10 March 2010
Healthcare: bang for buck
There seems to be some 'confusion' about recent health spending. Kevin Rudd told a Q & A audience that the previous government 'took a billion dollars out of the public hospital system'.
While Chris Uhlmann, on Insiders, claimed that the Howard government had cut spending on public hospitals. This is an extraordinary claim. In Uhlmann's defence it looks like he has misinterpreted some statistics put out by the Australian Institute of Health and Welfare.
Paul Sheehan, writing in The Sydney Morning Herald, has called the 'Howard cut health spending' meme a big lie and declared that anyone repeating this mantra is lying. That is a big call - it is also correct. Of the many criticisms we can make of the Howard government, not spending isn't one of them. Indeed, Kevin Rudd came to power promising that 'this reckless spending must stop'.
The Australian Bureau of Statistics (ABS) report that total Health expenditure by the Commonwealth increased from $21.8 billion in 1998-99 to $39.9 billion in 2006-07 - the last full financial year of the Howard government. Equivalent data for the states are from $19.7 billion in 1998-99 to $37.2 billion in 2006-07. There is no evidence the Howard government stripped money out of health in general. But what about public hospitals?
The ABS doesn't report down to that level of detail, but the Australian Institute of Health and Welfare does. Commonwealth funding of public Hospitals rose from $5.9 billion in 1997-98 to $10.7 billion in 2006-07, while state funding of public hospitals rose from just under $7 billion to $14.8 billion over the same period. There is no evidence to support Kevin Rudd's claim that the Howard government stripped money from public hospitals. The amount of funding increased in every year and did so by more than GDP growth.
What happened, as Joe Hockey indicated on Insiders, is that the states have dramatically increased their funding of hospitals. Afterall, public hospitals are a state responsibility. That increase is particularly noticeable after the introduction of the GST in 2000. In other words a Commonwealth tax passed onto the states in full is partly responsible for an increase in state funding to hospitals. It is that funding that the Commonwealth now wants to take off the states and earmark for health spending. It that sounds like a bit of a merry-go-round, that's because it is.
It is understandable that the current government wants to differentiate itself from its predecessor. It is not clear that it should do so by out-spending the Howard government. Ironically Howard has a reputation of being somewhat hard-hearted; yet the empirical record is very different. Andrew Norton of the Centre for Independent Studies has shown that Howard government spending on issues such as Health and Education rose faster than under the previous Keating government. He has labelled Howard a conservative social democrat.
All governments like to think that increasing the amount of money thrown at problems will solve that problem. But, as we now know from the Rudd government stimulus package, the quality of spend can be more important than the quantity of spending. So too with health - my IPA colleague Julie Novak has shown that the number of back-office bureaucrats has been increasing, while the number of hospital beds per 1000 population has declined. In the spending we have had over the past fifteen years, the bang for buck has declined.
The bottom line is this; billions of dollars from both the Commonwealth and states are poured into health and hospitals each year. The overwhelming bulk of that funding comes from the Commonwealth. More than 50 per cent of the health dollar comes directly from the Commonwealth through its own budget and another large proportion of it comes indirectly through the GST. It might be possible to show that the Commonwealth share of public hospital funding declined but only if we think of the GST as a state tax (as the Howard government did) and not, correctly, as a Commonwealth tax (as the Rudd government does).
Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University and a Senior Fellow at the Institute of Public Affairs.
