Opinion & Commentary
Dental levy would bite all taxpayers
Having created the National Health and Hospitals Reform Commission, the Rudd government recently received the Commission’s interim report, titled ‘A Healthier Future for All Australians.’
It could also have been subtitled ‘And a Higher Tax Future for Most Australians,’ for it advocates a 50% hike in the Medicare levy to help pay for a new Denticare Australia scheme.
Coincidentally, a few days later a New South Wales government official spoke out publicly in favour of a Medicare type levy to fund life-time care for people born with disabilities.
Worthy though these causes may be when viewed in isolation, there are no doubt many other worthy causes that could lay a similar claim to a slice of our incomes. Why should any government spending program be privileged by its own revenue source?
Revenue earmarking – also known as ‘hypothecation’ – can serve a legitimate purpose in limited circumstances but in practice it is rarely used properly. The Medicare levy is an example of phony hypothecation. It neither limits nor defines the amount of government spending on Medicare, which is set independently. Despite having been increased twice in its quarter century life from 1% to 1.5%, the revenue from the levy covers just a fraction of the cost of Medicare, but it still encourages a strong sense of entitlement to ‘free’ or low cost medical care.
Medicare levy revenue is mingled with other tax revenue in the general revenue pool. Once it is there, the fungibility of money ensures that no dollar of tax revenue can be distinguished from any other revenue dollars and they all contribute equally to financing government outlays. The same would be true of a Denticare levy. It would make as much sense to hive off a few percentage points from existing personal income tax rates and so create a ‘defence levy.’
The real purpose of special levies is usually to facilitate a tax hike. If the government falls for the Denticare levy, it would not be the first time a government has eased the way for a tax increase by making a spurious link to a popular spending program – often something to do with ‘free’ health care.
I once heard a state official, despondent at taxpayer resistance to higher taxation, speak about how much easier it would be if only payroll tax were labelled the education levy, stamp duty the public hospital levy, land tax the law and order levy, and so on. Such an Orwellian world has not yet arrived, but politicians do like to dabble in the art of fiscal illusion, and sham hypothecation is part of the toolkit.
In reality, a Denticare levy would be nothing more or less than a 0.75 percentage point increase in all marginal personal income tax rates. This is hardly the best direction for tax reform to be taking.
Denticare would be another redistributive program, substituting the coercion of the tax system for the existing voluntary private insurance arrangements. It would make a significant proportion of taxpayers pay more than they currently do for private dental insurance and direct the excess to public dental health services. The Commission says that everyone would have the option of taking out private dental insurance, but we already have that choice without first having to pay 0.75% of taxable income for the privilege.
The Commission’s proposal for increased public dental health funding may have merit but should be treated as a bid for taxpayer dollars and made to compete with all other demands on the public purse, without any special tax being created. Perhaps the government could even make room for public dental health funding by cutting back on something else. Now there’s a radical thought!
Robert Carling is a senior fellow at The Centre for Independent Studies.
