Australian Government, 2012‑13 Budget
Budget

Statement 6: Expenses and Net Capital Investment (Continued)

Overview (Continued)

Health

The health function includes expenses relating to: medical services funded through Medicare and the Private Health Insurance Rebate; payments to the States and Territories to deliver essential health services, including public hospitals; the Pharmaceutical Benefits and Repatriation Pharmaceutical Benefits Schemes; blood and blood products; population health initiatives; and health education and training services.

Table 8: Summary of expenses — health

Table 8: Summary of expenses — health<

(a) The estimated financial impact of premium growth on the forward estimates for the Private Health Insurance Rebate has been allocated to the Contingency Reserve, due to commercial sensitivities.

(b) The hospital services sub‑function includes payments from the Commonwealth to the States and Territories for specific hospital improvement initiatives and is in addition to the bulk of hospital funding that is provided under the 'National health reform payment' sub‑function.

(c) The name of this sub‑function has changed from 'National healthcare specific purpose payment' to 'National health reform payment'.

Total expenses for this function are estimated to increase by 2.7 per cent per annum on average in real terms from 2012‑13 over the forward years, and to make up an increasing share of total government expenses over the medium term. This increase is expected to be driven by the combination of technology and social factors, such as the effects of an ageing population, which increase the demand for health services.

The health expense estimates include the Government's commitment to provide additional funding to increase the size and capacity of the dental workforce, to alleviate the pressure on public dental waiting lists and to support the delivery of oral health promotion. Further information on these measures can be found in Budget Paper No. 2, Budget Measures 2012‑13.

Box 5: Moving towards a more sustainable health budget

Since 2007, the Government has taken a range of decisions to place health expenditure on a more sustainable footing, whilst ensuring front‑line health services continue to meet the needs of current and future generations.

Total Government health expenses are stable between 2011‑12 and 2012‑13. This is followed by solid growth over the forward estimates (Chart 1). The change from 2011‑12 to 2012‑13 reflects a series of Government decisions including:

  • means testing private health insurance, estimated to deliver savings of $746 million in 2012‑13 and $2.4 billion over three years; and
  • ongoing pricing reforms to the Pharmaceutical Benefits Scheme, announced in the 2010‑11 Budget to deliver savings of $528 million in 2012‑13 and $1.9 billion over five years.

Expenditure on infrastructure is also lower in 2012‑13, as projects under the first three rounds of the Health and Hospitals Fund are progressively completed. Since 2009 the Government has invested $5 billion in our health system's infrastructure through 224 projects around Australia. The Government has also spent $467 million over two years from 2010‑11 to establish the key components of the Personally Controlled Electronic Health Record system.

The Government's decisions have improved the sustainability of the health budget and provided capacity to invest in key services such as:

  • $19.8 billion in public hospital services through to 2019‑20 under National Health Reform;
  • $2.2 billion over five years (from 2011‑12) to deliver National Mental Health Reform;
  • $515.3 million over four years (from 2012‑13) for dental care for those who can least afford it;
  • $233.7 million over three years (from 2012‑13) to progress the national  e‑Health agenda; and
  • other measures such as replenishing the National Medical Stockpile, and expanding the National Bowel Cancer Screening program.

Going forward, Government health expenditure is projected to continue to increase as a share of GDP. There is significant growth in the medium term arising from key programs in the portfolio. While the overall health budget remains stable between 2011‑12 and 2012‑13, it still grows in real terms over the forward estimates, on average, by 2.7 per cent per year (5.3 per cent in nominal terms).

Chart 1: Commonwealth health expenditure

This chart illustrates Commonwealth health expenditure from 2006-07 to 2015-16 in nominal terms. Commonwealth health expenditure has increased strongly from around $40 billion in 2006-07 to over $60 billion in 2011-12, and is forecast to reach in excess of $70 billion in 2015-16.

