tag:theconversation.com,2011:/au/topics/budget-2013-5353/articlesBudget 2013 – The Conversation2013-05-15T20:07:59Ztag:theconversation.com,2011:article/141192013-05-15T20:07:59Z2013-05-15T20:07:59ZDoes the budget make us a clever country?<figure><img src="https://images.theconversation.com/files/23815/original/4v477nsj-1368590246.jpg?ixlib=rb-1.1.0&rect=50%2C6%2C4205%2C2822&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wayne Swan's budget has been disappointing for Labor's education legacy.</span> <span class="attribution"><span class="source">AAP Image/Lukas Coch</span></span></figcaption></figure><p>The last Labor budget has seen the top half of the Education Revolution fizzle. The ideals that powered the 2009 Gillard policies are in fragments. </p>
<p>Demand-driven higher education will survive until the election but at a reduced funding rate, deepening the tension between quantity and quality that bedevils the Australian university sector. </p>
<p>Over 2007-2013 Labor has not only failed to complete its much trumpeted tertiary education agenda, in the <a href="https://theconversation.com/mid-year-budget-slashes-499m-from-research-support-10248">October 2012</a> and <a href="https://theconversation.com/federal-budget-2013-big-deficit-to-stay-next-year-14212">May 2013</a> budgets it has reneged on its own prior initiatives. In the last seven months a total of A$3.8 billion has been cut from the forward estimates for higher education and research.</p>
<p>The rationale is the need to fund the <a href="https://theconversation.com/topics/gonski-review">Gonski reforms</a> at school level. The bottom half of the Education Revolution will be funded from the top. This is consistent with Labor’s political strategy in education. Schools have always been seen as a larger electorate than tertiary institutions. Hence schools collected the largess in the Building the Education Revolution program. </p>
<p>But an education policy in which schools are played off against universities makes no sense. A revolution that spins in opposing directions is getting nowhere fast. This contradiction points to the sorry state of the government, boxed in between rebuilding the electoral heartland and placating the markets by minimising the deficit. </p>
<p>In a contest between two variants of political short-termism, any potential for long-term nation-building policy must vanish. Even Gonski is more symbolic than real and aimed squarely at this year’s election. Six year time scales do not get implemented. And the school funding package is scarcely likely to survive Joe Hockey’s first round of spending cuts.</p>
<p>Labor’s failure is especially apparent in research. Amid the euphoria of Rudd’s turn to the intellectuals in the <a href="http://www.smh.com.au/news/national/2020-vision-rudd-summit-to-map-future/2008/02/03/1201973740462.html">National Summit</a>, who would have predicated that Labor would fail to match the Howard government’s <a href="http://www.budget.gov.au/2001-02/minst/html/transp-09.htm">Backing Australia’s Ability (BAA)</a> package of 2001. That is exactly what has happened. </p>
<p>Howard’s BAA doubled <a href="http://www.arc.gov.au/">Australian Research Council (ARC)</a> and <a href="http://www.nhmrc.gov.au/">National Health and Medical Research Council (NHMRC)</a> project funding. The phase-in of BAA was incomplete. However Labor’s record is weaker. ARC and NHMRC project funding remain almost unchanged in real terms after six years. 2009 saw more than A$1 billionin Superscience grants and generous infrastructure funding. </p>
<p>But Treasury avoided ongoing increases in program funding of the BAA kind. The one solid capacity building decision was former research minister Kim Carr’s full research funding plan. But full funding was to be phased in over six years. And it stopped after two years (Gonski supporters take note), frozen at levels well below those of Canada, the US and many other countries. </p>
<p>Nevertheless, Labor has lowered expectations so successfully that there were sighs of relief when <a href="http://www.theaustralian.com.au/national-affairs/treasury/labor-tosses-sector-a-few-sweeteners/story-fni7powo-1226642497224">no further research cuts</a> were announced on Tuesday night. The government agreed to continue funding nationally significant research facilities (A$186 million) and the Future Fellowship scheme for emerging research talent (A$135 million). There was no increase in postgraduate research awards. The 1,650 new postgraduate and enabling places are earmarked for teaching, nursing and Asian languages. </p>
<p>Labor’s final record on undergraduate education will be somewhat more positive. The 2009 reintroduction of near full indexation of subsidies for domestic student places, essential to the integrity of the funding system, has survived. The final Labor budget also retained the open-ended funding of student places, providing A$346 million extra funding, with 30,000 additional places in 2013 and 34,000 more forecast by 2017. </p>
<p>The democratisation of access to university is Labor’s strong point. Yet it has been done on the cheap. Labor refused the <a href="http://www.innovation.gov.au/HigherEducation/ResourcesAndPublications/ReviewOfAustralianHigherEducation/Pages/default.aspx">2008 Bradley Report’s</a> proposal for an immediate 10% increase in the funding of domestic student places, to shore up quality, and shamefully tossed the report of the 2011 <a href="http://www.innovation.gov.au/HIGHEREDUCATION/POLICY/BASEFUNDINGREVIEW/Pages/default.aspx">Lomax-Smith base funding review</a>. </p>
<p>The result is that we persist with a funding structure with discipline relativities at late 1980s pre-IT levels; some students pay over 80% of program costs and others less than 30%; and half the undergraduate student population is enrolled in programs operating below the level of real costs of provision, as calculated by the Lomax-Smith review. </p>
<p>Labor’s mantra is “anything but more public funding for student places”. In 2010, the OECD found Australia spends <a href="http://www.smartestinvestment.com.au/campaign/key-facts/">0.7% of GDP</a> in public funding of tertiary education compared to an OECD country average of 1.1%, a difference of A$6 billion. That gap is about to widen. Tuesday’s budget confirmed a 3.5% “efficiency dividend” off the public funding of student places, including A$85 million in 2013-14 and A$228 million in 2014-15. Universities enrolling more undergraduate students under the demand-driven system will lose money on every one unless the floor of quality drops. </p>
<p>The demand driven system cannot long survive a sharpened quantity/quality trade-off. The coalition has already said it will put quality first. But there may be another round of government funding cuts in 2014, and because Labor has lowered expectations the coalition will have a free choice. It can savage public funding and jump student contributions. </p>
