Funding for Aboriginal and Torres Strait Islander health, population health, medical research, mental health, blood and blood products, other allied health services, and health infrastructure is projected to decline in real terms, according to the analysis below by Charles Maskell-Knight.
“We could take the Government’s commitment to closing the gap more seriously if it was prepared to commit funding over the medium term, allowing grant-funded organisations stability and certainty,” he writes.
Charles Maskell-Knight writes:
In an article published last week, I suggested that spending on health functions and programs should grow by a combination of price growth and population growth, together with an allowance for utilisation growth due to ageing.
However, the last Budget showed that only three health and aged care programs (MBS, public hospitals, and aged care) were growing faster than price and population growth.
PBS and private health insurance rebate spending were barely growing in nominal terms, due to the success of price reduction mechanisms under the PBS, and the presumed stable number of private health insurance policyholders.
Other programs such as First Nations health, health services (population health, medical research, mental health, blood and blood products, other allied health services, and health infrastructure), and administration (including funding for primary healthcare and coordination, investment in health workforce measures, and support for rural health initiatives, as well as the Government’s general administrative costs associated with healthcare) were declining between 2024-25 and 2026-27.
What has happened to health programs as a result of decisions in the 2024 Budget? There are two ways of looking at this.
Policy decisions affecting 2024-25
The first approach is to compare the estimates for 2024-25 presented in this Budget with the estimates for the same year in last year’s Budget. This is done in the following table, based on data in Statement 6 in Budget Paper 1.
The difference of $7.3 billion is due to a combination of policy decisions and parameter variations (changed assumptions about price movements, eligible populations, and utilisation rates).
Budget Paper 2 shows the total impact of policy decisions affecting the Health and Aged Care portfolio in 2024-25 as $3.4 billion, which needs to be added to the $1.2 billion for post-budget policy decisions shown in the 2023-24 Mid Year Economic and Fiscal Outlook to arrive at a total for new policy decisions of $4.6 billion.
Of this amount, new listings under the PBS account for almost $2 billion, while aged care policy decisions, amount to $1.5 billion, including $531 million for additional home care packages, and sizeable funding for aged care digital systems.
The remaining $1.1 billion in policy decisions is made up of numerous relatively small decisions – there are no policy changes with major impacts on spending embedded in the estimates.
Many of these so-called new policy decisions are actually decisions to continue existing programs for which funding was not included in the forward estimates.
For example, Budget Paper 2 includes a measure called “Preventive Health” with expenditure in 2024-25 of $208 million covering 17 different programs. Twelve of the 17 involve continuing or maintaining funding for existing activities, such as the National Medical Stockpile.
The much-hyped mental health measure ($888 million over eight years) only increases 2024-25 spending by $31 million (and 2027-28 spending by $15.2 million).
Budget Paper 2 explains “the cost of this measure will be partially met from within the existing resourcing of the Department of Health and Aged Care and the National Indigenous Australians Agency, and from reprioritising funding from Program 1.2 – Mental Health, Program 1.5 – Preventative Health and Chronic Disease Support program, and Program 2.1 – Medical Benefits”.
Longer terms spending trends
The second approach is to look at the trends in forecast expenditure over the three years of the forward estimates.
Based on CPI assumptions in the Budget, prices growth over the forward estimates is a fraction under eight percent. Combining this with a conservative estimate of population growth of five percent means that program spending needs to increase by 13.3 percent to maintain the real value of per capita spending – and that is before any allowance for ageing of the population.
The following table (also based on data from Statement 6) shows growth from 2024-25 to 2027-28 by function or program.
Very little has changed from the trends in the 2023 Budget shown in my article last week.
Only three programs (MBS, public hospital funding, and aged care) are growing fast enough to keep pace with inflation, population growth and ageing.
While the level of PBS estimates has increased due to new listings, growth is virtually unchanged.
First Nations health funding decline
Nominal growth in spending on First Nations health programs is now negative – spending in 2027-28 is forecast to be less than 2024-25.
Budget Statement 6 explains that: “Expenditure for Aboriginal and Torres Strait Islander health is expected to increase from 2023–24 to 2024–25, reflecting the Government’s commitment to closing the gap for First Nations people’s health and wellbeing. Expenses are expected to marginally decrease over the period 2024–25 to 2027–28, reflecting a number of terminating measures. Funding for terminating measures will be considered in future economic updates.”
We could take the Government’s commitment to closing the gap more seriously if it was prepared to commit funding over the medium term, allowing grant-funded organisations stability and certainty.
The flat-lining of estimates for the health services function is also consistent with last year’s Budget. Far from increasing in line with prices and population, total expenditure on population health, medical research, mental health, blood and blood products, other allied health services, and health infrastructure is forecast to decline by $900 million over the forward estimates.
Again, Budget Statement 6 explains that: “Expenses are expected to decrease as a result of a number of terminating measures for preventive health and chronic disease. Funding for terminating measures will be considered in future economic updates. The decrease in expenses is partly offset by increases in estimated expenses for blood products and mental health.”
Given the magnitude of the drop in total expenditure on the health services function, there must be an awful lot of terminating measures in the preventive health and chronic disease areas!
Before the last Budget Finance Minister Katy Gallagher accused the previous Government of leaving “time bombs or little booby traps built into the budget that we inherited”.
Based on this Budget, the Minister for Health will need a bomb disposal unit when developing proposals for future years.
• Charles Maskell-Knight PSM was a senior public servant in the Commonwealth Department of Health for over 25 years before retiring in 2021. He worked as a senior adviser to the Aged Care Royal Commission in 2019-20. He is a member of Croakey Health Media. Follow on X/Twitter at @CharlesAndrewMK.
See Croakey’s archive of articles on #HealthBudget2024
