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Commonwealth may walk away from health

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States may get a slice of income tax revenue or the spoils from an increase in the GST under proposals likely to be considered under Prime Minister Tony Abbott’s plans to overhaul the Federation.

Flagging the possibility of a wholesale retreat by the Federal Government from involvement in the delivery of basic services such as health and education, Mr Abbott has raised the prospect of a sharply narrower ambit for the Commonwealth than it currently exercises.

It is a vision strikingly at odds with the centralist policy direction Mr Abbott backed in 2007 when, as Health Minister in the Howard Government, he assumed direct control north Tasmania’s Mersey Community Hospital and said “this project, if successful, could validate a new model for running public hospitals, especially in regional areas”.

In its May Budget, the Federal Government reignited the health funding blame game with the States after disavowing public hospital spending guarantees negotiated by the Labor Government and reducing the indexation of funding beyond 2017 to CPI plus population growth – effectively slashing $20 billion from public hospitals over five years.

Mr Abbott has followed this up by announcing preparation of a White Paper on the Reform of the Federation, the terms of reference for which explicitly refer to the idea of limiting Commonwealth policy and funding to areas deemed matters of core national interest under Section 51 of the Constitution – foreign affairs, trade, defence, immigration, transport, banking, immigration and industrial relations, but not health, education, aged care, child care and other services.

“We need to reduce and, if possible, end duplication and make interacting with Government simpler,” the Prime Minister told the Liberal Party Federal Council. “We need to clarify roles and responsibilities for states and territories so that they are, as far as possible, sovereign in their own sphere. There should be less Commonwealth intervention in areas where states have primary responsibility.”

The Federal Government’s decision to slice into its contribution to public hospital funding had already fuelled debate about the inadequacies and inequities of current Commonwealth-State funding arrangements.

The states and territories receive revenue collected by the GST – currently around $50 billion – but its growth has slowed in recent years and the states complain that it is insufficient to meet their funding needs. There has been increasing discussion of the need to increase the GST rate above its current 10 per cent, or to broaden its base to include items, such as fresh food, that are currently exempt.

Alternatively, Queensland Premier Campbell Newman has suggested states scrap inefficient stamp duty and payroll taxes in exchange for a slice of personal income tax revenue.

The White Paper review is expected to be conducted over the next two years, raising the prospect that issues around the structure of the Federation and the division of Commonwealth-State responsibilities will loom large in the lead-up to the next Federal election.

Aside from issues of public hospital funding, the prospect of the Commonwealth divesting itself of all health responsibilities raises questions around national variations in the standard of, and access to, care, training standards, accreditation and other quality criteria, as well as coordination on nationally significant health issues such as disease control, immunisation and preventive health policy.  

Adrian Rollins