Health expenditure in the 2011‑12 financial year is expected to be $1.3 billion higher than originally estimated in the 2011‑12 Budget, but is consistent with estimates published in the 2011‑12 MYEFO. The increase since the 2011‑12 Budget largely reflects delays in the introduction of the 2009‑10 Budget Measure Private Health Insurance — fair and sustainable support for the future along with the impact of premium growth for private health insurance rebates from April 2011. It also reflects the continued operation of the Chronic Disease Dental Scheme (CDDS), which was not included in the forward estimates at the time of the 2011‑12 Budget beyond 31 December 2011, consistent with Government policy to end this program.

The medical services and benefits sub‑function, which primarily consists of Medicare and Private Health Insurance Rebate expenses, comprises 38.8 per cent of total health expenses for 2012‑13. Medicare expenses are the major driver of growth in this sub‑function, and are expected to increase over the forward estimates as a direct result of the increase in the Australian population — and in particular, the number of Australians aged over 65 — as well as technology and social factors.

The decrease in expenses between 2011‑12 and 2012‑13 is mainly driven by the introduction of means testing for the Private Health Insurance Rebate. In the absence of this measure, forecast spending on medical services and benefits would have been $746.3 million higher in 2012‑13.

The major components of the medical services and benefits sub‑function are set out in Table 8.1.

Table 8.1: Trends in the major components of medical services and benefits
sub‑function expenses

Table 8.1: Trends in the major components of medical services and benefits sub‑function expenses

The Commonwealth's contribution to funding under the National Health Reform Agreement is reported through the national health reform payment sub‑function. The increase in expenses over the forward estimates for this sub‑function reflects indexation of the Commonwealth's contribution to the provision of hospital services and, from 2014‑15, projected growth in hospital services. In addition to its base contribution, the Commonwealth has undertaken to fund 45 per cent of efficient growth in hospital services from 2014‑15, as calculated by the Independent Hospital Pricing Authority. This will increase to 50 per cent of efficient growth from 2017‑18.

Growth in the pharmaceutical benefits and services sub‑function over the forward estimates is mainly driven by increasing demand for pharmaceutical services. PBS growth in 2011‑12 and 2012‑13 is lower than historical trends, largely reflecting the implementation of the 2010‑11 Budget measure titled Pharmaceutical Benefits Scheme — further pricing reform from 1 April 2012. This measure requires manufacturers to disclose to the Government the actual price at which they sell medicines to wholesalers and pharmacies. This increased transparency is expected to help stabilise growth in the short term; however, growth is expected to return to its long‑term trend of around 5 per cent per annum from 2013‑14 onwards. PBS estimates do not include potential new listings or price adjustments, which typically increase spending. The major components of the pharmaceutical benefits and services sub‑function expenses are set out in Table 8.2.

Table 8.2: Trends in the major components of pharmaceutical benefits and
services sub‑function expenses

Table 8.2: Trends in the major components of pharmaceutical benefits and services sub‑function expenses

(a) Concessional benefits are those provided through community pharmacies for Centrelink concession card holders.

(b) General benefits are those provided through community pharmacies for people without concession cards.

(c) Highly specialised drugs are subsidised by the Commonwealth Government through hospitals.

Expenses in the health services sub‑function include Commonwealth expenses associated with the delivery of population health, hearing services, blood and blood products, research and other allied health services, e‑Health, and health infrastructure funding through the Health and Hospitals Fund (HHF).

Expenses in the general administration sub‑function include the Commonwealth's investment in health workforce measures, and the Government's support for rural health initiatives, including the Royal Flying Doctor Service. This sub‑function also includes the Government's expenditure on the delivery of programs.

The hospital services sub‑function includes payments to the States and Territories through a range of existing and new national partnership agreements, and support for veterans' hospital services. The initial years of the forward estimates include funding for emergency departments and elective surgery investment as part of national health reform. The estimates decline over time as these initiatives are concluded.

Expenses in the Aboriginal and Torres Strait Islander health sub‑function will increase in 2012‑13 through the Stronger Futures in the Northern Territory package. This package of funding for the Northern Territory ensures the continued delivery of primary care, specialist and allied health services for Indigenous Australians, as well as the continuation of the Remote Area Health Corps, a program that helps meet workforce shortages in remote locations.

Aboriginal and Torres Strait Islander people across Australia can access mainstream services as well as Indigenous specific services. Substantial investments in Indigenous health also occur through other health sub functions.