<p>The coalition can claim the mantle of the education party for the first time since Menzies in the 1960s (Tony Abbott could call it the “Education Restoration”). Or it can do nothing and let things slowly slide, blaming it all on Labor.</p><img src="https://counter.theconversation.com/content/14119/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Marginson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The last Labor budget has seen the top half of the Education Revolution fizzle. The ideals that powered the 2009 Gillard policies are in fragments. Demand-driven higher education will survive until the…Simon Marginson, Professor of Higher Education, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/142132013-05-15T04:20:27Z2013-05-15T04:20:27ZMore money for the classroom - or for bureaucrats?<figure><img src="https://images.theconversation.com/files/23703/original/ph7jj2z3-1368503882.jpg?ixlib=rb-1.1.0&rect=0%2C14%2C9656%2C4987&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">We're understanding more about how the school funding reform will work, but there is one important question that goes unanswered.</span> <span class="attribution"><span class="source">Money image from www.shutterstock.com</span></span></figcaption></figure><p>Last night’s federal budget had few big spending items, but one standout area was the <a href="https://theconversation.com/explainer-what-is-a-gonski-anyway-13599">A$9.8 billion school funding reform</a>.</p>
<p>With most states still <a href="http://example.com/">yet to sign on to the package</a>, the <a href="http://www.budget.gov.au/2013-14/index.htm">budget papers</a> reveal where the funding will be coming from, namely through reforms to the family payment system, closing tax loopholes and cuts to the <a href="https://theconversation.com/high-stakes-in-higher-ed-campus-evolution-more-likely-than-revolution-13666">higher education sector</a>.</p>
<p>But it also showed that the bulk of the money would be delayed with <a href="http://www.theage.com.au/business/federal-budget/funding-kept-to-a-trickle-under-gonski-20130514-2jl2f.html#ixzz2TJzdNokT">only A$473 million in extra money</a> coming from the Commonwealth next financial year.</p>
<p>With all the talk of money amidst the proposed <a href="http://www.betterschools.gov.au/review">Gonski report</a> implementations the most vital question has not been asked: how will this money be dispersed to classrooms?</p>
<p>In the whirlwind of political spin, television press and the media foray, one would be forgiven for getting sucked into the vortex of big figures. However, it would be dangerous not to consider the most vital part of increased funding, and that is, ensuring that additional funds reach the classrooms, and not bureaucratic pockets.</p>
<p>In their press release on April 14, the <a href="http://ministers.deewr.gov.au/gillard/resourcing-all-our-kids-classrooms-and-teachers-future">Labor government advised</a> that when it comes to funding dispensation, “school education authorities” will distribute money to schools. It is unclear whom or what “education authorities” they are referring to, but it does go on to state that:</p>
<blockquote>
<p>Government and non-government education authorities will have flexibility to implement their own needs-based school funding systems, reflecting their own priorities and circumstances.</p>
</blockquote>
<p>In other words, “education authorities” will be free to fund schools as based on their own “priorities and circumstances”. This sounds like a slippery slope from the proposed fair and equitable funding model. Indeed, Gillard’s proposed “SRS” funding model (Schooling Resource Standard), with the multiple funding sources, seems similarly opaque to Howard’s “SES” funding model (Socio-Economic Status).</p>
<p>The lack of discussion regarding funding dissemination is an important issue to address. Before the Gonski report days, there was another major research report that drove political reform - the “<a href="https://mckinseyonsociety.com/how-the-worlds-best-performing-schools-come-out-on-top/">McKinsey report: How the World’s best performing school systems came out on top</a>” (2007). </p>
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<span class="caption">The McKinsey Report (2007)</span>
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<p>This report was supposedly so inspiring that it fuelled Kevin Rudd’s “Education Revolution”, and then-education minister Julia Gillard was frequently found to substantiate <a href="http://ministers.deewr.gov.au/gillard/leading-21st-century-schools-engage-asia-forum">“evidence-based” reforms</a> by referring to this report. </p>
<p>The major reforms that the Rudd and then Gillard governments pushed under the guise of this research was <a href="http://www.mceecdya.edu.au/verve/_resources/Rewarding_Teacher_Quality-Final_Report_-_GDA_2009.pdf">the improvement of teacher quality</a>, in spite of the additional systemic approaches that the Report advocated for.</p>
<p>The selective hand-picking of the McKinsey report is being replicated in the proposed Gonski reforms. In all the political banter about money, the matter of how funds will be distributed and whether it will reach the classroom, remains invisible and uncertain. It is important to remember that previous research stresses <a href="http://www.learningforward.org/docs/pdf/crow301.pdf?sfvrsn=0">increased funding</a> “won’t guarantee improved performance”. The most important aspect of funding to remember is this: funding must reach the classroom, in order to make a difference.</p>
<p>The United States of America is an excellent example of high expenditure, but low results. Both McKinsey and Gonski demonstrate that the US spends <a href="http://www.oecd.org/pisa/pisaproducts/pisa2009/pisa2009keyfindings.htm">more per student than most countries in the OECD</a> (developed countries that are included in ranking systems):</p>
<blockquote>
<p>For example, Estonia and Poland, which spend around US$40,000 per student, perform at the same level as Norway, Switzerland and the United States, which spend over US$100,000 per student. Similarly, New Zealand, one of the highest performing countries in reading, spends well below the average per student.</p>
</blockquote>
<p>In spite of their high expenditure, the United States continually fall behind in <a href="http://www.oecd.org/pisa/">literacy, mathematics and science test results (PISA)</a>, whereas their lesser spending Kiwi neighbour consistently achieves higher outcomes. It is not the expenditure that is the problem for the United States, but more so, how <a href="http://www.learningforward.org/docs/pdf/crow301.pdf?sfvrsn=0">the expenditure is distributed</a>:</p>
<blockquote>
<p>America tends to tie up more of the resources in administration. There are more layers of administration and therefore less money getting into the classrooms in schools in many system… The place you really want to spend the money is as close to the classroom as possible.</p>
</blockquote>
