The health deal agreed yesterday is almost entirely good and should be used as a template for everything else states do, including education and public transport.
Kevin Rudd’s idea of offering to pay 60% growth funding for hospitals in return for getting back some of the GST revenue was a thoughtful one, and worth a try. John Howard’s foolish decision to hand over all GST money to the states helped to entrench the least efficient layer of government, but it’s too late to change that now, just as it’s probably going to be impossible to remove their power to impose mining royalties and to tax the poor via gambling duties.
Best now to focus on outcomes rather than incomes and to sideline the states where it matters, as yesterday’s deal does.
By setting up an Independent Hospital Pricing Authority (IHPA) that sends money directly to Local Health Networks (LHNs) on the basis of an activity based funding model, the state health bureaucracies are being cut out of the picture. They could be shut down, but probably won’t be.
The National Performance Authority (NPA) will report on the performance of hospitals and health care providers, and the MyHospitals website will report publicly on the performance of individual hospitals and the LHNs. Money will flow from the Commonwealth into the IHPA, passing swiftly through state government bank accounts and thence to LHNs for what they actually do rather simply for existing.
Although the states remain constitutionally responsible for running the hospital system, it will actually be managed through LHN Service Agreements between each state government and each LHN, which will in turn be governed by local boards and CEOs.
In many ways it’s a mirror of the Victorian system set up by Jeff Kennett in the 1990s that other states could have followed, but didn’t. His privatisation of public transport turned out to be a failure, but the health system he created was a beauty, and has now become the model for the rest of the country.
In her departing interviews recently, former Business Council of Australia chief Katie Lahey said that the greatest area of reform now needed in Australia was the way the Commonwealth works – that is, federal/state relations.
That is well demonstrated by the hopeless mess that the Labor government has got into with resource taxing, where it wants to levy a profit-based rent resource rent tax but the states refuse to give up any of their power to impose mineral royalties as they see fit.
Eventually COAG will have to become a sort of European Commission, with specific powers that usurp those of each state.
It may be that a new system for running Ministerial Councils announced yesterday will be a step along that road, but it’s hard to tell.
The plan is to set up a system of Standing Councils with responsibility for the big subjects, such as health, education, transport, justice, environment and water, police and emergency services. It wasn’t all that clear from yesterday’s announcement what these bodies would actually do, apart from “deal with” those topics.
However the statement said: “Standing Councils will also undertake legislative and governance functions relevant to their scope.” That’s a little more interesting, and implies that genuine authority may be given to these bodies.
What those legislative and governance functions might be is anyone’s guess, but in the end power is the handmaiden of money. COAG and the Ministerial Councils are discussion groups only and don’t have any cash.
Yesterday’s health agreement shows the way to go: independent national bodies distributing money on the basis of transparent outcomes.
The problem, as Kevin Rudd identified, is that the states get all the GST revenue as well as mineral royalties and gambling taxes. If the Commonwealth ends up paying 50% of everything, its income taxing power may not be enough as the population ages.
This is Australia’s greatest reform project, and the most difficult because politicians are required to act in the national interest instead of their own.
This article first appeared on Business Spectator
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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