A National Health and Hospitals Network for Australia's Future

5.3 Rebalancing financial responsibility in the federation

As part of its increasing responsibility for health care funding and services, the Commonwealth Government will dedicate around one‑third of total GST revenue directly to health spending, and fund the majority of growth in health and hospital costs.

The establishment of a National Health and Hospitals Network is vital to ensure the long-term sustainability of Australia’s finances and the capacity to provide high-quality health services
into the future.

The Australian Government will take majority financial responsibility for the health and hospital system — paying 60 per cent of the efficient price of all public hospital services and full financial and policy responsibility for GP and related services.

Over the first five years of the reforms, approximately $90 billion in GST revenue will be dedicated to health and hospital spending, invested through a new National Hospitals Fund that will be clearly identified and detailed in Commonwealth Budget papers.

Because the GST does not keep up with the growth in health care costs, the Commonwealth Government will play an even more important role in financing future health and hospital
services in Australia.

Hospital costs have been growing at close to ten per cent per annum, and are expected to continue to outpace growth in GST of around six per cent per annum over the medium term.

These new arrangements represent a fundamental change to federal financial relations, which will help underwrite the sustainability of the health system, better balance fiscal responsibilities across the federation and lead to economy-wide efficiencies.

The 2010 Intergenerational Report, Australia to 2050, warned of the impact of burgeoning health costs on the future of the Australian economy and the critical need for financing reform of the health system to prevent it from collapsing under its own weight.

Without fundamental reform there is a real risk that state governments will not have the financial capacity to meet health spending obligations in the longer term — placing our health system and hospital services at risk.

If current trends continue, by 2045–46 spending on health and hospitals would consume the entire revenue raised by state governments. This means that states would not be able to fund their health and hospital system, let alone meet their other responsibilities.

By ensuring that the Commonwealth takes on greater financial responsibility for the health and hospital system, these reforms respond to this important national challenge.

The Commonwealth’s increased funding role will put funding for our health and hospital system on a sustainable footing, and provide states with more scope to invest in other services such as roads and schools.

In responding to the challenge the Commonwealth is also improving the long run productivity of the national economy.

These reforms mean the level of government in Australia with the most stable and efficient means of raising revenue will now be the majority funder of the fastest growing area of public expenditure.

In order to help address the challenge of rising health care costs, the Government will also pursue greater efficiencies in health and hospitals — most notably through the introduction of activity based funding and reforms to primary health care services.

Under this reform, no state will be worse off over the upcoming forward estimates and all will be better off in the medium term. Over the period between 2014-15 and 2019-20 the projected benefit to the states and territories is in the order of $15 billion.

The reforms are consistent with the Government’s fiscal strategy as it is fully funded over the forward estimates and consistent with returning the Budget to surplus by 2015–16, while keeping the share of taxation to GDP on average below 2007–08 levels. Fiscal sustainability will be delivered through the Government’s commitment to ensure that real growth in spending is constrained to two per cent once the economy returns to above trend growth and until the Budget returns to surplus.

The proportion of GST directed to health care will be fixed over time from 2013–14. This proportion will be determined over the upcoming forward estimates by the spending on health in each state, but in the aggregate will represent around one-third of the GST. The total GST pool will continue to be distributed across the states in accordance with relativities recommended by the Commonwealth Grants Commission.

Final arrangements on this matter will be discussed with the states.back to top

prev pageContents |next page

prev pageContents |next page

Page last updated 05 March, 2010