Australians will not face an increase in the Medicare levy, to help pay for the National Disability Insurance Scheme (NDIS), but both major parties insist the scheme will be fully funded.

Key points: The Government is abandoning plans to raise the Medicare levy 0.5 per cent to fund the NDIS

The Government is abandoning plans to raise the Medicare levy 0.5 per cent to fund the NDIS That measure would have raised $8 billion over four years from July next year

That measure would have raised $8 billion over four years from July next year Disability sector is concerned no funding has been secured

As revealed by the ABC, the Government has scrapped the proposed 0.5 per cent levy increase, announced only a year ago, which would have raised $8 billion for the NDIS over four years.

Treasurer Scott Morrison this morning said the tax hike was no longer needed because the Government had found a way to source the funding through additional unexpected revenue.

"The goal was not to increase taxes, the goal was to fully fund the NDIS," he told AM.

"Tax receipts up to February alone this year are up to $4 billion higher than we estimated back in MYEFO, so the stronger economy we've been building … is actually providing that dividend that enables us to do the job of fully funding the NDIS without the need to increase the levy."

Labor would only support the tax hike for people earning over $87,000 a year, and Government was not confident it had enough support in the Senate to legislate the increase.

In light of today's announcement, shadow treasurer Chris Bowen confirmed Labor would scrap its policy, given the Coalition has done the same.

"The [Coalition] wanted a Medicare levy increase and we said we were prepared to vote for one above $87,000," he said.

"They dropped the policy so obviously the effort to compromise is null and void as well."

The levy increase would have seen an average wage earner pay an extra $375 in tax from July 2019.

What you earn Extra amount you would have paid $25,000 $125 $50,000 $250 $75,000 $375 $100,000 $500 $125,000 $625 $150,000 $750 $175,000 $875

Mr Morrison would not go into further detail about exactly where the $8 billion for the NDIS would be coming from, saying that would be revealed in the upcoming budget.

He said the Government would still return the budget to balance as predicted in 2020-21 financial year, despite dropping the Medicare levy increase.

Morrison says it's a win for all, but disability sector isn't sure

Disability advocates are concerned the change has created uncertainty around NDIS funding, and have pressed the Government for more detail.

Mr Morrison maintained the policy was a positive sign for everyone concerned, including the disability sector.

"It's a win for families and people living with disabilities, it's a win for taxpayers because they won't have to face a higher Medicare levy, and it's a win for the budget," he said.

In a post-budget speech last year, Mr Morrison became emotional speaking about the original policy, saying it was necessary to secure care for people like his brother-in-law Gary Warren, who has multiple sclerosis.

Mr Morrison told AM he spoke to his brother-in-law last night and that he was pleased with the Government's decision.

"Gary didn't want to see Australians pay more taxes either," Mr Morrison said.

But former disability discrimination commissioner Graeme Innes said it was only "a win for uncertainty", a view shared by current commissioner Alastair McEwin and National Disability Services chief executive Ken Baker.

"I'd like the Government to spell out how it will be funded and to reiterate its guarantee that it will be funded and fully funded, to go as far as they possibly can to removing any uncertainty about the security of this funding for this very important reform," Dr Baker said.

Sector not fussed where the money comes from

Mr McEwin said he was not fazed where the money came from, so long as there was a guaranteed supply.

"Whether it be through taxation or through other revenue streams, we need to remember the core responsibility is for the Government to provide a fully funded NDIS so people with a disability can lead independent lives," he said.

"The uncertainty that we've seen around the funding for the NDIS in the last four to five years has been of great concern to me and the disability community."

Australian Medical Association president Michael Gannon had been calling on Labor to support the increase, but he said he did not care how the scheme was funded.

Michael Gannon has called for the NDIS to be appropriately funded. ( ABC News: James Carmody )

"As long as this means the NDIS has robust and sustainable funding, we are agnostic about where that money comes from," Dr Gannon said.

"The scheme has clear bipartisan support, but we want the politicians to agree on an appropriate method of funding.

"Exactly where this money was coming from was a bone of political contention, but Australians with a disability, the carers of Australians of with disabilities, the parents of children with a disabilities, don't care about the politics."

Labor 'just as much to blame'

Shadow social services minister Jenny Macklin said there was no need for the increase, arguing Labor fully funded the scheme when it was in government.

"The outrageous behaviour by Mr Turnbull and Mr Morrison is that they've used people with disability as political footballs in an attempt to raise taxes on working Australians and they've been caught out," she said.

"People with a disability should not have been unnecessarily worried by this behaviour from Malcolm Turnbull and Scott Morrison."

But Mr Innes said Labor was just as much to blame for the uncertainty around the scheme as the Government was.

"Politicians on the other side of Parliament are just as much to blame about this," he said.

"There was an opportunity for continued bipartisanship. Labor could have chosen to go with the Government and support the increase in the Medicare levy, which would have created certain funding for the scheme, and they chose not to do it. So I'm blaming politicians from all sides."