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Medicare levy could push RBA rates cut

May 02, 2013

ECONOMISTS and tax specialists have warned the RBA may have to cut rates to offset the impact of a Medicare levy hike and that governments may adopt levies to fund future promises.

University of NSW taxation professor Neil Warren said Australia had a history of levies and the latest proposed hike could set a precedent.

''We have a long history of this from a milk levy, a sugar levy, levies on guns, a flood levy,'' he said.

''What is different is this goes on forever, we get a little concerned about this because the history tells us from an economics point of view they have such good political consumption, people go 'oh well, it is going to a good cause', governments tend to over use them.''

He said the Medicare levy already only funded a fraction of the nation's medical costs.

AMP chief economist Shane Oliver said the levy proposal was a lesson that proposals such as the NDIS needed to be funded somehow and it was a ''community judgment'' that DisabilityCare was needed.

''If you want something you have got to pay for it. It is a community judgment if we want the NDIS, we have got to pay for it,'' he said.

He said the levy rise was an effective income tax hike at a time when the economy was sluggish.

For a person earning $100,000 with a $250,000 he said the hit was the equivalent of a 0.25 per cent rate hike and the impact on household spending could prompt the RBA to drop rates.

Mr Oliver said hopes household spending would rise to stem the affects of the slowing mining boom could be ''jeopardised to some degree''.

University of Technology tax lecturer Adrian Raftery said raising the Medicare levy from 1.5 to 2 per cent to cover the National Disability Insurance Scheme could set a precedent.

''What is going to happen in five years time or ten years time when you have five new policies are you going to continue to put half a per cent on the Medicare levy?'' he said.


Original article published in Daily Telegraph on 2 May 2013 and can be found here: http://www.news.com.au/national-news/federal-election/medicare-levy-hike-could-push-rba-rates-cut/story-fnho52ip-1226633417670#ixzz2SnpjzI5z

Tags: FamilyPersonal tax

Author: Gemma Jones

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