Fact check: Does the federal budget cut $80 billion from hospitals and schools?

There’s been heated debate in Parliament over $80 billion of cuts to hospitals and schools that Labor claims are squirreled away in this year’s federal budget papers.

In Parliament, Opposition Leader Bill Shorten said: “The budget papers reveal an $80 billion cut to schools and hospitals – a cut for which there had been no consultation, not a shred of consultation, no forewarning and no discussion.”

He said the $80 billion was “concealed” and “hidden” in the budget papers: “Gone, $50 billion from hospital funding to states. Gone, $30 billion from school funding.”

The budget papers do say the Government will achieve $80 billion in savings over 10 years.

Prime Minister Tony Abbott responded to Labor by saying: “We are not cutting $80 billion from schools and hospitals. There was no $80 billion in any Labor budget. There was no $80 billion in any Labor budget to be cut.”

ABC Fact Check takes a look at what’s in the budget papers, and what’s really in store for hospital and school funding.

$80 billion in savings

The 2014-15 Budget Overview has charts illustrating changes to school and hospital funding. It says the Government is adopting measures that “will achieve cumulative savings of over $80 billion by 2024-25”.

In a Senate estimates hearing on June 4, Nigel Ray, executive director in the Treasury, said the $80 billion was made up of “a little bit under 30 [billion] for schools and a bit over 50 [billion] for hospitals”.

Hospital funding changes

The Federal Government currently bases its funding for hospitals on Labor agreements called the National Health Reform Agreements.

These agreements include funding guarantees which were designed to increase the Commonwealth’s contribution to hospital funding. The budget removed those guarantees from July 1.

The Government also announced in the budget that from July 1, 2017, it will remove the current indexation arrangements for hospital funding and will only increase it by the rate of inflation, as measured by the Consumer Price Index.

The current indexation of hospitals is over 6 per cent, while the budget overview forecasts CPI will increase by 2.25 per cent this year.

The budget shows $1.8 billion will be saved over four years by ceasing the funding guarantees from July 1 and changing the indexation from 2017. But total funding to hospitals will still rise by 9 per cent in each of the first three years of the forward estimates and then by a smaller amount after the indexation change.

The Government did not cut $50 billion from hospitals in the budget, but it looks likely that the Abbott Government will make significant savings over the next 10 years by downgrading the growth in hospital funding.

School funding changes

The budget shows that funding for schools will increase in accordance with the existing Labor agreements until 2018.

School funding is currently based on Labor’s National Plan for School Improvement, which was designed to increase the Commonwealth’s contribution over the next six years, with the aim that per student funding would eventually meet a Schooling Resource Standard (SRS).

The plan was to increase federal funding to schools each year by 4.7 per cent (for schools that previously received less per student than the SRS level) and 3 per cent (for schools that were already beyond the SRS), until the SRS target was met.

The Government announced in the budget that from 2018, instead of these percentages, Commonwealth school funding will increase at the rate of inflation, as reflected by the CPI, with an allowance for increased enrolments. CPI could be less or more than the 4.7 and 3 per cent. The budget overview forecasts that CPI will increase by 2.5 per cent a year for the three years to 2017-18. The latest quarterly figures show that CPI rose 2.9 per cent between March 2013 and 2014 and the rate has been as high as 5 per cent between September 2007 and 2008 and as low as 1.2 per cent between September 2008 and 2009.

The Government did not cut $30 billion from schools in the budget. School funding will continue to rise in line with Labor’s planned increases over the next four years. The Government argues that it is providing more funding that Labor would have delivered, because it has reached agreement with Queensland, Western Australia and the Northern Territory, which had not signed up to Labor’s schools plan.

The $30 billion figure used by Mr Shorten is based on adding up 10 years of difference between the increases that Labor says it would have funded (4.7 or 3 per cent per year) and an estimate of the rate of increase that the Government says it will apply (the CPI).

The verdict

The Abbott Government claimed in the budget it would achieve $80 billion in “savings” over 10 years by changing funding for schools and hospitals. That figure assumes the Coalition will spend less than Labor’s policies would have cost.

Labor never produced a 10-year plan for hospitals, although there were some long term funding projections for schools. As Mr Abbott said, “there was no $80 billion in any Labor budget to be cut”. This contradicts the claim in his budget papers of $80 billion in savings.

The Government did not cut $80 billion from schools and hospitals in this four-year budget period. By trumpeting long term savings, it has left itself open to accusations of funding cuts from Labor.

Neither the Abbott Government nor the Labor Opposition can accurately predict the costs of hospital or school funding 10 years out.

There is too much uncertainty for this long-term estimate to be used as a reliable measure for cuts or savings.

The debate over the $80 billion figure – whether a cut or a saving – is hot air.