HEALTH SPENDING TO SWAMP STATE BUDGETS

Health spending to swamp budgets

JONATHAN PEARLMAN AND LINTON BESSER SMH

January 25, 2010

KEVIN RUDD has warned that the states are being ''overwhelmed'' by rising health costs as he gears up for an election fight over an overhaul of hospital funding.

Citing figures from the coming third intergenerational report, the Prime Minister said yesterday health spending was set to swamp the public purse and he sought to pave the way for a battle with the states over control of funding.

He singled out NSW, where the Treasury estimates spending will more than double over 22 years to 55 per cent of the budget.

''Rapidly rising health costs create a real risk - absent [of] major policy change - state governments will be overwhelmed by their rising health spending obligations,'' he said in a speech in Sydney. ''Without reform, states' ability to provide the services they currently provide will be significantly strained. That is why 2010 must be and will be a year of major health reform.''

Mr Rudd is under pressure to fulfil his election pledge to seek a mandate for a federal takeover of hospital funding if states fail to meet healthcare benchmarks.

In July he put off his announcement for six months when an expert panel urged the Government not to rush into a takeover and recommended sweeping changes. The proposals, by the National Health and Hospitals Reform Commission, included a voucher system for patients to use private clinics. It suggested national access targets, under which patients would wait no more than two days to see a GP or three months for planned surgery.

The intergenerational report, expected to be released within weeks, says health spending will rise from 4 per cent of gross domestic product to 7.1 per cent by 2050, equivalent to $200 billion, or an increase from $2290 a person to $7210. Treasury modelling for the report found that by 2045 health spending would exceed the states' non-GST tax revenues - a result that Mr Rudd said would occur possibly earlier in some states. By 2050, health spending on those aged 65 plus is expected to rise seven-fold and spending on those aged 85 plus will increase by 12 times.

In NSW, health dominates the state's budget. In 2009-10, it was set to soak up $15.1 billion - more than double the $7 billion for transport - and has been growing faster than inflation.

In 2007, NSW health department spending increased 7 per cent but last year it grew more than twice as fast. In all, between 2005-06 and 2009-10, health expenditure has ballooned by more than $3 billion. If the present rate of growth continues, health will eat into all other portfolios.

Mr Rudd had promised to release his plans after consulting with the states and receiving the intergenerational report. He consulted them last month and the report will be released soon.

''We will put a proposal to the states and territories,'' Mr Rudd said last week. ''What we have said consistently is that if they accept that well and good. If they don't then we'd seek a mandate from the people in terms of the Commonwealth moving to take over the system.''

The Opposition Leader, Tony Abbott, yesterday labelled Mr Rudd a ''fraud'' and challenged him to deliver on his election promise. ''Mr Rudd promised if there had not been any improvements in health he would move to a federal takeover,'' Mr Abbott said. ''Most people say that if anything, things have gotten worse … Mr Rudd is a fraud. He shouldn't make commitments he doesn't intend to keep.''

Mr Abbott, who as health minister signalled a federal takeover, has indicated he will push for a referendum on reform but would like to retain local boards to administer funding. ''We will announce a comprehensive policy in due course,'' he said.