Doctoring fiscal facts


2013-04-24 04.49.50 amNICK CATER

The Australian 28 July 2015


Brian Owler would never be so crass as to put his hand out for money. Instead, the Australian Medical Association president is calling for “an urgent recognition of the costs of providing high-quality care”, which ­ultimately amounts to the same thing.

Owler told the National Press Club last week it was not the AMA’s job to say where the funding should come from. Whether the public should pay more in GST or an increased Medicare levy was a matter of indifference to him. The bottom line was that general practice was “on the brink of disaster”, the hospital system was struggling and the money simply had to be found.

“There is clearly a revenue problem,” Owler asserted. “It’s not an expenditure problem. At the end of the day, we need to make sure that there is sufficient funding for our public hospitals.”

Owler may know a thing or two about brain surgery, but his diagnosis on budgetary disorders is dangerously wrong. The revenue problem, if we are to call it that, is that the state takes too much of our money. Far from falling, government revenue has risen by 0.5 per cent as a ­pro­portion of gross domestic product since the 2008 financial crisis.

The trouble is that spending has risen five times faster, from 35 per cent to almost 38 per cent of GDP. Kevin Rudd and Wayne Swan’s emergency spending levels have become the new norm, while Owler and countless other rent-seekers demand it should be pushed even higher.

“Australia therefore unequivocally has a government spending problem — not a revenue problem,” write Tony Makin and Alex Robson in a submission to the ­National Reform Summit commissioned by Menzies Research Centre. “Australian governments should resist the temptation to increase the tax burden under the guise of ‘tax reform’, and instead focus their efforts squarely on reversing the irresponsible fiscal profligacy of recent years.”

Makin and Robson have the facts on their side. The debate about whether to cut spending or raise revenue, however, is a debate about ideology. It’s a debate between those who argue for a greater role for the state and those who believe that individuals, as a general rule, are best placed to spend their own money.

South Australian Premier Jay Weatherill made it clear last week where he sat in the discussion about the GST. He was not averse to raising the rate but added: “It can’t be frittered away on other things, certainly not on tax cuts.” The implication is clear. Governments spend wisely, individuals squander. By taking more of our money the government is actually doing us a favour.

So, however cloddish the tax system may be, this is clearly a dangerous time to discuss making changes. Any debate that conflates tax reform with closing the fiscal deficit is bound to end in tears, yet that is precisely what is happening. Victorian Premier Daniel Andrews favours taking an extra grand from a family on an income of $100,000 under the guise of the Medicare levy.

Australian Council of Social Service chief executive Cassandra Goldie says of tax reform, “The challenge is to raise more public revenue.” The Greens’ platform demands “an expanded revenue base”. Bill Shorten wags his finger at Tony Abbott for ignoring his proposal to raise $14.3 billion by taxation on super. If this is where the debate is heading, we’d be better off doing nothing. This is not reform, it’s highway robbery, a stitch-up by improvident governments and the rent-seeking classes to force ordinary people to pay for their spending habit.

“Much political activity consists of narrow-interest logrolling at the expense of taxpayers,” Peter Schuck writes in his book Why Government Fails So Often. “Small and narrow but intense and well-organised groups are able to form coalitions that can gain majority political support for policies whose benefits will be enjoyed disproportionately by the coalition but whose costs will be borne disproportionately by the vast majority of unorganised, often unaware taxpayers.”

The political obstacles to reducing government spending are formidable, but that does not excuse the fatalism that is paralysing the reform debate. It seems to be taken as a given, for example, that health costs will continue to rise faster than GDP without anyone asking why. Britain, New Zealand, Germany, Italy and others have reduced total health spending as a share of GDP across the past 20 years. Costs in the US and Israel have remained flat relative to the health of the economy.

Yet spending in Australia appears to rise inexorably. Under Rudd’s plans, commonwealth spending on health would have absorbed another 3 per cent of GDP by the middle of the century. The Abbott government has cut the projected growth by half.

The AMA persists with the dull, self-serving argument that health spending is the same thing as quality. Yet the evidence is that spending less on healthcare, but spending it more selectively, could make us healthier.

In April, the Productivity Commission found that “governments and patients spend a considerable amount of money on health interventions that are irrelevant, duplicative or excessive; provide very low or no benefits; or, in some cases, cause harm”.

Three years ago a report found 156 potentially unsafe, ineffective or inappropriate items listed on the Medicare Benefits Schedule. The Abbott government has commissioned a review of the MBS and already the AMA is signalling is has “concerns” about the direction of the review.

Whatever reservations one may have about Obamacare, one of its better features is the phasing out of fee-for-service payments and the introduction of payment-by-results. There is a flat fee for a successful hip replacement, for example, and if there are complications the surgeon is obliged to fix them without demanding more money. It has introduced competition, allowing patients to shop around. Patients now have access to better treatment for less. The truth is that the drive to reduce government spending frequently ­produces better results.