<p>In all the talk of cash facts and figures, how the money will reach the classroom is missing in action when it comes to current reform debate. The Gonski report argued for the establishment of a “National Schools Resourcing Body” (Recommendation 35), a centralised institution that will maintain and review funding of Australian schools, whilst also managing all quality assurance procedures. </p>
<p>Although this runs the risk of imposing additional bureaucratic processes to an already overloaded system, it is apparent that “governance and regulation” of Australia’s funding mechanisms “require a more sophisticated approach” and indeed,</p>
<blockquote>
<p>The effectiveness of the [new funding] arrangements rests on confidence in the independence and transparency of the process for setting the schooling resource standard.</p>
</blockquote>
<p>We run the danger of impersonating the United States, if we do not closely examine the question of distribution. Unless the funding is injected directly into classrooms, and not into bureaucratic machines operating under the label of a one-dimensional “teacher effectiveness” slogan, we will experience minor differences in systemic achievement levels. </p>
<p>In order to considerably “revolutionise” our gaps between low and high achievers, it’s vital to ensure funding gets to where it’s needed and straight to the classroom.</p><img src="https://counter.theconversation.com/content/14213/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emma Rowe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Last night’s federal budget had few big spending items, but one standout area was the A$9.8 billion school funding reform. With most states still yet to sign on to the package, the budget papers reveal…Emma Rowe, Lecturer/PhD Candidate in The Faculty of Education, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/142012013-05-14T10:36:51Z2013-05-14T10:36:51ZFederal budget 2013: The slow road to the black<figure><img src="https://images.theconversation.com/files/23723/original/k9tp7jhk-1368525378.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wayne Swan delivered his sixth budget.</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>What is almost certainly the Gillard government’s last budget delays the attack on the deficit and concentrates on entrenching “legacy” programs, for which Labor hopes to be remembered.</p>
<p>Dealt a difficult hand in revenue write-downs and a continuing high dollar, the budget expects virtually no improvement in the bottom line between this financial year and next.</p>
<p>What was supposed to be a surplus in 2012-13 is expected to be a deficit of AU$19.4 billion – with a A$18 billion deficit to follow in 2013-14.</p>
<p>Burnt by previous unequivocal and upbeat projections, Treasurer Wayne Swan spoke of “a responsible pathway back to balance in 2015-16” – when the budget is projected to be in the black by A$800 million – followed by a surplus by 2016-17 (A$6.6 billion).</p>
<p>After the previous record, who knows whether these figures will be anything near the mark.</p>
<p>The savings are limited in the early period – around $2 billion in 2013-14. But they build up in the later years of the budget period to about A$16 billion in 2016-17, and a total of about A$43 billion over the whole forward estimates.</p>
<p>There was a note of defensiveness in the Treasurer’s speech, anticipating those who would say that much more effort should have been made to tackle the deficit faster.</p>
<p>“Just because the global economy took an axe to our budget, does not mean we should take an axe to our economy,” he said.</p>
<p>“Just as we shielded Australia from the worst during the GFC, we will continue to follow the responsible middle course,” he said. “Because of our deep commitment to jobs and growth we have taken the responsible course to delay the return to surplus … The alternative, cutting to the bone, puts Australian jobs and our economy at risk.”</p>
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<p>The political debate will now become whether an Abbott government would seek to move faster to surplus, with tougher short-term cuts.</p>
<p>On the spending side, the centrepieces of the budget are the Gonski school funding program and the disability insurance scheme, as well as infrastructure, road and rail projects.</p>
<p>The education and disability initiatives are social reforms which the government is trying to entrench. It should be successful with disability, because it has all states except Western Australia signed up and the scheme has bipartisan support, including to an increase in the Medicare levy.</p>
<p>The Gonski funding is another matter. It hangs in the balance because it is not clear how many states will sign up or what a coalition government would do with the outcome it had inherited.</p>
<p>The multi-billion dollar infrastructure spending is directed to a range of road and rail projects and tied into the themes of improving productivity and creating jobs.</p>
<p>On the savings side, the government has continued pruning “middle class entitlements” and finally confronted the expensive Baby Bonus. This would be abolished from next year with the Family Tax Benefit-A being increased for newborns.</p>
<p>The “pause” in the indexation for family payments for the upper income levels under the system is also being extended. (These measures are in addition to the earlier announced cancellation of an increase due this year to the Family Tax Benefit.)</p>
<p>The budget night changes are sensible and will be another test for the opposition. Shadow treasurer Joe Hockey has frequently criticised the “entitlement” mentality. If the opposition attacks these measures, it will be an exercise in hypocrisy. If it goes along with them, some useful savings work will have been done for it if it becomes the government.</p>
<p>Faced with escalating health costs the government is also making several savings in the health area, including changes to the timing of the indexation of the Medicare benefits schedule.</p>
<p>The government will close various corporate tax loopholes, yielding several billion dollars over the forward estimates, but business has not been hit with major new tax imposts.</p>
<p>The mining tax is performing even worse than expected with an estimate that it will yielding only about $200 million in 2012-13 although it is estimated to rise than more than $2.2 billion in 2016-17. If there’s an Abbott government we’ll never know whether this is an heroic assumption.</p>
<p>The budget is where reality has hit the government’s climate change program. It dramatically revises down the carbon price for 2015, when the trading scheme begins, to around $12 a tonne. The proposed 2015 tax cuts have been deferred – as announced before the budget – “until the carbon price is estimated to be above $25.40. This is currently projected to occur in 2018-19.”</p>
<p>Nobody should expect these tax cuts are being anything but scrapped forever.</p>
<p>The picture Swan presents is one of the relatively strong economic outlook for Australia. Growth next financial year is forecast to be 2.75% rising to 3% – on trend – in 2014-15. The unemployment rate is forecast to rise a little – from 5.5% this year to 5.75% next financial year.</p>
