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2010: The Year For Major Health Reform in Australia

Following two major reports outlining the effects of the aging population on our economy, Prime Minister Kevin Rudd declared that without policy change, State Governments will run massive deficits due to the rapid rise of health spending and limited growth of government revenue.

While health costs are growing at 11 per cent a year, tax revenue is growing at 4 per cent a year as a result of fewer individuals entering the workforce. If this continues, the Treasury projects that by 2045-46, the total health spending of all states will exceed 100 per cent of tax revenue.

Forty years ago, spending on health services and aged care amounted to some 1 per cent of Australia’s annual Gross Domestic Product, this figure has now increased to 4 per cent. By 2050, it is projected that it will increase to 7 per cent. In dollar terms, this would equate to $200 billion across 40 years. These figures do not include individual spending on private health insurance and out of pocket payments.

To overcome this threat to the sustainability of government budget and avoid the need to support a crushing deficit, the Rudd government is presented with two choices:

1. Reduce spending on health services, pensions and aged care
2. Boosting productivity and growing the workforce to increase tax revenue

Given the country’s aging population, reducing spending on health services and aged care is a far from feasible option, especially given that this money is also being invested in advances in medical technology that ultimately will improve health and increase longevity. With this, the government may be introducing a single funder model for hospitals, with the Commonwealth funding state run health facilities.

Therefore, the Prime Minister aims to reduce the slowdown in economic growth by improving productivity within the workforce by an average of 2 per cent per year. This action will ensure that the government can cope with the rapid increase in health spending in Australia without running into a deficit.