Brumby's Numbers Don't Add Up


If you’re confused by the claims and counter-claims of the health reform debate, you’re not alone. Understanding the way our public hospitals are funded is far from easy.

Our healthcare system is a tangled mess of public and private funding, combining funding from state governments, the Commonwealth and a small but significant contribution from patients themselves. Currently, the states fund about 53 per cent of public hospitals expenditure, Canberra 40 per cent and patients 7 per cent.

Kevin Rudd’s new health reform plan proposes to increase Canberra’s share of the funding to 60 per cent, as well as taking on 100 per cent of the funding for public health. But in return, the feds will claw back 30 per cent of the GST revenue going to the states. The Federal Government thinks this is important, because rising healthcare costs will eventually bankrupt the states.

The state premiers, especially John Brumby, are less than convinced. Brumby has been claiming for weeks that there is in fact "no new money". Newly re-elected South Australian Premier Mike Rann disagrees. And NSW Premier Kristina Keneally seems to be sitting on the fence.

So, who’s right? I’ve tried to work it out.

In this preliminary analysis, I’ve attempted to cost the budgetary implications for the six states from Rudd’s healthcare plan. On the initial analysis, the states will be significantly better off: if the system had been in place in 2008–09, the six states (territories excluded) would have been perhaps $7.3 billion better off.

Working out the fiscal facts behind the health debate is no easy matter. To nut it out, I’ve delved into the budget papers of the states to find their actual expenditure figures for hospitals and associated clinical care, and primary care, in 2008–09.

This is not as easy as it sounds: each state budgets for healthcare differently, and some states lump things like ambulance services into their hospital budgets. Where possible, I’ve subtracted non-hospital costs like ambulances, mental health, Indigenous health and community health from the final hospital figure. This allows us to work out what it would mean for the Commonwealth to fund 60 per cent of the states’ recurrent hospitals expenditure, and 100 per cent of the states’ public health spend.

But wait, it’s even more complicated than that.

This is because Canberra gives the states extra funding for their hospitals through the five-year, $64 billion Australian Health Care Agreement. In fact, according to the Australian Institute for Health and Welfare, the Commonwealth already spends more than $11 billion a year in healthcare grants to the states. The new reform plan would replace the Health Care Agreements, so in theory the states would lose this source of revenue in return for signing up to Rudd’s plan.

To take this into account, I’ve used the states’ actual healthcare expenditure figures, not their net expenditure lines. Where necessary, I’ve subtracted any income from Canberra under the Australian Health Care Agreements.

I’ve then pulled the states’ GST figures from the Commonwealth Grants Commission’s report to work out what losing 30 per cent of their GST take would mean. Subtract the 30 per cent GST figure from the hospitals and public health figure, and you’ve got a rough guide to whether the states would be better or worse off under the National Health and Hospitals Network.

Bottom line? The states receive a substantial windfall from the NHHN plan. Sure, they lose some of their GST. But this is more than made up for by the increased hospitals funding load taken on by Canberra. Across the six states, this figure totals more than $7 billion in the 2008–09 year alone.

What about into the future? As Kristina Keneally argued on Lateline last night, part of the problem for the states in signing up to the agreement is modelling future GST revenue and healthcare expenses.

But this works out in the states’ favour too. Healthcare costs are rising much faster than prices in the rest of the economy. Therefore, on any reasonable projection, GST revenue will grow more slowly than health costs. With Canberra taking on the lion’s share of rising health expenditure, the states should be left in an improving budget situation.

So why does John Brumby think it’s such a bad deal? Perhaps because he hasn’t paid attention. Yesterday at the National Press Club, he claimed that no one had ever told him that swapping health costs for the GST was an option. This point quickly looked absurd, as the ABC went to the file tapes to find footage of Kevin Rudd proposing exactly this as opposition leader in August 2007.

It’s more likely that Brumby is simply playing hard to get, in order to extract yet more money out of Canberra. He may also be trying to distract attention from the increasingly disastrous testimony of former Victorian Police chief Christine Nixon at the Bushfires Royal Commission. Either way, Brumby is wrong: there is new money, and this is a good deal for the states.

Ben Eltham is New Matilda's National Affairs Correspondent.