<p>While the government has made some economic mistakes, and would be in a much better position if it has wound back spending faster after the huge stimulus injection, it is also true that circumstances have been against it. There is a big contrast between the world that former treasurer Peter Costello faced in his latter budgets and that faced by Swan.</p>
<p>For all the problems that beset the government, the Australian economy has done and is still doing well, in comparison with other advanced economies.</p>
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<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What is almost certainly the Gillard government’s last budget delays the attack on the deficit and concentrates on entrenching “legacy” programs, for which Labor hopes to be remembered. Dealt a difficult…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/142022013-05-14T09:53:22Z2013-05-14T09:53:22ZA long slide towards debt leads to Wayne’s budget swansong<figure><img src="https://images.theconversation.com/files/23718/original/j5c7phkq-1368519712.jpg?ixlib=rb-1.1.0&rect=19%2C19%2C4236%2C2809&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Wayne Swan has unveiled an $19.4 billion deficit, but promises to be back in surplus by 2016-17.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>How did the Australian economy, which boasts the best performance of the major advanced economies, end up with an estimated budget deficit of A$19 billion this year and an estimated debt of $178 billion?</p>
<p>The answer, of course, is quite simple – the failure of successive governments to live within their means.</p>
<p>Last week <a href="https://theconversation.com/howards-end-how-the-coalitions-last-budget-created-the-ground-for-the-current-deficits-13848">I pointed out</a> how in the latter years of the Howard government, the Costello budgets included a raft of tax cuts and handouts which eroded the healthy surplus. This was due to exceptional falls in unemployment, jobs growth and wages growth which greatly increased tax receipts while somewhat eroding the tax base.</p>
<p>Rudd’s two-and-a-half year leadership of the Labor government was characterised by high spending, high debts and ill-fated economic policies. There were also a large number of policy back-flips and policy failures. The period was also dominated by the global financial crisis (GFC) and Australia was not alone in having to recalibrate its economic strategies to respond to what has been a significant, world-wide phenomenon.</p>
<p>While the idea of stimulus spending was generally supported, the amount and form of the spending has been the subject of considerable debate. Rudd took office in 2007 with net government saving of almost $45 billion and left office in June 2010 with an estimated net debt of almost $42 billion.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=382&fit=crop&dpr=1 600w, https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=382&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=382&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=480&fit=crop&dpr=1 754w, https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=480&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/23720/original/87hn6p3p-1368523897.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=480&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Commonwealth of Australia</span></span>
</figcaption>
</figure>
<p>Far from addressing the budget deficit Swan has delivered more budget deficits through failing to curb spending and/or widen the tax base, despite the Minerals Resource Rent Tax and the Carbon Tax.</p>
<p>Among the expenditure cuts and tax savings is the axing of an $1.8 billion increase in family tax benefits, due to start on July 1, which would have been worth between $300 to $600 a year for families. The Baby Bonus will now be paid as part of the means tested Family Tax Benefit A payments.</p>
<p>An income tax cut proposed for 2015-16 will be deferred. The tax cut was part of the carbon scheme compensation package and would have increased the tax-free threshold from $18,200 to $19,400. Savings of $900 million will be made over four years from changes to superannuation tax arrangements by taxing earnings of more than $100,000 on superannuation pensions and annuities will be taxed at 15%, instead of being tax-free.</p>
<p><a href="http://www.abc.net.au/news/2013-05-12/government-to-cut-580m-from-public-service/4684404">Public service cuts over the next four years</a>, including job cuts, will save $580 million, but it is well-known that meaningful savings in government expenditure come from cutting programs rather than public servants.</p>
<p>Although the government needs to pay for its additional expenditure promises there is also the need to address the underlying structural problem of reducing existing expenditure. All this is at a time when the carbon tax, Minerals Resource Rent Tax, and just about every tax, is not raising the expected revenue and Treasury’s forecasting performance is not looking good.</p>
<p>Massive revenue write-downs have been made to tax receipts, with a shortfall of around $17 billion this financial year, more than $20 billion the following year and $60 billion over the next four years. There are $43 billion in savings promised through a range of cuts.</p>
<p>A number of big ticket expenditure items are likely to blow out from original estimates. The National Broadband Network (NBN) is a very costly project for which no one knows the eventual true cost with any accuracy. The new tax (sorry Medicare levy) will only meet 40% of an estimated cost of DisabilityCare, (formerly the NDIS) which will inevitably blow out (if the experience of the rest of healthcare is any guide). The Gonski recommendations may very well be excellent, but few really understand them.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=456&fit=crop&dpr=1 754w, https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=456&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/23719/original/h79hzkhw-1368523883.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=456&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Commonwealth of Australia</span></span>
</figcaption>
</figure>
<p>No one trusts the estimates and most think that the government won’t be around much longer to implement even short-term measures, never mind the “the savings to fully fund priority investments for 10 years and beyond” described by the Treasurer.</p>
<p>According to Swan we are an economy in transition. And how is this transformation to occur? The resources boom moves from its investment phase to production (if prices hold up). Our region is the fastest growing in the world providing opportunities for Australian farmers, manufacturers and service industries. This will require a highly skilled, educated workforce (hence Gonski reforms - although it would seem the more highly skilled university students can fend for themselves with $2.3 billion to be cut from universities).</p>
