Is the medicare rebate middle class welfare?

I should start by saying this piece is more of debate about ideology rather than economics. The medicare offset known commonly as the medicare rebate can be seen as a subsidy of 30% to the holders of private health insurance. These people are mostly middle class or in a high income bracket. However, many people, especially those with health issues choice to purchase a private health insurance policy despite not having a high income. Alternatively, the policy could be seen as a way of giving health consumers choice. In that if people decide to insure themselves privately they can at least claim a deduction on their tax for the cost of the policy allowing them to pay with their gross income rather than net.

How a tax offset differs from a deduction is that a deduction reduces a persons reportable income on their tax return and results in a reduction of tax of whatever the top marginal tax rate the consumer was paying. So assuming the person who bought the policy was earning 200k the deduction would be 45% plus a reduction in of the medicare levy making a total tax deduction of 46.5% of the policy cost. This would mean that the wealthy would get a bigger deduction for purchasing health insurance than people not paying the top marginal tax rate. An offset instead is a blanket 30% of the policy cost regardless of who buys it. It’s for this reason and to reduce the cost of the policy the Howard Government would have chosen to have an offset rather than a deduction.

This with the fact its commonly known as a rebate has seen this policy portrayed as middle class welfare. This with the private vs public school debate really comes down to the question should people be able to opt out of government provided services? Clearly in health people still continue to benefit partially by the public system and will still continue to receive benefits from it, but should people who choose to partially seek healthcare through the private market be made to pay the full cost of the public system that they now are far less likely to use. Many people have the view yes, if people choose to use private services than they should still contribute 100% to the public system and receive no assistant/deduction for their private expenditure.

Another argument that is often used is the claim that people should pay their fair share. Too often a person’s fair share is their share and about four other peoples share and then are to be told they can’t access the service they paid for becomes of a means test. It’s apparent that the expansion of middle class welfare in the late Howard years was a response to the fact the middle class felt they were paying taxes into a system that wasn’t interested in helping them or their family.

As a libertarian I believe in a perfect world much more of the health system would be left to the private market with competitive pressures rather than a system that helps line the pockets of the medical profession. (I believe we do need a public helathcare system, probably similar to what Queensland had pre Medicare) However, we do not have that system, we probably will never have that system as the average person does not under that government funding of many medical services in the long run raises the price of those services. So as a next best solution those people who do not want take a chance with government waiting lists is to allow them to choose to access services through the private market. By allowing a 30% rebate of private health insurance means the individual gets a small deduction of their tax as an incentive, while they still continue to pay the medicare levy and a significant proportion of their taxes still goes towards funding the system.

15 thoughts on “Is the medicare rebate middle class welfare?

  1. Surprise! “Libertarian” thinks long and hard about a classic example of middle-class welfare implemented, and decides it isn’t middle class welfare at all.

    Funny how pretty much everything the Howard government implemented is pleasing to Australian libertarians. It’s almost like libertarians are just conventional Liberal Party voters who want to portray traditional conservatism as something fresh and exciting.

  2. Sancho, I think that we are just reacting in surprise and disappointment to what the gillard government keeps doing to the business sector of Australia, and we hope that things will get better soon, and we remember the good times- the Howard government was one of the better governments since WW2.
    However, I never mistake Liberal for Libertarian. I also usually vote for small parties at elections, except the Greens. If there were only two parties, Labor vs Liberal, then I vote Liberal. What do you do?

  3. What is the Gillard government doing to the business sector of Australia, and how does it turn middle-class welfare into a libertarian ideal?

  4. I was thinking of the power that has been given to Unions, and the imposition of the Carbon tax, which she’d ruled out before the election- stuff like that. As for middle-class welfare, that has never been one of my ideals, though other libertarians might have such ideals. Let’s hear from if they do….

  5. What power has been given to unions they didn’t have before, and what’s been the effect of the carbon tax? The point of Justin’s article is that middle-class welfare in the form of a PHI rebate is consistent with libertarianism, and you justified that by citing nostalgia for the Howard years.

    Do you believe the PHI rebate is consistent with libertarianism, and why?

  6. IFF the health care rebate reduces total government spending it’s a good thing. It MAY be middle class welfare, but public health care is ALSO middle class welfare. So given a choice between the two welfare options, the libertarian opts for the welfare scheme that costs the least!

    Ideally we’d do something like Terje mentions in his “Medicare HECS 2.0″ post, or move to a model more similar to Japan or Singapore.

  7. Always there is a difference between what is ‘libertarian’ and what is ‘more libertarian than what we have’.

    But yes, good point – its what the government spends that counts, far more than how the government acquires the capacity to spend. Whether they tax today(taxation), tax tomorrow(borrow) or squat(printing money), doesn’t really matter that much.

  8. “Anything that results in the government getting less money is consistent with libertarianism, no?”

    Haha, sort of.

  9. As usual, Sancho goes nit-picking. My comment was addressing your second paragraph, about why the Howard years seem like a Golden age of Federal Government. Compared to what we have now, it was indeed a Golden Age.

  10. “What power has been given to unions they didn’t have before, and what’s been the effect of the carbon tax? The point of Justin’s article is that middle-class welfare in the form of a PHI rebate is consistent with libertarianism, and you justified that by citing nostalgia for the Howard years.”

    Only a terminally brain dead member of the ALP would not have nostalgia for 1996-2007 now.

  11. Us libertarians are happy to admit, however, that if the Howard years were “the Golden Age” then the Hawke/ Keating years were “the Silver Age” that preceded it. In fact it’d likely go the other way…

    We’re now in the Dark Ages and hoping that a Bronze Age comes along…

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