able to be met in this year’s budget and beyond without any longer having to increase the Medicare levy,” he will reportedly say on Thursday.
“The reason we proposed to increase the Medicare levy was only to fully fund the gap left behind by Labor on the NDIS.
“We no longer believe we need to do this.”
However, the real reason for the backflip, according to government sources quoted in the Australian Financial Review, was that the measure had little hope of passing the Senate, and thus would have lingered on the budget books, further damaging credibility with ratings agencies.
The retreat may come at some personal cost to Mr Morrison, who appeared to be emotionally invested in the measure.
During his budget speech last year, his voice wavered as he told the story of his brother-in-law Gary Warren, who relied on the NDIS to treat his multiple sclerosis.
“I’m not saying no to Gary and the 500,000 Australians counting on this,” he told Parliament at the time.
“It was with him particularly in mind that these measures have been brought forward by me as Treasurer in the budget and that these bills now find their way into this house.”
The proposed 0.5 per cent increase to the Medicare levy was one of the 2017 budget measures strongly opposed by Labor.
As a compromise, the opposition had offered to restrict the increase to taxpayers in the top two income brackets – those earning more than $87,000 a year.
“We don’t support millionaires paying less and 10 million people paying more,” Labor leader Bill Shorten said in May last year.
Mr Morrison will reportedly use his Thursday announcement of the backdown to again accuse Labor of failing to properly fund the NDIS. Labor has repeatedly denied this claim, pointing to a series of long-term savings in the 2013-14 budget handed down by Wayne Swan.
The Treasurer’s announcement is likely to be the first of many measures that put money back into the pockets of voters in this year’s budget, due on May 8.
Coalition sources have told The New Daily that a federal election as early as August is entirely plausible, especially if the budget is well received.
The unexpected lift in tax revenue that will help fund the government’s largesse is likely to be from bumper company profits, a mini-boom in commodity prices, and a drop in unemployment (which reduces reliance on welfare and creates more taxpayers).
Also, because marginal tax rates do not increase with inflation, more Australians have been falling into higher tax brackets.
Over the past 10 years, the share of federal revenue funded from personal income taxes has risen from 39.7 per cent to 47.2 per cent, according to recent analysis by workplace consultant Conrad Liveris.