Box 6: Health spending trends

A number of major Health programs have seen and will continue to see sustained expenditure growth, including the MBS, the PBS, and payments to the States and Territories under the Australian Health Care Agreement and the National Health Reform Agreement. Over the period from 2000‑01 to 2010‑11, average real expenditure growth for the MBS has been around 5.2 per cent per annum, 5 per cent per annum for the PBS, while health payments to the States and Territories have averaged around 3.5 per cent per annum. The Private Health Insurance Rebate has also experienced strong real growth of around 6 per cent per annum.

Spending on the MBS and PBS is impacted by population growth and to some extent by the ageing of the population; however, spending is also influenced by developments in health technology and the resulting listing of new products and services. These non‑demographic influences are stronger than the demographic impacts, with real growth expected to remain at relatively high levels of around 3 per cent per annum for the MBS and 5 per cent per annum for the PBS. Payments to the States and Territories for healthcare under the National Health Reform Agreement will grow relatively quickly (at around 8 per cent per annum in real terms from 2015‑16), in large part due to volume growth and the Commonwealth increasing its contribution to meet its target of funding 50 per cent of the growth in the efficient price of hospital services.

Social security and welfare

The social security and welfare function includes: pensions and services to the aged; assistance to the unemployed, people with disabilities and families with children; and income support and compensation for veterans and their dependants. It also includes assistance provided to Indigenous Australians.

Table 9: Summary of expenses — social security and welfare

Table 9: Summary of expenses — social security and welfare

(a) The name of this sub‑function has changed from 'Aboriginal advancement nec' to 'Assistance for Indigenous Australians not elsewhere classified (nec)'.

Expenses in the social security and welfare function are estimated to grow by 6.0 per cent in real terms from 2012‑13 over the forward years, or at an average annual rate of 2.0 per cent. The sub‑functions contributing most to the growth are assistance to the aged, assistance to people with disabilities and assistance to families with children. The funding over the forward estimates in the assistance to Indigenous Australians not elsewhere classified (nec) sub‑function does not include a large component of the Stronger Futures in the Northern Territory package. This expenditure is not for publication from 2013‑14 as it is subject to negotiation with the Northern Territory Government.

The continuing demographic shift to an older population, as outlined in the 2010 Intergenerational Report, continues to contribute to increased social security and welfare expenses as more Australians become eligible for the Age Pension and begin to enter residential and community care facilities. The ageing of the population is also leading to an increase in the number of people caring for senior Australians and becoming eligible for carer payments.

Additionally, the Secure and Sustainable Pensions package announced in the 2009‑10 Budget continues to contribute to growth of pension payments including the Age Pension, Disability Support Pension and Carer Payment over the forward estimates. The principal driver of growth over the forward estimates in the assistance to the aged sub‑function is the income support for seniors program, with expected average annual real growth of 3.6 per cent from 2012‑13 over the forward estimates. This is largely driven by the program's major component, the Age Pension, with demographic factors outlined above estimated to result in the number of people receiving the Age Pension increasing by 220,000 between 2012‑13 and 2015‑16.

Growth over the forward estimates is also driven by increased funding required by the home care, home support and the residential and flexible care programs due to demographic factors, as well as changes in the cost of delivering aged care.

From 1 July 2012, there will be a transfer of funding from the national partnership payments component of the assistance to the aged sub‑function to the home support component (with the exception of Western Australia and Victoria) and the access and information component. This follows the Commonwealth taking on full funding and policy responsibility for aged care.

The major components of the assistance to the aged sub‑function are outlined below in Table 9.1.

Table 9.1: Trends in the major components of assistance to the aged
sub‑function expenses(a)

Table 9.1: Trends in the major components of assistance to the aged sub‑function expenses

(a) From 2012‑13, the Department of Health and Ageing has restructured a number of its programs in the assistance to the aged sub‑function. Further detail is provided at Box 7: Aged Care reform.

