The federal government is prepared to take its proposed increase to the Medicare levy all the way to the next election, and Labor is squaring up for the fight.
Treasurer Scott Morrison is staring down a looming Senate battle over his proposed hike in the Medicare levy to pay for the national disability insurance scheme.
The government intends to fund the NDIS via an increased Medicare levy on all taxpayers from 2018 but Labor wants to limit the planned 0.5 per cent increase - which would take the rate to 2.5 per cent - to those earning more than $87,000 a year.
Mr Morrison says there is a $55.7 billion dollar gap in NDIS funding and all Australians should pitch in to fill the hole.
"If you're on a higher income, you'll pay more under our plan. If you're on a lower income, you'll pay less," Mr Morrison said in Melbourne on Saturday.
"But all of us will share in the responsibility of helping our mates who are living with a disability."
The government will need to reach a compromise with Labor or seek a deal with the crossbench.
Several crossbenchers have queried the threshold for the increased Medicare levy, which would apply to people on incomes as low as $21,655 for singles.
The treasurer believes parliament will be "pragmatic" about his plan as he faces the prospect of needing 10 extra votes in the Senate to pass the funding plan.
"We've said we'll meet the parliament in the middle and we're going to stand there in the middle waiting for the parliament to come and support what is I think a very reasonable and fair position," he said.
Asked if he would be willing to take the Medicare levy increase to an election, Mr Morrison said: "We stand by this policy absolutely."
Opposition Leader Bill Shorten is digging in over the Medicare levy battle, challenging the government to drop its company tax cuts to fund core budget priorities.
"If the government wants to go to the next election promising to raise taxes on Australians that's up to them," he told reporters in Melbourne on Saturday.
However, Mr Shorten is under fire for Labor's proposed top marginal tax rate of 49.5 per cent, which former prime minister Paul Keating has blasted as "too punitive", much to the treasurer's delight.
Mr Keating has told the Australian Financial Review the top rate of personal income tax should be no higher than 39 per cent, which is also well below the government's proposed rate of 47.5 per cent.
"Bill Shorten has been called out by his own. It's not a fair plan to ask Australians to work one day for the government and one day for themselves. That is not a fair tax policy," Mr Morrison said.
The opposition leader sought to brush off criticisms of Labor's policy, which is achieved in part by keeping the coalition's two per cent deficit levy on high-income earners.
"I'd like to eventually tackle the marginal rates of taxation but what I definitely need to do is tackle the deficit," Mr Shorten said.
"I'd rather millionaires pay a little more and every other Australian pay less, but under Mr Turnbull the millionaires get to pay less and 10 million people get to pay more."
