The Gillard government has confirmed workers will face a tax increase through the Medicare levy to fund the National Disability Insurance Scheme

AUSTRALIANS will pay the highest effective tax rates in almost a decade under Julia Gillard's plan to lift the Medicare levy to part-fund the national disability insurance scheme.

In a broken promise after previously saying she would not fund DisabilityCare with the levy, Ms Gillard announced a hike from 1.5 to 2 per cent because she had "changed her mind".

Ms Gillard said she would take the policy, which would mean an average worker earning $70,000 pays $1400 a year - a $350 increase - to the election.

Just hours later she changed her mind again and said if Opposition Leader Tony Abbott pledged support for the rise, she would bring it before "parliament immediately".

It is understood Ms Gillard, having broken a promise not to introduce a carbon tax before the last election, decided she would seek a mandate for the change.

Ms Gillard is in Launceston to sign a forestry deal but she expected to talk on the NDIS.

As business groups condemned the hike and a leading economist warned the impact could spark a Reserve Bank rate cut, Mr Abbott would not commit to backing the move, which would earn the government an extra $3.3 billion a year.

He criticised the increase for raising less than half what was needed for the NDIS.

As well as hitting higher income families, more lower wage earners would be trapped paying a tax rate of 29c charged while they catch up on paying the Medicare levy when their income exceeds the $20,542 threshold.

Ms Gillard said she had been forced to change her mind because of a $12 billion revenue shortfall and the need to support states in rolling out the NDIS.

The money raised by the levy would be put in a fund that could be used only for DisabilityCare, either directly or by funding state implementation.

"I will be asking the Australian people to endorse this choice in September," Ms Gillard said.

Her staff engaged in a petty Twitter squabble, with one tweet from her press office's official account replying "Meeow" to a staffer of Queensland Premier Campbell Newman.

Business Council of Australia chief executive Jennifer Westacott said, while the NDIS was an important reform, a levy should only be introduced after pilots, evaluation and a 10-year implementation plan.

"Then and only then should we put all the funding options on the table, including a levy on all taxpayers, and determine the best approach following a cost-benefit analysis,'' she said.

Peak doctors' group the AMA and disability groups supported the levy rise yesterday.

"It is an opportunity for truly transformational reform for the benefit of the most vulnerable people in our community.

"We need to have a properly funded, and reliably funded, scheme for it to be successful," AMA president Dr Steve Hambleton said.

Head of the Disability Advocacy Network Andrea Simmons said: "The NDIS is too important to be allowed to languish through a failure to find the necessary funding. The Productivity Commission has been clear a properly funded NDIS will save Australia money in the long run and is a people and wealth-building investment."

AMP chief economist Shane Oliver said the impact of the levy rise on a person earning $100,000 with a $250,000 mortgage would be the equivalent of a 0.25 per cent rate rise and that the RBA may have to lower rates in response.

A 0.5 per cent hike to take the levy to 2 per cent would add to Australia's top marginal tax rate of 45c in the dollar - effectively taking the highest marginal rate to 47c, the highest effective tax rate since 2005-06, when the rate was 47c before former treasurer Peter Costello's last round of tax cuts.

Mr Costello said this week the NDIS, education reform Gonski and Mr Abbott's proposed levy on big business to fund generous paid maternity leave were unaffordable.

University of NSW tax expert Professor Neil Warren said it would also hit lower income earners, with more people being caught by higher taxes to "claw back the threshold".

Income earners above the $20,542 threshold will have to catch up on paying the levy so are taxed at jl10 per cent, in addition to the 19c tax rate which applies to lower income earners.

Catch up will apply up to an upper threshold of $25,677 under the proposed hike, up from $24,167.

The government said yesterday it had cut taxes, including for high-income earners, with a spokeswoman for Treasurer Wayne Swan saying a person on $300,000 was $6053 better off.

People earning $30,000 had received tax breaks of $1053 since 2007, she said and average wage earners on $70,000 were $1303 better off.