The Budget included an announcement that the net medical expenses tax offset (NMETO) would be phased out from 1 July 2013, with a saving of $963.5 million over four years. Transitional arrangements will allow taxpayers who incur medical costs for disability aids, attendant care or aged care expenses, to continue to claim the NMETO until 1 July 2019. After this date, the NMETO will cease to operate.
The NMETO allows Australian residents to annually claim a tax rebate to offset out-of-pocket medical expenses incurred above a certain threshold. The threshold is currently set at $5,000 for the 2012–13 income year (it was $2,060 for the income year 2011–12, but was raised in a 2012–13 Budget measure). Net medical expenses are out-of-pocket medical expenses incurred minus any refunds received from Medicare or a private health insurer.
Medical expenses are broadly defined and can include payments: to doctors, dentists, allied health providers and opticians; for spectacles, medical aids and appliances, laser eye surgery, in vitro fertilisation (IVF) procedures, carers for the blind or wheelchair bound and maintaining a guide dog; and residential aged care costs, including daily fees and accommodation costs. Certain costs do not count towards the NMETO, including payments for: cosmetic surgery or cosmetic treatments such as teeth whitening, non-prescription vitamins, over the counter pain relievers, accommodation or travel expenses associated with medical treatment, medical examinations for the purposes of life insurance, inoculations for overseas travel, ambulance charges or funeral expenses.
Australian Tax Office statistics show that in 2010–11 around 802,000 taxpayers claimed the NMETO in 2010–11, with claims totalling around $567 million. The Government argues abolishing the offset is about ‘improving the sustainability of the health budget’. Furthermore, the NMETO provides no direct assistance to those on the lowest incomes who incur no tax liability.