Bill Shorten has accused the Turnbull government of scaring Australians “half to death” with year-long threats to increase the Medicare levy to fund disability services.

The federal government has dropped plans to lift the levy after admitting there was no prospect of winning support from parliament.

Mr Shorten claims the government is treating the National Disability Insurance Scheme like political football, wasting the country’s time and holding people to ransom.

“If there is no money for the NDIS, don’t give a tax cut to the top end of town,” he told reporters in Melbourne on Friday.

“But don’t spend a year scaring people half to death by saying that unless taxes went up the NDIS couldn’t be funded.

“A year on, because Labor didn’t blink, (Malcolm Turnbull) has given up on this smash-and-grab raid and said that the money is there after all.”

Treasurer Scott Morrison on Thursday announced the government was abandoning plans to increase the Medicare levy by 0.5 per cent to 2.5 per cent to fund the NDIS.

Mr Morrison said better-than-expected tax revenues meant the increase was no longer needed, insisting funding for the scheme is guaranteed for the “next 10 years and beyond”.

Finance Minister Mathias Cormann acknowledged the government had not put the measure to a vote.

“We could have spent months and months wasting time,” he told Sky News.

“We knew the Labor party was opposed, we knew that the Greens were opposed, we knew that One Nation was opposed. So there was no prospect of getting it through the parliament.”

Social Services Minister Dan Tehan said NDIS funding would be set aside in the same way as pensions, Medicare and defence spending.

But disability advocates are anxious about the future of the NDIS and say the decision kicks the can down the road in terms of long-term funding, forcing them to beg cap-in-hand before each federal budget.

Prime Minister Malcolm Turnbull was questioned about the pre-budget backflip on Friday, insisting it was a positive reflection on his government’s economic management.

“We said in 2016 we would deliver jobs and growth and we have delivered exactly that, stronger jobs growth, record jobs growth, in fact, in our history,” Mr Turnbull told reporters in Perth.

“That is delivering higher revenues, and so we are able to fully fund the NDIS without the levy, so that is why we are not proceeding with it.”

One Nation senator Pauline Hanson has described the NDIS as an expensive bandwagon, calling on the government to rein it in.

“I feel for these people who do have disabilities and I’ve spoken to parents who want to make sure when they’re gone their children are cared for and I quite understand that,” she told reporters in Brisbane.

“But for too long we’ve seen people claim disabilities that are clearly not entitled to it.”

Senator Hanson likened the NDIS to the Rudd government’s home insulation scheme, saying it lacked proper accountability.