<p>As Swan put it,</p>
<blockquote>
<p>“You don’t want to find yourself in the fastest growing region in the world, with yesterday’s economy.”</p>
</blockquote>
<p>Excuse me, but haven’t we been in the fastest growing region for some time now? Shouldn’t this investment have been done years ago?</p>
<p>And,</p>
<blockquote>
<p>“Cutting to the bone puts Australian jobs and our economy at risk, something this Labor government will never accept.”</p>
</blockquote>
<p>No one is asking for drastic cuts, but simply for government to live within its means.</p><img src="https://counter.theconversation.com/content/14202/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Lewis also has no relevant affiliations. During his career he has received funding from many private and public sector organisations including most recently the ARC, NCVER, DEEWR and the AFPC.</span></em></p>How did the Australian economy, which boasts the best performance of the major advanced economies, end up with an estimated budget deficit of A$19 billion this year and an estimated debt of $178 billion…Phil Lewis, Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/137202013-04-29T19:57:54Z2013-04-29T19:57:54ZBudget blowouts and states wrangles: where to now on Gonski?<figure><img src="https://images.theconversation.com/files/22988/original/c9d9z8z5-1367210807.jpg?ixlib=rb-1.1.0&rect=82%2C356%2C4173%2C2472&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Gillard government's Gonski reforms have a long way to go before reaching a school near you.</span> <span class="attribution"><span class="source">AAP Image/Alan Porritt</span></span></figcaption></figure><p>Last week NSW <a href="https://theconversation.com/nsw-backs-gillards-gonski-schools-plan-13692">signed up</a> to the Gillard government’s <a href="https://theconversation.com/states-told-to-pay-a-third-of-school-funding-reform-13475">proposed changes</a> to school funding – a deal that would see a new funding model based on the Gonski review and an injection of A$5 billion into NSW schools. </p>
<p>But yesterday the Prime Minster announced a A$12 billion <a href="http://www.pm.gov.au/press-office/address-capita-reform-agenda-series">black hole in the budget</a>, starting speculation about whether the new reforms were affordable. </p>
<p>In a speech in Canberra she said, “better school funding and school improvement would not be jeopardised.” But tightening budgets aren’t the only thing that could put school funding reform in danger.</p>
<p>Since <a href="https://theconversation.com/explainer-what-is-a-gonski-anyway-13599">the Gonski review</a> was publicly released almost two years ago, schools funding reform has had a bumpy ride. The dynamics of a federated political system, a knife-edge parliament and the cycles of elections, have all created uncertainty. </p>
<p>While one state has signed up, and more may do so, the future of the reforms remain unclear. </p>
<h2>The review</h2>
<p>The <a href="http://www.betterschools.gov.au/review">Gonski Review</a>, the first major national review of school funding in almost 40 years, identified a number of issues with the current education system. </p>
<p>While Australia does well on some international measures, such as Programme for International Student Assessment or PISA tests, there are large gaps between students based on social background, ethnicity, race and where students live. Enduring structural issues, linked to poverty and divisions in provision, and inadequate and poorly targeted funding all contribute to this inequity.</p>
<p>The Gonski remedy was to substantially increase funding with boosted loadings to target schools serving disadvantaged students with high level needs. </p>
<p>While increased funding alone, as many <a href="https://theconversation.com/a-secret-formula-to-learning-extra-money-and-quick-fixes-wont-improve-education-13050">commentators point out</a>, doesn’t guarantee improvement, funding is essential to providing schools with the means they need to support transformation.</p>
<h2>Keeping Gonski alive</h2>
<p>This basic premise and model recommended by the Gonski panel then fed into the government’s <a href="http://deewr.gov.au/national-plan-school-improvement">National Plan for School Improvement</a> which is currently being offered up to the states for agreement.</p>
<p>At a time when extra investment in schools is well overdue, it’s still unclear whether any more states will sign up or what an election in September will bring.</p>
<p>One possibility is that all of the states and territories sign up by the middle of the year, or that enough of them do to make any wind-back untenable. This scenario should see major injections of funds to Australian schools, particularly government schools serving disadvantaged communities. </p>
<p>This would surely help such schools which have seen equity funding over recent decades keep pace with inflation but not keep pace with the levels of escalating need.</p>
<p>It is still not clear, though, that the additional funding would be sufficient to meet the levels of need, and drive the necessary improvements in performance, for a couple of reasons. </p>
<p>Gonski estimated for 2009 an additional A$5 billion to meet need per year, while the <a href="https://theconversation.com/states-told-to-pay-a-third-of-school-funding-reform-13475">current offer</a> involves only about half of that amount annually. </p>
<p>On top of this, the Australian government’s insistence that under the new funding arrangement no school will lose any recurrent per capita funds, may see a watering down of the provisions for the most disadvantaged schools. </p>
<p>In the drive to ensure no school loses, the criteria for disadvantage may need to be diluted, and funds spread more thinly. It will be a big question whether there will be enough to meet the real extent of need.</p>
<h2>A Coalition repeal?</h2>
<p>Another possibility is that the remaining states don’t sign up or, even if they do, the federal election brings a new government hell bent on constraining budgets and limiting outlays. </p>
<p>Both <a href="http://www.tonyabbott.com.au/News/tabid/94/articleType/ArticleView/articleId/9153/Interview-with-Peter-van-Onselen-and-Paul-Kelly-Australian-Agenda-Sky-News.aspx">opposition leader Tony Abbott</a> and <a href="http://www.pyneonline.com.au/media/media-releases/premier-of-nsw-the-hon-barry-ofarrell-mp-signs-with-commonwealth-government">shadow education minister Christopher Pyne</a> in recent statements have reiterated their desire to ignore the Gonski reforms, or repeal them, and retain the previous funding model, even if there’s only one state that didn’t sign up by election time. </p>
<p>This would be a huge setback. Disadvantaged schools would not only lose the <a href="http://smarterschools.gov.au/">National Partnership funds</a> that have helped generate innovative reforms, they would also be forced to return to a funding model that has delivered large gaps in student outcomes between schools and communities. </p>
