Australians benefit from a public health system that despite its flaws is the envy of many other countries. Even without private health cover, you can still walk into a public hospital emergency room and expect treatment at no – or at least very low – cost. How is this possible? The Medicare Levy is predicted to raise $16.2 billion in the 2016-2017 financial year, providing more than half the funding required for Australia’s medical services (the other components include private health cover and commonwealth funding).
So what is the Medicare Levy?
In addition to whatever income tax they are paying, Australian taxpayers pay 2% of their taxable income as the Medicare Levy. This allows for a minimum level of funding going towards medical cover for all Australians. While you may not enjoy losing 2% of your taxable income, the benefits are clear when compared to countries like the United States, where health cover can often be beyond the means of anyone without private health cover.
How is the Levy calculated?
Unlike your income tax, where the tax rate increases in a stepped manner as your income increases, the Medicare Levy is a consistent 2% of your entire taxable income. To illustrate, if your taxable income was $18,000 you wouldn’t pay any income tax (the tax-free threshold is $19,000), but you would pay the 2% Medicare Levy, which would amount to $360. If you had a taxable income of $100,000, while you would be in the 37% tax bracket, you wouldn’t pay $37,000 in tax, you would pay $24,947. This is because the tax rate gradually increases as your taxable income increases. You would however be paying 2% of your entire income, or $2,000, for the Medicare Levy. You might also be facing additional expenses if you don’t have private health cover.
In addition to the Medicare Levy, there is also a Medicare Levy Surcharge. This surcharge is designed as an incentive for high-income earners to take out private health insurance to further ease the financial strain on the medical system. For anyone who earns more than $90,000 as a single person or $180,000 for families, there is an additional 1.5% surcharge on top of the 2% Medicare Levy – but only if you don’t have private health cover.
There are exemptions to both the Medicare Levy and Medicare Levy Surcharge, such as if you are not an Australian citizen and therefore not entitled to Medicare benefits.
By Jennifer Lowe