The claim
On April 1, 2016 following a Council of Australian Governments (COAG) meeting, the Governments of the Commonwealth, states and territories reached an agreement on hospital funding for the three-year period beginning July 1, 2017.
The Commonwealth is to provide up to $2.9 billion of additional funding to the states and territories over the three years, but some leaders have argued it is not enough.
Daniel Andrews, Premier of Victoria, told the media:
“[H]undreds of millions of dollars today in extra funding for Victorian hospitals does not replace billions of dollars that have been taken away from Victorian hospitals…[M]any billions of dollars will not be flowing to hospitals in my state and hospitals right across the nation as a result of decisions made in the 2014 budget. They are not reversed today and that’s a really important point for us all to acknowledge…”
Have billions of dollars been taken from hospitals by the current Government and not put back? ABC Fact Check takes a closer look.
The verdict
Mr Andrews is exaggerating.
He correctly notes that even with the Turnbull Government’s promise of $2.9 billion in additional hospital funding for three years, the states and territories will still receive around $5 billion less than promised by the former Gillard government over the same period.
There are also no arrangements for funding increases beyond June 2020.
Had the Gillard-era promises been kept, the states and territories may have received an additional $48 billion over the five years from 2020.
But it is far from certain that the Gillard promises would have ever been fulfilled: they were looking far into the future and the increases were never budgeted for.
History shows that budgets can change dramatically from year to year and something cannot be taken away if it was never given in the first place.
How has hospital funding been allocated?
The current arrangements for annual increases in public hospital funding were agreed in 2011 by the former Gillard Labor federal government and the state and territory governments.
Under the National Health Reform Agreement, from July 2014 the Commonwealth was to fund 45 per cent of the growth in hospital activity, based on the so-called “national efficient price” of services.
The “national efficient price” is said to take into account the actual cost of providing services in hospitals, without encouraging state governments to inflate health costs to obtain extra funding.
From July 2017, the Commonwealth’s share of funding was to rise to 50 per cent of the activity growth.
In its 2014-15 budget, the newly elected Coalition Federal Government announced that it would continue with the 45 per cent arrangements from July 2014 to June 2017, but would change the way funding increases are calculated from July 2017.
Instead of funding 50 per cent of the growth in hospital costs, or even 45 per cent, the Commonwealth would instead simply increase its funding by overall price inflation through the consumer price index (CPI), adjusted for population growth.
At the time, the Government sought to demonstrate sound economic management by suggesting this change (along with changes to education funding from January 2018) would result in $80 billion in savings from the budget in the period to June 2025.
In February 2016, the Parliamentary Budget Office (the PBO) estimated that under the new formula announced in 2014, the Commonwealth would contribute about $56 billion less for hospitals for the period July 2017 to June 2025.
This was based on PBO estimates that under the Gillard-era formula, funding would increase by around 10 per cent per year, whereas the CPI-population formula would result in an increase of around 4 per cent per year.
The 2016 COAG agreement
At the conclusion of the COAG meeting, Prime Minister Malcolm Turnbull announced that the governments had entered into a heads of agreement for funding for a three-year period from July 2017.
The Commonwealth has abandoned the plan to move to CPI increases. Instead the status quo of 45 per cent of growth in activity will be continued for the next three years, with increases capped at 6.5 per cent a year.
Fact Check obtained a document about health funding prepared by NSW Government for the 2016 COAG meeting, which suggests NSW health cost growth to 2019-20 to be around 5.7 per cent a year and longer term around 6.6 per cent a year.
It is conceivable that the Federal Government took this long term cost growth into account when settling on the 6.5 per cent cap on funding increases between 2017 and 2020.
Fact Check has calculated that over the three-year period between July 2017 and June 2020, the states and territories would have received around $56.4 billion under the Abbott policy but will now receive $59.3 billion under the new Turnbull arrangements – a difference of around $2.9 billion.
This remains less than the $64.3 billion that the states and territories may have received had the Gillard promises been fulfilled.
Was the money ever there?
It is clear that the Commonwealth will not be providing Victoria, or any other state or territory, with the hospital funding that was foreshadowed by the Gillard government.
But Mr Andrews has referred to money that has been “taken away” and an Abbott government decision that has not been “reversed”.
Similarly, the ACT’s Chief Minister Andrew Barr said the territory will “get about $50 million back as a result of this outcome”.
SA Premier Jay Weatherill referred to receiving a “modest contribution” of “about 18 per cent of the cut that’s going to occur”.
By contrast, Premier Will Hodgman of Tasmania referred to the newly agreed funding as an “additional $54 million”.
Fact Check finds that for something to be taken away, there needs to be some certainty it would have been handed out in the first place.
The post 2017 funding promises made by the Gillard government were in a formal agreement with the states and territories, but were never included in a federal budget, given that budgets are set for the “forward estimates” of the current year plus three subsequent years.
WA Premier Colin Barnett says even when he signed the agreement in 2011, he was sceptical that the funding would eventuate.
“I didn’t at the time ever believe that that was a realistic number or that could be properly funded,” he said at the conclusion of the 2016 COAG meeting.
This is consistent with the message of the Federal Government, which argues that the Gillard-era funding was never going to happen.
On April 3, 2016 Prime Minister Turnbull said “the Gillard promises” were “a fantasy”, while Finance Minister Mathias Cormann described them as “unfunded, unaffordable, pie in the sky spending promises”.
Similarly, on April 4, 2016, Treasurer Scott Morrison said that “Julia Gillard made a whole bunch of promises to fund things for money that wasn’t there” and that the states had simply wanted “a bag of cash”.
Putting aside the political rhetoric, the notion that money was taken away from the states relies on the assumption that the Gillard-era arrangements would have been implemented and continued for years into the future, regardless of the state of the federal budget.
Professor John Wanna of the Australian National University has previously told Fact Check that four-year forward estimates have been used as “real budget indicators” since the mid 1980s but “mostly funding envelopes running out 10 years are fiction”.
“No-one knows what the circumstances will be so far ahead,” he said.
In recent years there have been clear examples of circumstances and funding priorities changing from year to year, such as former Treasurer Wayne Swan’s prediction of a surplus in the 2012-13 budget, which ended up as a deficit of over $18 billion.
Of course, as Fact Check has previously found, there is an inconsistency in the Government’s argument, given that in the 2014 budget it sought to demonstrate its economic management abilities by announcing large savings through changing funding for hospitals and schools.
The fact that the Government no longer seeks to wear the savings as a badge of honour does not change matters: if the spending was pie in the sky, then so were the savings.