<p>This may mean that our neediest schools are actually worse off than before, having lost National Partnerships funding, gained no increases in additional funding, reliant on a model that has failed to allow them to adequately address need, and with gaps between them and wealthier schools as big as ever.</p>
<p>And it is quite possible that not all states will sign on to the Gonski reforms. </p>
<p>The model set out in the review establishes a per capita national resource standard, based on average costs and outlays, with supplementary loadings to address need. </p>
<p>The standard does not recognise differences across jurisdictions in salary rates, leaving states and territories such as West Australia and the Northern Territory at a disadvantage. Nor does it recognise all of the real additional imposts of schooling in remote areas, and in heavily disadvantaged communities.</p>
<h2>Politics before education</h2>
<p>Whatever transpires it is clear that politics continues to get in the way of national interest.</p>
<p>World class education systems are those in which students consistently learn and achieve to high standards, and the standards extend across the population, making sure all students benefit. </p>
<p>Heavy investment in schools serving our most disadvantaged students and families, as recognised in the Gonski Review, is needed to achieve this. </p>
<p>No one doubts the need for fiscal restraint in times of economic contraction and uncertainty, but long overdue school funding reform (and university and TAFE investment) should not be part of the sacrifice in the drive to bring budgets back into the black.</p><img src="https://counter.theconversation.com/content/13720/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Lamb does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Last week NSW signed up to the Gillard government’s proposed changes to school funding – a deal that would see a new funding model based on the Gonski review and an injection of A$5 billion into NSW schools…Stephen Lamb, Deputy Director, Centre for Research on Education Systems, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/136672013-04-24T04:31:16Z2013-04-24T04:31:16ZExplainer: what is health rationing?<figure><img src="https://images.theconversation.com/files/22780/original/87ssgs32-1366688517.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">We need a more rational debate about how and where we spend our finite health budget.</span> <span class="attribution"><span class="source">Image from shutterstock.com</span></span></figcaption></figure><p><em><a href="https://theconversation.com/topics/health-rationing">HEALTH RATIONING</a> – a series which examines Australia’s rising health costs and the tough decisions governments must make to rein them it.</em> </p>
<hr>
<p>Any mention of the “R” word in health care <a href="http://www.nejm.org/doi/full/10.1056/NEJMp1203521">immediately brings to mind</a> cuts to services and not being able to access care. It also conjures images of penny-pinching bureaucrats, managers and accountants who have nothing better to do but crack the fiscal whip. </p>
<p>Politicians publicly avoid the “R” word if they can; while doctors fight to retain the autonomy associated with doing “the best” for their patients regardless of the cost.</p>
<p>There’s no doubt the rationing debate needs to become more rational. Let’s start with the basics of health rationing.</p>
<h2>1. Rationing happens all the time</h2>
<p>With a finite budget, rationing in health care occurs every day. Every decision a doctor makes, such as whether to prescribe a drug, order a test, make a referral, undertake an operation, practice in a rural or urban area, is a rationing decision. Why? Because they are using scarce (often taxpayer-funded) resources that could, if used on someone else, lead to a greater improvement in health and well-being. </p>
<p>Other decision-makers such as politicians, bureaucrats and health-care managers who make broader decisions about which services are funded and which services are not funded also ration health care. This type of rationing is implicit: it’s done behind closed doors and tends to be based more on lobbying than good science and research evidence.</p>
<h2>2. Government bodies ration health care</h2>
<p>Explicit rationing involves deliberation and judgements about the cost-effectiveness of new pharmaceuticals, medical technologies and other health interventions. </p>
<p>For medicines, Australia’s <a href="http://www.health.gov.au/internet/main/publishing.nsf/Content/Pharmaceutical+Benefits+Advisory+Committee-1">Pharmaceutical Benefits Advisory Committee</a> (PBAC) advises which drugs are cost-effective and therefore should be subsidised by government. If a decision is made not to fund a high-cost cancer drug from the <a href="http://www.pbs.gov.au/pbs/home">Pharmaceutical Benefits Scheme</a>, for instance, PBAC is effectively saying the resources that would be used to fund the drug could be better used - that is, provide more health improvements - for something else. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/22804/original/ywkbgywh-1366703810.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">PBAC rations pharmaceuticals.</span>
<span class="attribution"><span class="source">Image from shutterstock.com</span></span>
</figcaption>
</figure>
<p>These types of decisions do, of course, mean that some people lose out but others gain. </p>
<p>For medical interventions, the <a href="http://www.msac.gov.au/">Medical Services Advisory Committee</a> (MSAC) decides which treatments should be funded under Medicare. This includes new pathology and diagnostic tests, new surgical procedures, as well as reviewing old technologies.</p>
<p>Other countries also have these explicit rationing mechanisms, such as the <a href="http://www.nice.org.uk/">National Institute of Health and Care Excellence</a> (NICE) in the United Kingdom. </p>
<h2>3. Rationing, if based on good evidence, can save lives</h2>
<p>Doctors and decision makers rely on their considerable experience and training to make decisions about the most worthwhile and valuable interventions to provide. But in some circumstances, doctors’ knowledge can become out of date as evidence on the cost-effectiveness of new technologies and better ways of doing things become available. </p>
<p>Prescribing antibiotics for the common cold is now <a href="http://www.nps.org.au/medicines/infections-and-infestations/antibiotic-medicines/antibiotics-for-respiratory-tract-infections/for-individuals/how-do-i-take-my-antibiotics/antibiotics-dont-kill-viruses">regarded as ineffective</a>, for instance, yet some doctors still write these prescriptions. And it has taken many years for the rates of such prescribing to fall. </p>
<p>Rationing without information on the costs and benefits of health-care interventions can lead to waste, inefficiency and even loss of life.</p>
