A while back Crikey explained the basic rules of selling horror budgets, and the Government is now getting around to the business of leaking the nasties in advance so that Budget Night contains mostly good news.

So far we’ve had the excise on alcopops upped, executive tax loopholes closed, the LPG rebate scrapped (but since partly restored) and ethanol subsidies nixed (good riddance). Expect more cuts and tax rises to leak out in the next few days, either to soften the blow, as tidbits to reward journalists, or as kite-flying. It’s still not too late for last-minute changes to the Budget, and the reaction to mooted cuts might determine whether they’re in or out on Tuesday week.

Yesterday it was the turn of the aged care sector, apparently targeted for a $150m cut. But the nature of the proposed reduction sheds some light on the Government’s – all Governments’ – approach to funding.

In funding its own agencies, or paying non-government entities to carry out functions for it, the Government usually indexes its outlays, so that inflation doesn’t reduce the real level of funding being provided. But funding isn’t indexed at CPI. In fact, there are a wide range of indices used by government to fund activities, depending on the circumstances. But they usually have one thing in common – they’re below CPI. Not by much – maybe 0.5%, maybe 1%, but enough so that, across the Commonwealth’s $270+b expenditure, “indexation” yields a major saving each year on what would otherwise be paid out.

The subsidies government provides for the aged care sector are indexed using the Commonwealth Own Purpose Outlays index, which is significantly below CPI. The disparity is so huge that, following the Hogan Review of the sector in 2004, the previous Government agreed to provide an additional payment of 1.75% each year.

Problem was, the Howard Government – in typical fashion – only locked in that funding for four years, and it terminates in June. A review was scheduled before the end of this financial year, but with the election and the arrival of new Ageing Minister Justine Elliott, no review has been done. The sector cannot get any commitment from the Government that the funding will be continued beyond 1 July.

The aged care sector competes directly with the health sector for staff, who make up 70% of costs. The health sector wage-cost index, used to index health funding, is far higher than the COPO index. In a tight labour market, the sector would’ve fallen even further behind in its capacity to retain and recruit staff even with the retention of the additional payment. Without it, the sector, which says it currently has on average more than 10% of positions unfilled, will struggle to retain its current staff. Aged Care Association chief Rod Young says that, following the reforms of the late nineties, there’s minimal fat to cut from areas like admin and overhead. The reductions will flow straight through to quality of care.

The Government already let the issue of funding for pensioners and carers get away from it once in this budget process. This one is more subtle, because the Government can claim, hand on heart, that it is maintaining sector funding in real terms. The sector is also behind the eight-ball courtesy of having the inexperienced Justine Elliott as its friend at court.

Nevertheless, the consequences, in terms of nursing home horror stories in the press, will eventually emerge unless aged-care funding is moved to a more realistic basis.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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