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By Matt Siegel SYDNEY (Reuters) - Prime Minister Tony Abbott on Tuesday abandoned a plan to radically reshape Australia's universal healthcare system by charging patients a fee to see their doctor, a major back flip for his struggling conservative government. The A$7 ($6) "co-payment" fee, which had been included in an unpopular May budget, was heavily criticized by the opposition and many in the healthcare sphere as a sign that Australia was moving toward a U.S. healthcare model. The policy reversal is the latest in a string for Abbott, whose Liberal-National coalition government has hit record low approval ratings. "The $7 Medicare co-payment measure announced in the 2014-15 Budget will no longer proceed," Abbott said in a press release. "The government has listened to the views of the community." Instead the government will cut the rebate it pays to doctors, he said, encouraging them to charge adults a A$5 fee at their discretion while children, the elderly and those on state allowances would be exempt. The government said that the changes would save A$3.5 billion over four years - A$100 million less than originally proposed in the budget. Abbott is nearing the end of his first full year in office hobbled by missteps and a souring economy. Faced with a collapse in prices for commodities, produced by Australia, and an unruly upper house Senate that has held Abbott's first budget hostage since May, voters have abandoned his conservative government more quickly than any other in three decades. Australia, by far the world's biggest exporter of iron ore and coal, has been battered by a worldwide fall in commodity prices. Iron prices have plunged 44 percent so far this year to under $76 a tonne. Abbott warned about ballooning deficits when he released a budget packed with deregulation moves, new levies and spending cuts, but the public has never accepted his plan. Last week Education Minister Christopher Pyne shelved for the year the government's plan to deregulate university fees after failing to garner enough votes to push it through parliament. On Sunday Abbott succumbed to pressure and radically pared back his signature landmark paid parental leave scheme , which had upset big business and many in his own party. Despite significant accomplishments this year - concluding free trade deals with Japan, South Korea and China, and hosting the G20 leaders summit - the Labor Party opposition has surged ahead of the government by a margin of 55 percent to 45 percent in the latest Newspoll released on Nov. 18. The move was sharply criticized by Labor and the opposition Greens Party, both of whom accused Abbott of resorting to the use of regulatory changes to the healthcare system because he was too weak politically to bring about changes through legislation. "He's only interested in protecting himself, that's what has motivated today," Labor Party leader Bill Shorten told reporters. "It's still a broken promise." (This story has been refiled to insert the missing word "the" in the penultimate paragraph) (Additional reporting by Jane Wardell in SYDNEY; Editing by Simon Cameron-Moore)