<p>So what’s the solution? It won’t be easy; improving the uptake of new evidence should include changes to <a href="https://theconversation.com/should-doctors-be-paid-to-keep-patients-healthy-3298">funding and incentives</a>, as part of a multi-faceted approach. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=466&fit=crop&dpr=1 754w, https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=466&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/22803/original/t4qm488t-1366703685.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=466&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">There are many procedures, drugs and treatments that are embedded in routine clinical but provide no or little benefit to patients.</span>
<span class="attribution"><span class="source">Image from shutterstock.com</span></span>
</figcaption>
</figure>
<h2>Rationing or choosing wisely?</h2>
<p>The rhetoric about rationing is just as extreme in the United States as it is in Australia. But this is being tackled intelligently by the medical profession by using less emotive language, such as “<a href="http://www.choosingwisely.org/about-us/">choosing wisely</a>”. </p>
<p>There is <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2202879">recognition</a> that many health-care treatments are being provided that are of little value. This includes diagnostic technologies that lead to <a href="https://theconversation.com/topics/overdiagnosis">over-diagnosis</a> – diagnoses for which there is no effective treatment or which have little impact on people’s lives. The benefits of new technologies are often overemphasised so they suck up valuable resources that could be used to save lives now. </p>
<p><a href="https://theconversation.com/psa-screening-and-prostate-cancer-over-diagnosis-8568">PSA testing</a> for prostate cancer is an example of a treatment that may do more harm than good.</p>
<p>There are also procedures, drugs and treatments that might be heavily promoted by drug companies which benefit financially, or might be embedded in routine clinical care, but for which evidence shows that there are no or little benefits to health status or well-being. These are the low hanging fruit of rationing – the “no brainers” - where stopping the provision of these treatments could <a href="http://jama.jamanetwork.com/article.aspx?articleid=1148376">potentially save</a> tens of millions of dollars that can be used to save lives in other areas.</p>
<p>So there is some hope and optimism that re-framing the debate about rationing may lead to a more rational discussion on how to allocate health-care resources in better ways to save more lives. But to work, this debate needs to be led by the medical profession and supported by government. Decision-makers and doctors need to seriously consider how doing less is doing more.</p>
<p><strong><em>This is the second part of our series <a href="https://theconversation.com/topics/health-rationing">Health Rationing</a>. Stay tuned for more articles in the lead up to the May budget or click on the links below:</em></strong></p>
<p><strong>Part one:</strong> <a href="https://theconversation.com/tough-choices-how-to-rein-in-australias-rising-health-bill-13658">Tough choices: how to rein in Australia’s rising health bill</a><br>
<strong>Part three:</strong> <a href="https://theconversation.com/a-conversation-that-promises-savings-worth-dying-for-13710">A conversation that promises savings worth dying for</a><br>
<strong>Part four:</strong> <a href="https://theconversation.com/phase-out-gp-consultation-fees-for-a-better-medicare-13690">Phase out GP consultation fees for a better Medicare</a><br>
<strong>Part five:</strong> <a href="https://theconversation.com/focus-on-prevention-to-control-the-growing-health-budget-13665">Focus on prevention to control the growing health budget</a></p><img src="https://counter.theconversation.com/content/13667/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Scott receives funding from the ARC, NHMRC, and Victorian Department of Health.</span></em></p>HEALTH RATIONING – a series which examines Australia’s rising health costs and the tough decisions governments must make to rein them it. Any mention of the “R” word in health care immediately brings to…Anthony Scott, Professorial Fellow & ARC Future Fellow, Melbourne Institute of Applied Economic and Social Research, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/136582013-04-24T04:31:14Z2013-04-24T04:31:14ZTough choices: how to rein in Australia’s rising health bill<figure><img src="https://images.theconversation.com/files/22802/original/mzsyw4qp-1366703553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The biggest and fastest-growing spending category in health is hospitals.</span> <span class="attribution"><span class="source">Image from shutterstock.com</span></span></figcaption></figure><p><em>With health costs rising and costly medical innovations on the horizon, it’s crunch time for health funding. In the lead up to the May budget, The Conversation’s experts will explore the options for reining in costs – but warn governments must make some tough decisions.</em> </p>
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<p>Health spending is eating up more and more of government budgets, both state and federal. In fact, government health spending grew 74% over the past decade, far faster than GDP, which grew by 46% above CPI.</p>
<p>Health spending started from a large base too. Australian governments are spending almost A$42 billion more this year in real terms on health than they did a decade ago, compared to A$28 billion more on welfare and A$22 billion more on education.</p>
<p>For government budgets, health is a big deal and getting bigger. Grattan Institute’s new report, <a href="http://grattan.edu.au/static/files/assets/f2ac486a/187_budget_pressures_report.pdf">Budget Pressures on Australian Governments</a> shows that health expenses are 19% of Australian government budgets (state and federal), compared to 17% in 2002 to 03.</p>
<p>Although all categories of government health spending are growing, some are growing faster than others. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=415&fit=crop&dpr=1 600w, https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=415&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=415&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/22774/original/k69hm4bv-1366684362.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Change in total government health payment expenditure by sub-category, 2002-3 to 2012-13, % change above CPI.</span>
<span class="attribution"><span class="source">Grattan Institute</span></span>
</figcaption>
</figure>
<p>The biggest and fastest-growing spending category in health is hospitals – they get almost A$18 billion in real terms more than in 2002-03, an increase of over 95%. </p>
<p>The next biggest category is primary care and medical services, which includes Medicare. It has grown by over 60%, accounting for a further A$11 billion increase. </p>
