Penalty Tax On Health Brings In Extra $1b

Sydney Morning Herald

Tuesday August 22, 2006

Annette Sampson Personal Finance Editor

IT IS the tax increase the Federal Government is not telling us about. This year up to 500,000 people may be forced to pay an extra 1 per cent of their incomes in tax as a penalty for not having private health insurance.

The assistant treasurer, Peter Dutton, has revealed that the number of taxpayers hit by the Medicare levy surcharge has more than doubled since it was introduced in 1997. In 2004-5 preliminary estimates indicated more than 360,000 taxpayers could have been liable for the surcharge.

Answering a question in Parliament from the Labor finance spokesman, Lindsay Tanner, Mr Dutton revealed accelerating growth in the number of taxpayers hit by the surcharge as incomes have risen and the thresholds for the levy have not been indexed. If current growth rates continue, about 500,000 taxpayers may be liable this year.

The levy was introduced in 1997 to force higher-income earners to buy private health insurance. It is a 1 per cent levy on the taxable income of singles earning more than $50,000 or couples earning more than $100,000 if they do not have private health cover.

When the levy was introduced, said Roger McBride, marketing manager of the online health insurance broker iSelect, the average wage was about $37,000 and 167,331 taxpayers were liable. Last year the average wage passed $50,000 and in May the average total adult earnings were $56,680.

"We estimate the Government has taken more than $1 billion from taxpayers since the introduction of the surcharge," he said. "And it will have an absolute windfall this year with many taxpayers liable for the first time."

Mr McBride said iSelect's inquiries were up about 70 per cent on last year as people became aware of the surcharge. Many people were sitting down to do their tax returns and getting a nasty shock, he said.

He said some taxpayers had received small pay rises that pushed them over the threshold and left them out of pocket. The threshold also includes reportable fringe benefits, which push some taxpayers over the limit.

The head of the Australian Health Insurance Association, Dr Michael Armitage, said the lack of indexing had changed the function of the surcharge from encouraging people to buy health insurance to collecting tax. He said the levy should be increased to encourage people to choose taking out insurance, but the threshold should be increased.

Viola Korczak, a health insurance policy spokeswoman for the Australian Consumers' Association, said many people found it cheaper to take out private health insurance than to pay the surcharge. "Whether they're getting value for money depends on the policy."

The number of Australians with health insurance had been falling since 2001, she said. Premiums had risen by 41 per cent since 2001 and the proportion of people with private cover had fallen from 44.8 per cent to 43 per cent, she said.

© 2006 Sydney Morning Herald

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