The COAG circus comes to Canberra tomorrow when appalling mendicants State and Territory leaders will gather with Kevin Rudd and Wayne Swan to determine the financial shape of “cooperative federalism”.

The meeting will be aimed at settling funding for the five areas of Specific Purpose Payments from the Commonwealth to the States, in health, education, training, disability services and housing. This was one of the big cooperative federalism reforms trumpeted earlier in the year.

The Australian today provides a heads-up on the Commonwealth offer: five SPPs rather than 90+ sounds good, but in practice doesn’t mean a great deal for non-public servants. It doesn’t matter much whether it’s five or 90 if the State Government spending the money is incompetent.

There is also a major Commonwealth review going on into health and hospitals, and another into higher education, so settling the education and health SPPs now appears slightly odd, but that’s just me.

The health SPP involves a number of complex issues, many of which are being considered by the Health and Hospitals Reform Commission. The States — with the connivance of the Government — have successfully sold the idea that the Howard Government cut health funding. In fact, it merely didn’t increase it at the rate they would have liked. When it comes to indexation, one government’s appropriate increase is another’s rip-off. Then there’s the problem of increasing health costs driven by an ageing population, and the extent to which greater funding of preventative health can address that.

Underlying it all, however, is that we have a health system in which responsibility for different functions has been almost randomly attributed to different levels of government.

The widespread perception that we need a fundamental reordering of federalism — which emerged across a number of groups at the 2020 Summit — is particularly acute in relation to health. While the Commonwealth has made noises about taking over some health responsibilities from the States, it is clear that Kevin Rudd is deeply conservative on the issue of fixing federalism. His preferred model is dealing with his State Labor counterparts. But at best, cooperative federalism is about bribing the states to undertake reforms they should be pursuing anyway because it is in the long-term national interest. Without large surpluses to deploy to this purpose, we’re more or less back to the bad old days of Commonwealth-State bickering, albeit without the partisan politicking that characterised federalism in the last days of the previous government on both sides.

Rudd and his Government are, to use their own words, way behind the curve when it comes to the public desire for a fundamental reworking of federation. There is some fiddling at the margins. A swap of aged care and disability funding has been mooted, with the Commonwealth taking over the former and the States the latter. That is perfectly fine — the Commonwealth is acutely aware that aged care funding is a long-term problem, and taking full responsibility for it shows commendable policy courage. But no amount of card-shuffling will fix the fundamental misalignment between responsibility for service delivery, revenue-raising capacity and the ever-shrinking attraction of State politics for men and women of talent.

The specific problems within health are equally resistant to easy solutions. Michael Costa, in a surprisingly lucid op-ed piece, grapples with them today. Costa appears to have fallen, like many others, for the oversold promise of preventative health (or, in the phrase de jour, “wellness”), but rightly emphasises the need for proper reporting by the States as well as greater local autonomy. He doesn’t address one of the key issues that is likely to be addressed tomorrow, that of more funding for medical training. Like many other areas, the lack of investment in our medical workforce during the boom years is now coming back to bite us in the lack of doctors, nurses and allied health professionals. In interviews this morning, Nicola Roxon correctly emphasised the importance of the extra funding the Commonwealth will commit to medical training.

That still leaves the impact on healthcare costs of an ageing population, which has been exercising bureaucratic minds within the Commonwealth for some years, including at Treasury.

There’s only one long-term solution, and that’s addressing the glaring absence of a price signal in health care services, particularly in acute care.

This is the elephant in the hospital ward that neither side of politics wants to mention, Labor because it remains wedded to the concept of free health care regardless of its economic inefficiency (and everyone remembers what Paul Keating did to Brian Howe when he pushed a Medicare co-payment); the Liberals because they’ve long since given up on John Howard’s 1980s ambition of gutting Medicare.

The idea of charging for health services isn’t inconsistent with social justice objectives. Many health services are priced already. But many remain free for all users, regardless of income. The cost of such middle-class welfare far outweighs that of a handout like the baby bonus. It would be wholly consistent with Labor’s reformist tradition for the government to look seriously at means-testing access to free health care, and start recovering at least a small part of health care costs from middle and high income earners.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey