Business advocates and economists warn the government’s Medicare levy hike could have a disastrous effect on the economy, with the levy coming just as consumer confidence is beginning to improve.
Prime Minister Julia Gillard announced this morning the government will increase the Medicare levy from 1.5% to 2% in order to fund the National Disability Insurance Scheme, following an unexpected slump in tax revenue.
The announcement comes just two days after the government said it expects a $12 billion budget shortfall, with Gillard admitting “all options were on the table” with regard to savings initiatives.
CPA Australia policy head Paul Drum told SmartCompany this morning he believes the increased levy will have an impact on confidence in a way the 2011 Queensland flood levy did not.
“The flood levy was a one-off levy under extraordinary circumstances,” Drum says.
“We weren’t in favour of that approach. But this is enduring, this is here permanently and that is going to have an impact.”
Steve Wojtkiw, chief economist for the Victorian Employers Chamber of Commerce and Industry, told SmartCompany the organisation is concerned this is not the time to impose new taxes.
“We’re in a difficult economic environment, particularly for small businesses, and the dollar has been working against our interests.”
“We’ve seen weaker retail sales in the building sector, and certainly in inbound tourism.”
The levy will cost a taxpayer earning $110,000 an extra $1.51 per day.
Drum says introducing such a tax rise as companies are already “feeling the pinch” isn’t going to be a benefit for either consumers or SMEs.
“The fact of the matter is, tax revenues are down, and it’s because businesses are feeling the pinch. All revenues are down partly because of the high Australian dollar.”
“To put an impost for whatever purpose at this time is contrary to enhancing our competitive and productivity.”
The Coalition has already registered its opposition, with shadow treasurer Joe Hockey telling ABC Radio now isn’t the time to be introducing any new taxes.
The move comes as confidence is beginning to improve. Consumer confidence, business confidence and retail sales are all rising, and economists have said the RBA’s move to lower interest rates last year is finally having an impact on the property market.
Drum points out the move to increase the levy will make it harder for Australia to compete on an international scale.
“We need to ask whether this is even affordable now,” he says, pointing to the upcoming hike in superannuation guarantee contributions on behalf of employers.
“I think we really need to have a look at what the current spending levels in government to see if there are potential savings there.”
Wojtkiw said the other key concern is the government is likely to introduce savings in the budget which could affect SMEs.
“This is not to say this will be the only measure that will target individual or business interests,” he says.
“We know the government is in an effort to plug its multi-billion shortfall will be met with a range of measures. If it was a singular measure like this, that could be more bearable.”
“But we are yet to know that is the case.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
