15 May 2014
by Jeff Richardson
The Commonwealth budget forecasts a reduction in Commonwealth health expenditures of $8.6 billion over the four-year forward estimates. The highly publicised effect of co-payments accounts for only $3.4 billion. The remainder is a result of cut backs in other MBS fees, the Medicare safety net, the funding of public hospitals, pharmaceuticals, dental preventive care and indigenous affairs programs.
In his press release the Minister states that the reason for this is that health expenditures are unsustainable. This statement is untrue. At 6.6 pe rcent of GDP expenditures by all governments in Australia are the 10th lowest of the 33 countries in the OECD database and the lowest amongst wealthy countries. Even US governments which channel 8.3 per cent of US GDP into health programs outspend Australian governments. While the benefits of US health expenditures may be questioned the 17.5 percent of GDP devoted to health indicates that Australia could expand it 9.5 percent of GDP significantly if it wished to do so.
Co-payments do not increase efficiency. This is driven by reforms to the institutions which provide care not by incentives to patients who cannot assess what care is needed.
By elimination of other reasons there are two explanations for the reduction in health spending. The first is that Australia has a (much exaggerated) problem with the government deficit. This is directly attributable to Australia having the fourth lowest rate of taxation amongst the 34 OECD countries after Chile, Mexico and the USA. This creates long term structural problems for government finances as well as problems in the provision of community and economic infrastructure. Secondly, reduced health spending is consistent with the present government’s stated aim of downsizing government and reducing the level of sharing even when it is to alleviate the financial burden of those already disadvantaged by illness.
Professor Jeff Richardson is the Foundation Director of the Centre for Health Economics at Monash University.