<p>Other areas of health, such as pharmaceuticals and subsidies for private health insurance, have grown substantially but off much smaller bases.</p>
<h2>Why are health costs rising?</h2>
<p>Received wisdom is that rising health costs are all about demographic change, but this is not true. Together, population growth and the ageing population structure accounted for only a quarter of government expenditure growth above CPI since 2002-2003. A further 5% of the growth comes from health inflation growing faster than CPI.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=414&fit=crop&dpr=1 600w, https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=414&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=414&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=520&fit=crop&dpr=1 754w, https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=520&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/22775/original/qhft9rrz-1366684362.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=520&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Drivers of change in government health expenditure, 2002-03 to 2012-13 (A$bn in real terms).</span>
<span class="attribution"><span class="source">Grattan Institute</span></span>
</figcaption>
</figure>
<p>The rest of the increase is due to people of all ages getting more and more expensive services per person. On average, a 50-year-old now is seeing doctors more often, having more tests and operations, and taking more prescription drugs, than a 50-year-old did ten years ago. The quality of the treatment they are getting has improved in many cases, and there are new treatments that did not exist in 2003.</p>
<p>There’s no reason to think that this trend will slow down in the next ten years without major policy reform. Government health spending now consumes an additional 1% of GDP compared to a decade ago; this is projected to increase to 2% in the next ten years.</p>
<h2>Both costs and benefits</h2>
<p>Spending more on health is not necessarily a bad thing – in fact, it’s exactly what you would expect an advanced, prosperous economy to do. The [international evidence shows](http://www.oecd.org/els/health-systems/49105858.pdf](http://www.oecd.org/els/health-systems/49105858.pdf) that as economies grow, so too does health spending. </p>
<p>We can treat all sorts of conditions more effectively now than we used to, and it’s having an impact. Life expectancy for those aged 65 has been rising rapidly since 1970. Death rates from conditions where health care <a href="http://www.publichealth.gov.au/data/atlas-of-avoidable-mortality_-australia.html">might make a difference</a> are going down.</p>
<p>But someone is going to have to pay for the better treatment that benefits us all. Tough policy choices will need to be made to either increase government revenues, or keep a lid on costs.</p>
<h2>How to reduce health spending</h2>
<p>Reducing health spending growth will not be easy. As Grattan’s <a href="http://grattan.edu.au/publications/reports/post/game-changers-supporting-materials/">Game-changers report</a> last year showed, Australia already has one of the OECD’s most efficient health systems, in terms of life expectancy achieved for dollars spent. </p>
<p>Sweeping cuts to health funding, or shifting costs to consumers, could have serious consequences. Blunt cost-cutting risks reducing health and well-being, and could ultimately lead to higher government costs due to illness, increased health-care needs and lower workforce participation.</p>
<p>But not every dollar we spend on health care is well spent and the best way to start is by focusing on efficiency. One area we do know that there’s room for improvement is pharmaceuticals. As Grattan’s report <a href="http://grattan.edu.au/publications/reports/post/australias-bad-drug-deal/">Australia’s Bad Drug Deal</a> shows, Australia’s Pharmaceutical Benefits Scheme pays at least A$1.3 billion a year too much for prescription drugs. </p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/22805/original/q6qfw3hy-1366704375.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australia wastes A$1.3 billion a year on overpriced drugs.</span>
<span class="attribution"><span class="source">Image from shutterstock.com</span></span>
</figcaption>
</figure>
<p>There are real savings to be made from reforming our drug purchase process, bargaining harder on generic drug prices, and encouraging drug substitutions.</p>
<p>In terms of hospital efficiency, which varies greatly across the country, governments have agreed to introduce a new funding formula, based on paying for <a href="http://www.yourhealth.gov.au/internet/yourhealth/publishing.nsf/Content/nhra-brief-qa-abf#.UXZDxytdNHg">hospital activity</a> using a “national efficient price”. This is a good first step to reduce waste, but there is more room for reform. </p>
<p>Under current public hospital funding arrangements, the “national efficient price” pays extra for complex patients, regardless of whether the complexity is caused by things that happened after the patient was admitted or whether they arrived at the hospital in that condition. Why do we still pay more to hospitals which have higher rates of mistakes or mishaps? </p>
<p>Getting rid of waste sounds easy, but every dollar of health spending is someone’s dollar of income, and there are plenty of vested interests who want to keep their revenue stream.</p>
<p>Of course, not all health spending is waste, not by a long shot. But even if we make tough choices about waste, we might still be left with the next choice. Do we want to put our hands in our pockets to fund more health care with increased taxes, or will something else have to give?</p>
<p><strong><em>This is the first part of our series <a href="https://theconversation.com/topics/health-rationing">Health Rationing</a>. Stay tuned for more articles in the lead up to the May budget and click on the links below:</em></strong></p>
<p><strong>Part two:</strong> <a href="https://theconversation.com/explainer-what-is-health-rationing-13667">Explainer: what is health rationing?</a><br>
<strong>Part three:</strong> <a href="https://theconversation.com/a-conversation-that-promises-savings-worth-dying-for-13710">A conversation that promises savings worth dying for</a><br>
<strong>Part four:</strong> <a href="https://theconversation.com/phase-out-gp-consultation-fees-for-a-better-medicare-13690">Phase out GP consultation fees for a better Medicare</a><br>
<strong>Part five:</strong> <a href="https://theconversation.com/focus-on-prevention-to-control-the-growing-health-budget-13665">Focus on prevention to control the growing health budget</a></p><img src="https://counter.theconversation.com/content/13658/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With health costs rising and costly medical innovations on the horizon, it’s crunch time for health funding. In the lead up to the May budget, The Conversation’s experts will explore the options for reining…Stephen Duckett, Director, Health Program, Grattan InstituteCassie McGannon, Senior Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.