Medicare levy boost to pay for disability insurance scheme

Prime Minister Julia Gillard has confirmed the Medicare levy will be increased to fund the NDIS. AAP/Julian Smith

Prime Minister Julia Gillard has announced a 0.5% increase in the Medicare levy to help fund the National Disability Insurance Scheme (NDIS) - but Labor will not bring in legislation for the higher tax this term.

The Prime Minister said the extra tax would represent about $1 a day for someone earning $70,000.

The money would be put into a special fund and only be spent on disability. The states would be provided with one quarter of the amount raised from the levy, which would start on July 1 next year.

The PM, who flatly ruled out a levy last year, told a news conference that she had changed her mind for three reasons.

First, it was clear the amount of tax revenue was not as much as had been expected. Second, it had become clearer to her that the states would need more support to fund the disability plan. Third, she had heard the calls from disability advocates to provide more security in the funding of the NDIS.

Gillard said legislation would not be needed until next term. This means the government will not have to run the gauntlet of Parliament in the next few weeks for its plan, which is essentially a campaign promise. The pressure is now on opposition leader Tony Abbott to say whether he will accept the levy proposal.

The levy would raise more than $3 billion in its first year. The proceeds of the levy will go into the May 14 budget’s forward estimates helping the bottom line. But whether the Coalition can include the proceeds in its numbers will depend on whether Abbott endorses the levy.

The states would need to meet performance benchmarks to be eligible for the money.

The government’s plan would mean that $9.7 billion would be available to states and territories over the next decade.

Treasurer Wayne Swan told the joint news conference that by 2018-19 - the first full year of the disability scheme’s operation - money in the fund would have reached a “critical mass”.

Abbott, responding to the Prime Minister’s announcement, challenged her to bring the legislation into the remaining weeks of this parliament. Asked if he would vote for the levy, he said he would if the whole scheme was responsibly funded.

But he said Gillard had only spelt out half the funding in her levy plan. The PM needed now to say where the rest of the money was coming from.

“If you’ve only got half the funding, it stands to reason you are only going to get half the scheme,” he said, asking who would be left out of it.

Stressing that the opposition supported a “responsibly” funded scheme, Abbott said he could not believe that the PM did not have more detail. “Show us the work, give us the legislation, and let’s get on with it.”