Expenditure Pressures: The public-hospital funding debate

While it is not possible to provide a comprehensive analysis of the expenditure pressures currently confronting State governments, the next section of the paper will provide insights into one of the main financial pressure points in the Australian federation; funding public hospitals.

A significant trend in Australian public finance in recent years has been for the States to fund a greater proportion of Australia’s public-hospital system despite the fact that the States have the weakest revenue base. This is particularly significant given that health-care costs are growing faster than either GDP or revenue across the developed world. In the case of the Australian public-hospital system, according to the Australian Institute for Health and Welfare (AIHW) total funding has increased at 12 per cent per annum in nominal terms in the decade to 2005–06 (AIHW 2007). This is despite the fact that there has been increased utilisation of the private hospital system owing to the Commonwealth’s private health insurance rebate (at a cost of $3 billion per annum) and growing recognition that this level of funding is inadequate (AMA 2007). In short, the States have been shouldering a greater share of the public-hospital funding burden, a share which will have to increase significantly in order to improve the quality of key health services.

Figure 2: Funding sources for Australian public hospitals (current prices) 1995–96 to 2005–05
Figure 2: Funding sources for Australian public hospitals (current prices) 1995–96 to 2005–05

Source AIHW (2007: 55) Note: The upper line representing ‘Australian Government’ funding is inclusive of specific Australian Healthcare Agreement (AHCA) funding.

In absolute terms, State governments have increased public-hospital funding by between $1 billion and $1.6 billion per annum over the past three years (AIHW 2007: 55). Beyond this, State governments have argued that they require an additional $1.5 billion per annum to adequately fund the public-hospital system (Queensland Government 2007). While this represents only one of the funding pressures confronting State governments, the growing revenue needs of public hospitals alone consumed 90 per cent of the GST growth dividend in the most recent year for which data is available.[4] Given the fact that the growth in hospital costs (12 per cent per annum) has exceeded GST revenue growth (8.9 per cent per annum) over the past five years by 3 per cent per annum, it seems inevitable that despite the IGA the public finances of State governments are going to come under increasing pressure.

[4] Between 2004–05 and 2005–06, GST revenue growth to the States was $1.83 billion. Over the same period, additional State funding to public hospitals was $1.63 billion.