Box 7: Aged Care reform

The Government is building a better, fairer and more nationally consistent aged care system through the Living Longer. Living Better aged care reform package announced on 20 April 2012. The Government will be spending $3.7 billion over five years from 2012‑13 to: improve access to better aged care services; improve aged care linkages with the health system; improve fairness and sustainability; increase support for dementia; support the diverse care needs of Australia's ageing population; establish an Aged Care Financing Authority; and establish an Aged Care Reform Implementation Council. Specific initiatives include increasing the number of home care packages ($880 million), building more residential care facilities ($487 million), tackling dementia ($268 million), and building a gateway to aged care services ($198 million).

The investment is partly offset by fairer and more uniform contributions to the cost of care by older Australians who have the capacity to contribute to their care needs through changed means testing arrangements (saving $561 million), modifications to the aged care funding instrument (redirecting $1,597 million), and redirecting funding from related programs (saving $961 million). For further information on these reforms, see the Living Longer. Living Better materials released by the Prime Minister and the Minister for Mental Health and Ageing on 20 April 2012 and Budget Paper No. 2, Budget Measures 2012‑13.

The main components contributing to the growth of the assistance to families with children sub‑function are family tax benefit payments and child care fee assistance. Family Tax Benefit payments will grow over the forward estimates as a result of payment rate increases provided by the Government to ease the pressure on families through the Spreading the Benefits of the Boom package.

The Government will provide $2.1 billion over five years for a new Schoolkids Bonus to provide guaranteed support to families for the cost of their children's education. This will replace the Education Tax Refund (ETR), which is currently available as a refundable tax offset. The Schoolkids Bonus will be made in two equal instalments in January and July each year commencing January 2013. As a transitional arrangement, the ETR in 2011‑12 will be replaced by a one‑off lump sum payment to eligible families in June 2012. Making these payments automatic will increase assistance to the many eligible families currently missing out on some or any ETR.

Child care fee assistance is projected to grow in real terms by 15.3 per cent from 2012‑13 over the forward estimates (at an annual average real rate of 4.9 per cent). The increase in expenses reflects the growing use of child care services and the implementation of productivity reforms designed to increase workforce participation.

The major components of the assistance to families with children sub‑function are set out in Table 9.2.

Table 9.2: Trends in the major components of assistance to families with
children sub‑function expenses

Table 9.2: Trends in the major components of assistance to families with children sub‑function expenses

(a) Estimates for National Partnership Payments — child care from 2014‑15 are not for publication.

Box 8: Spreading the Benefits of the Boom package

The Government is easing cost of living pressures on families and unemployed people through the Spreading the Benefits of the Boom package announced as part of the 2012‑13 Budget. Families will benefit from an additional $1.8 billion over three years from 2013‑14, to provide an across the board increase in Family Tax Benefit Part A (FTB Part A). All families receiving FTB Part A will benefit from this change but those with lower incomes will benefit more. Families on the maximum rate of FTB Part A with one child will receive an additional $300 per annum and families with two or more children $600 per annum. For those receiving the base rate of FTB Part A, the increase will be $100 per annum for families with one child and $200 per annum for families with two or more children. The increased rates will come into effect from 1 July 2013.

The Spreading the Benefits of the Boom package will also provide $1.1 billion over four years from 2012‑13 to provide a new income support supplement to recipients of income support payments such as Newstart Allowance, Youth Allowance and Parenting Payments. This supplement will be a non‑taxable payment, paid once every six months commencing on 20 March 2013, at a rate of $210 per annum for eligible singles and $175 per annum for each member of an eligible couple.

The Spreading the Benefits of the Boom package will also invest $700 million over the forward estimates in a loss carry back to improve incentives for businesses to invest, innovate and take sensible risks.

For further information on this package, see Budget Paper No. 2, Budget Measures 2012‑13.

The increase in projected expenses in the assistance to people with disabilities sub‑function from 2011‑12 is driven primarily by three programs — the introduction of the first stage of a National Disability Insurance Scheme (NDIS), the Disability Support Pension (DSP) and income support for carers.

Box 9: First Stage of a National Disability Insurance Scheme

The Australian, State and Territory governments have committed to working towards an NDIS and agreed their shared responsibility for this important reform.

