Prime Minister Malcolm Turnbull's proposed $7.8 billion Medicare levy rise looks set to stall in the Senate, with Labor, the Greens and the crossbench all flagging concerns about the hit to low-income earners.
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And the opposition and crossbench look set to team up in a bid to horse-trade with the government to keep the 2 per cent deficit levy, which is due to expire on July 1 - though such a move would likely anger the Liberal Party base.
The 0.5 per cent rise in the levy is set to start in two years, from July 2019, and is designed to help fill a $55.7 billion, 10-year funding shortfall in the National Disability Insurance Scheme. The delayed start date does give the government time to negotiate over the package.
Mr Turnbull appealed directly to the crossbench and Labor on Friday to get behind the policy, and "depoliticise this. Let's just pay for it."
But Labor leader Bill Shorten announced in his budget in reply speech on Thursday night the ALP would only back the rise for people earning more than $87,000.
One Nation leader Pauline Hanson, who controls four crucial Senate votes, has warned her party "is not convinced the NDIS will be funded by the half-a-per-cent increase to the Medicare levy" while the Greens, like Labor, have flagged concerns about how the rise has been structured and suggested keeping the 2 per cent deficit levy on high-income earners.
Nick Xenophon Team leader Nick Xenophon said on Friday that his three senators were also concerned by the proposed 0.5 per cent rise, which would kick in at $21,655 for singles and $36,541 for families.
"It has been our view that a deficit levy on high-income earners would not be unreasonable . . . I would have thought the top 3 per cent or so of income earners would be able to pay just that little but more tax, given we still have a deficit," he said.
Taken together, the comments mean the Turnbull government is unlikely to secure passage of the 0.5 per cent levy rise as proposed, at least in the short term, and will have to negotiate to secure the proposed savings.
Mr Turnbull said on Friday the 0.5 per cent rise was a "very fair proposition" and added "we are confident that the Senate will approve it".
"He [Mr Shorten] has admitted in his budget reply that the NDIS is not fully funded. I mean, he has admitted that. So let's fully fund it. It protects every Australian. Let's ensure that the Medicare levy is increased by half a per cent. It is fair," the prime minister said.
To offset the foregone revenue, the ALP would also make the deficit repair levy permanent to offset that lost revenue. That would, it says, raise a net additional $4.5 billion in revenue.
But Mr Shorten argued on Friday the Turnbull government "is asking for battlers on $50,000 and $60,000 a year to increase their income taxes but yet he wants to give away a tax cut to millionaires and he wants to give away $65 billion to large corporations".
"Our plan will save 10 million Australians from paying more income tax."
Labor argues that, when it was last in government, it set out sufficient savings to fully fund the NDIS for 10 years.
The 2013 budget papers state the then-Gillard government would deliver savings from changes to private health insurance, reforms to retirement incomes and the phase-out of the net medical expenses tax offset.
However, not all of these savings measures were passed before Labor lost office and from 2019-20 there was a looming $3.8 billion shortfall, growing to over $7 billion in future years.
