The Federal Government has suffered another setback in its fight to secure support in the upper house for key budget initiatives.
The Greens and Family First raised reservations yesterday about changes to the Medicare levy surcharge.
Family First's Steve Fielding demanded compensation for low-income earners who paid more for private health cover as a result.
The Greens called for changes to the legislation, including an continuous review of elective surgery waiting lists to assess their long-term impact on public hospitals.
In the upper house yesterday, the Senate economics committee handed down its reports on legislation to change the Medicare levy surcharge and scrap an excise exemption for condensate, a light crude oil extracted from natural gas.
Labor senators say the condensate measure will deliver broader benefits to the community.
Prime Minister Kevin Rudd said no one liked paying higher taxes but ''the money to be obtained through that tax, which is a unique concession, is to be dedicated to the sorts of reforms for schools that I've been describing''.
Coalition senators said the impost would force up prices for Western Australian families and businesses.
The position was at odds with Coalition leader Brendan Nelson's statement last week that ''I'm advised that, in part, it's not likely to have any impact on domestic gas prices''.
The Coalition has vowed to vote against this Bill as well as the 70 per cent rise in tax on alcopops and changes to the Medicare levy surcharge paid by some people without private health insurance. The income thresholds would be increased from $50,000 to $100,000 for individuals, and from $100,000 to $150,000 for couples.
In the economics committee's majority report, Labor senators recommended the upper house pass the legislation.
In a dissenting report, Coalition senators argued the change would ''impose massive costs'' on the public hospital system and drive up private health insurance premiums.
Health Minister Nicola Roxon said the Opposition was ''delivering a blow to working families'' by voting against the legislation.
Without Coalition support, the Government must rely on Independent Nick Xenophon, Mr Fielding and the five Greens to steer its legislation through the Senate.
In its dissenting report on the Medicare levy surcharge, the Greens said the legislation should not be passed in its current form.
''We recommend ... that the savings from this measure be redirected to the public health system ... the Bill be amended to index the Medicare levy surcharge threshold from this point on to avoid further lumpiness in future policy changes [and] that the Bill include a requirement for an ongoing review of the elective surgery waiting lists in the public hospital system to assess the longer-term impact.''
Also yesterday, the Senate economics committee issued an interim report on the Government's FuelWatch scheme, recommending its adoption nationally.
The committee's Labor majority argued that, while economic studies offered no definitive conclusion, a website providing extra information would benefit consumers.