The Australian Government will provide $1.0 billion over four years for the first stage of an NDIS. This will deliver personalised care and support for up to 10,000 people with significant and permanent disabilities and expand to support up to 20,000 people from 2014‑15. Eligible individuals will be entitled to reasonable and necessary care and support that reflects their individual circumstances.

The first stage of an NDIS will occur in up to four regions, to be announced following negotiations with State and Territory governments. The Government will be seeking to share the costs with State and Territory governments of individual care and support for people with a significant and permanent disability, and will bear the full remaining costs of this initiative.

The Australian Government will provide funding for: building and operating the information technology system required to collect and analyse data; employing Local Area Coordinators to provide a more individually focused approach to delivering assistance to people with a disability; preparing the disability sector for the new way of delivering disability services with a focus on launch locations; conducting assessments of people with a disability in launch locations to determine their eligibility and the appropriate level of individual care and support; establishing a new National Disability Transition Agency; continuing the Commonwealth Taskforce responsible for providing policy advice to the government on the design, governance and funding of an NDIS; undertaking research into early interventions to improve support for people with a disability; and evaluating the outcomes being achieved in launch locations to inform further decision making.

For further information on this reform, see the press release of the Prime Minister and the Minister for Disability Reform on 30 April 2012 and Budget Paper No. 2, Budget Measures 2012‑13.

DSP expenses are estimated to grow at 2.0 per cent per annum in real terms from 2012‑13 over the forward years, largely driven by growth in payment rates. Estimated growth in expenses will be tempered by decreases in the projected grant rate for DSP due to the recent changes to the assessment arrangements. These arrangements require DSP claimants to provide sufficient evidence of their future work capacity or be referred to an alternate income support payment and offered employment assistance.

Expenses for income support for carers are estimated to grow at a rate of 8.2 per cent in real terms per annum from 2012‑13 over the forward estimates, largely driven by growth in payment rates and strong anticipated growth in the number of people receiving carer payments. This is attributable to the increasing number of senior Australians receiving care and assistance due to an ageing population.

The major components of the assistance to people with disabilities sub‑function are outlined below in Table 9.3.

Table 9.3: Trends in the major components of assistance to people with
disabilities sub‑function expenses

Table 9.3: Trends in the major components of assistance to people with disabilities sub‑function expenses

Expenses for the assistance to the unemployed and the sick sub‑function are forecast to increase in real terms by 2.8 per cent from 2012‑13 over the forward estimates and at an average annual real rate of 0.9 per cent. The main driver of the increase in expenses for this sub‑function is the introduction of the new income support supplement that will be provided under the Spreading the Benefits of the Boom package at a total cost of $1.1 billion over four years. In addition, the expenses are also impacted by forecast increases in the number of unemployment benefit recipients from 2011‑12 to 2013‑14.

Expenses on assistance to veterans and dependants are forecast to decrease at a steady rate largely reflecting the continuing decline in the veteran population.

Expenses for the general administration sub‑function are decreasing from 2012‑13 over the forward estimates due to administrative efficiencies generated from the integration of the Department of Human Services and Centrelink. While the efficiencies commence in 2012‑13, the majority of efficiencies are expected in 2014‑15 when the integration is expected to be complete.

The decrease from 2012‑13 over the forward years of 10.0 per cent per annum in real terms in the assistance for Indigenous Australians not elsewhere classified (nec) sub‑function is largely the result of funding for the CDEP program being redirected from 1 July 2013 to the new Remote Jobs and Communities program which is classified under the other economic affairs function.

Additional funding in 2012‑13 for the Stronger Futures in the Northern Territory package is partly classified under the assistance to Indigenous Australians not elsewhere classified sub‑function, but is also classified under the health, education, public order and safety, and other economic affairs functions. A large component of the Stronger Futures in the Northern Territory package is not for publication from 2013‑14 as it is subject to negotiation with the Northern Territory Government.

Expenses under the other welfare programs sub‑function will increase from 2011‑12 to 2012‑13 mainly due to the reclassification of $1.0 billion for the Low Income Earners' Superannuation Co‑contribution program from the assistance to families with children sub‑function.

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