The Turnbull government is offering the states about $5bn in additional hospitals funding and the radical prospect of their own secure income tax stream in the long term, but no immediate extra money for the final two years of schools funding under the Gonski education plan.
The prime minister has outlined the broad elements of the offer to state premiers in the lead up to Friday’s Council of Australian Governments (Coag) meeting. The detail was due to be set out in a phone hook-up between commonwealth officials and the heads of the departments of premiers and cabinet on Tuesday.
As revealed by Guardian Australia in February, Malcolm Turnbull has been reassuring the states that he would provide extra hospital funding to prevent them falling off the “fiscal cliff’ caused by Tony Abbott’s 2014 budget cuts, which removed $57bn in long-term hospitals funding promised by the former Labor government. The commonwealth and the states have been discussing interim funding while a longer term deal is negotiated.
NSW premier Mike Baird had proposed around $7bn over the next four years as a compromise – representing about 45% of the increased costs faced by the states. South Australian premier Jay Weatherill had asked for $10bn. It is understood the commonwealth is offering to pay 45% of increased costs – but only up to a cap of around 6.5% in the cost growth. This is estimated to represent around $5bn over the next four years. Many states predict their hospital costs will rise faster than that. And the commonwealth’s calculations reflect the growth in hospital costs but not the increasing number of procedures.
At the same time the commonwealth has told the states it will not make an immediate offer on schools funding or match Labor’s promise to spend $4.5bn funding the final two years of the Gonski education plan in 2018 and 2019.
The decision opens the way for a fierce Labor attack during the imminent federal election campaign, but it is understood the commonwealth believes there is time to negotiate longer term changes to schools funding after the election.
It is understood the federal government is considering a sweeping plan to offer the states a share of income tax after 2020 to fund the growing costs of both health and education.
Weatherill had earlier proposed a guaranteed fixed share of commonwealth income tax, but it is understood the commonwealth is looking at a slightly different plan, which would hand the states the ability to raise a certain proportion of income tax, and allow them to raise that tax rate if necessary to fund state services.
Turnbull confirmed an offer had been made to the states, but not its detail.
“The health budget is enormous, spread across state and federal government, and it is vital that we work closely together on hospitals. Yes … we will be presenting to the premiers and and the chief ministers a proposal that … will see us maintaining the commitment to activity-based funding and a national efficient price,” he said.
He said “everything we are doing at the federal level is calculated to ensure that Australians get the best care in hospitals and that hospitals are delivering that care to Australian patients as efficiently and effectively as we can”.
Treasurer Scott Morrison told radio 2GB any offer to the states on hospitals would be offset by other spending cuts in the 3 May budget.
Asked where he would find the money for the hospitals deal, Morrison said: “The budget will set out all the areas where we will make further gains in getting expenditure under control … we are making sure if we have to spend more money then we will find the savings to do that … they are the principles we work off.”
On Tuesday morning Weatherill described the outlines of the deal as “a $5bn bandaid on what we estimate to be a $57bn problem” that would represent a “downpayment” on what was needed in the longer term.
“Any contribution would be welcome because of the size of the problem … we cannot go into this federal election campaign without acknowledgement of the fact there has been a massive cut to health and education and there needs to be a political response otherwise it will find its way into the election campaign.
“If it is $5bn we have a $57bn problem. The good thing is the acknowledgement that there is a cut … for months we have been putting up with this nonsense that there has been no cut,” Weatherill said.
A report by Ernst and Young found that the hospital cuts currently on the table would mean that more than 56,000 patients a year would be left untreated in the public system by 2019-20, growing to more than 107,000 patients a year by 2024-25. Waiting times in the public system would grow, leading to an increase in demand for the private health system for those individuals that could afford it, and the price of private health premiums would increase by an extra 0.5% per annum as a result of increased demand, the report found.
State premiers will meet on Thursday before a dinner with the prime minister and the formal Coag meeting on Friday.