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Julia Gillard announces 0.5% levy to fund NDIS

Prime Minister Julia Gillard has announced the Federal Government will partly fund its National Disability Insurance Scheme (NDIS) by increasing the Medicare levy by 0.5 percent points.

Ms Gillard said Australians on an average wage of $70,000 will contribute $1 a day for the NDIS.

"We are asking people to pay a little more to do a lot more for a group of Australians who have been left behind," Ms Gillard said.

FULL COVERAGE: Federal Budget 2013

It's believed the Government decided to introduce the special tax, which effectively takes the 1.5 per cent Medicare levy to 2.0 per cent, following an expenditure review committee meeting yesterday.

Do you think this levy is the right way to fund the NDIS? Scroll down to share your sentiment

Ms Gillard is also expected to announce a clampdown on the disability support pension scheme when she delivers a speech in Melbourne.

Michael Pascoe: Budgeting for politics

"The choice me and my colleagues have made is that disability care should be supported by a 0.5 per cent increase to the Medicare levy," Ms Gillard said.

"Every cent raised would be spent on disability care."

What it means for you: 'Dollar a day for every Australian'

The Prime Minister has said the increase would equate to about "a dollar a day" for the average Australian worker on $70,000 a year.

Ms Gillard acknowledged it was not an easy choice to make for Australian taxpayers, but it was the right one.

She also admitted to having changed her mind about funding the NDIS through savings in the Budget.

"I do today say that I have thought about this deeply and I have changed my mind. I want to be clear that the amount raised from the additional levy will not fund the full cost of disability care," Ms Gillard said.

"There will be no free ride for states and territories, they will have to step up too."

Ms Gillard stressed the money raised from the Medicare levy increase would not cover the complete cost of the disability care scheme when it was fully operational.

"The government will need to make savings for that full cost and there will be no free ride for states and territories - they'll need to step up too," she said.

Treasurer Wayne Swan said money would accumulate in the fund during the early years from mid-2014, ready to "kick-start" the scheme when it came into full operation in 2018/19.

Wayne Swan: The money isn't coming in as it used to

The accumulated money would total about $20 billion.

An emotional Families Minister Jenny Macklin said the reform would help those Australians most in need.

"It's there because we know disability can strike any one of us at any time," She said. "You will get the care and support you need."

Macklin also tried to allay the fears of families worried about reports the government was planning changes to the disability support pension in the May budget.

"There will not be further changes to the disability support pension in the coming budget," she said.

She noted changes to the pension in recent years had led to a drop in the number of new pension recipients.

"Major changes have been delivered but I do want to reassure those people who need the disability support pension ... that this very important part of the social security safety net will remain."

Do you think this levy is the right way to fund the NDIS? Scroll down to share your sentiment

Treasurer Wayne Swan said it was vital the NDIS had a "stable, secure funding scheme".

"The advantage of this fund is that all of the money raised from the levy goes straight to this fund and cannot be used for any other purpose," he said.

Related: 'Kill the poor to balance the budget'

The special tax is expected to start next year and raise $3.2 billion a year towards the Federal Government's major share of the disability insurance scheme.

How it will be done

Under the change, an average worker on $70,000 a year would pay the equivalent of $1 a day, Ms Gillard said.

The government then intends to use some of the money going into the special fund to make grants to the states and territories under 10 year arrangements.

A quarter of the total would be given to those governments to help them build up to running the full disability care scheme across the nation.

After 10 years, there would be a review of the funding share between federal, state and territory governments.

Ms Gillard said she would take the levy increase plan to the next election due on September 14, after last year ruling out such a change.

"The amount of tax money coming to the government is not what we expected," she said, adding that it was also clear the states needed extra help to afford their share of the scheme.

"It's become clearer to me the dimensions of the fiscal ask we are putting on states and territories," Ms Gillard said.

With inputs from AAP