Federalism key to saving states from Medicare

If you thought the Gonski and NDIS ‘funding gaps’ were problems, the cost of schools and disability services pales by comparison to the future cost of Medicare. Health funding remains the single largest budgetary challenge facing Australian governments.

The size of the ‘health funding gap’ is indicated by state governments’ continued calls for the Turnbull government to fully reverse the so-called $50 billion ‘cuts’ to federal funding and for the GST to be increased from 10% to 15% to fund the long-term cost of hospital services — a 50% tax hike that would be the largest single peace time taxation increase in Australian history.

Instead of praying for a non-existent magic funding pudding to save state budgets from the crippling cost of public hospitals, it’s time for states honestly to confront the unsustainability of Medicare, and instead lead the way on reform of the federation.

Reclaiming their constitutional power to levy a state income tax — as proposed and rejected by state premiers under Malcolm Turnbull’s ‘tax swap’ federalism reform plan at the April 2016 COAG meeting — is essential to curb unaffordable growth in the cost of public hospitals in an ageing Australia.

The percentage of the federal income tax surrendered  and hereby designated the ‘state income tax’ could initially be equivalent to the amount of federal hospital funding, and thereafter rise or fall as states deemed necessary to meet the cost of public hospitals.

Crucially, a state income tax would free state governments from their onerous obligations under Medicare to provide public hospital care for ‘free’. This would also give states the freedom and incentive to introduce rational cost-sharing policies — a compulsory co-payment to control the cost of hospital services.

Bold reform in health to end 30 years of financially-disastrous federal meddling in state health systems is the only way state governments can save themselves from Medicare.

David Gadiel is a Senior Fellow and Dr Jeremy Sammut is Director of the Health Innovations Program at The Centre for Independent Studies. Their report is Medi-Mess: Rational Federalism and Patient-Cost Sharing for Public Hospital Sustainability in Australia.