State and territory leaders will meet in Sydney today to nut out solutions to health and education funding gaps. New South Wales Premier Mike Baird will again call for the GST to increase to 15%, while Victorian Premier Daniel Andrews will recommend increasing the Medicare levyto cover the shortfall.
Treasurer Joe Hockey is expected to propose the states take full responsibility for funding public hospitals if the GST does indeed rise.
But what exactly is the problem the leaders are trying to address? And how did we get into this mess?
First, let’s go back to last year’s budget, when the issue came to a head. As health economist Stephen Duckett neatly summarised on The Conversation,
The 2014-15 budget took an axe to Commonwealth payments to the states for health care. It abruptly terminated grants to states under the ironically named National Partnership Agreements, and, from 2017, sliced more than $1 billion a year from public hospital grants through reduced indexation.
Commonwealth funding cuts to hospitals
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So, the Abbott government modified the agreements the Rudd-Gillard government transacted with the states and territories to assist with funding growth.
The federal contribution to the states and territories remains a key source of funding, but indexed growth funding is to be cut from 2017. This puts more pressure on the states and territories to meet the growing cost of health care.
Health costs
Australia spent about A$140 billion on health care in 2011-2012. That’s about A$6,000 per person each year. Hospital care accounted for nearly 40% (A$53 billion) and medical care in the community cost nearly A$10 billion. Medications cost almost A$19 billion.
The reason hospital costs are of outstanding importance to the states is that, unlike general practice and medications, they pay for them. Of the A$53.5 billion hospital services (both public and private) received in 2011-12, the state and territory governments paid 42.8%, while the Commonwealth contributed 36.5%. Non-government sources provided the remaining 20.7%.
And the cost of funding hospitals is rising, as you can see by this chart.