Date created: 28 November 1996
Last modified: 18 November 1997
Maintained by: John Quiggin
John Quiggin

Policy assumptions causing health woes

The Canberra Times

28 September, 1994

Health has been a political football in the ACT for years, and the latest Minister, Mr. Connolly, is finding the portfolio just as troublesome as did his predecessors. Cases of critically ill patients being turned away from emergency rooms or forced to wait hours for treatment seem to occur with increasing frequency. Waiting lists for elective surgery grow longer. Discontent within the system does not appear to have abated.

Nor are health crises unique to the ACT. If the Fahey government loses office in NSW, it will be largely because of health care issues. In Queensland, where bipartisan support for the status quo lasted throughout the Bjelke-Petersen years, Wayne Goss is having similar difficulties trying to manage his health care budget. And so on throughout Australia.

All of this suggests that the problem is not one of individual mismanagement, but of a policy process based on fundamentally misconceived assumptions. In all of the changes that have affected the health system in recent years, one assumption has remained constant - costs are too high and must be cut. The fact that the health care share of GDP has remained broadly constant in Australia is regularly hailed as a triumph of policy. The paper on health care reform prepared just prior to the departure of Mr. Graham Richardson stated explicitly that all reform must be premised on the assumption that real Commonwealth funding must not increase. At the State and Territory level, the primacy of cost-cutting is reflected in the 'levelling down' approach - any expenditure in excess of the minimum level prevailing anywhere in Australia is automatically considered to be wasteful. In the ACT, this assumption is reflected in the regular claim that, since per capita expenditure on hospitals here is 20 per cent higher than elsewhere in Australia, our problem cannot be a shortage of money. The push for levelling down is enforced by the remorseless squeeze on Commonwealth general-purpose grants to the States, which have fallen by half as a proportion of GDP over the last ten years and are still falling.

In part, the comparatively high level of expenditure in the ACT is due to relatively high wages and salaries, exemplified by the current dispute over payments to Visiting Medical Officers. To the extent that these cost differences cannot be bargained or arbitrated away, the achievement of cost parity with the other States will mean the provision of lower standards of service than those prevailing elsewhere. Thus the levelling-down approach has particularly serious implications for the ACT.

Yet the advocates of levelling down have made no attempt to justify the central tenets of their position. Instead of squeezing expenditure across the board, and leaving hospitals to do the rationing, they should state explicitly what services are too expensive to justify funding. If emergency rooms are to operate with no spare capacity, the budget-cutters should show how the dollars saved compare to the lives lost as a result. If 'non-urgent' health services are to be rationed out of the system, the community should have the chance to weigh up the cost savings against the loss of services.

Our problems in health care reflect a more fundamental difficulty. With increasing income and technological progress, efficient allocation of resources requires that an increasing share of the economy should be taken up by services, and in particular, by personal and community services such as health care, education, recreation and tourist services. But most of these services are provided primarily by the government and funded primarily out of taxes. The need for increased supply can be met only by raising taxes or by increasing the private contribution. The political imperative to cut taxes and public expenditure has meant that the supply of services is inadequate and that the attempt to extract private contributions is made a centrepiece of policy rather than the subordinate element it should be.

As well as implying an inadequate supply of services and a lower standard of living, the failure to manage the shift towards a personal and community service economy has been a major contributor to rising levels of unemployment. As jobs disappear from mining, manufacturing and agriculture, and increasingly from the routine clerical areas of the service sector, they are not being created at the same rate in the personal and community services sector. There is rapid growth in areas such as recreation where demand can be expressed directly through the market, but this is not enough to offset the failure of the political system to deliver better community services. As John Langmore and I have shown in our recent book, Work for All, a 20 per cent expansion in expenditure across the community service sector would generate 450 000 new jobs. This 'levelling up' approach would merely bring health care expenditure elsewhere in Australia up to the manifestly inadequate level of the ACT.

The current policy framework centred on the concept of microeconomic reform has no answers to problems of this kind. Indeed, the fundamentalist assumption of private sector superiority has made the difficulties even greater than they need to be. The assumption that the private sector does things better is extended to hostility to particular types of economic activity simply because they are publicly provided. Health and education are seen as cost burdens on the productive economy rather than as increasingly central elements of economic output.

The electorate has already realised this. A recent survey by EPAC indicates that most people would prefer to pay higher taxes and receive better community services. However politicians and bureaucrats are clinging to myths to justify the current policy stance. It is claimed that young people want 'too much' education because of parental pressure, or that patients want 'too much' medical care because they are misled by their doctors. As long as these myths, and the cost-cutting mentality they support, remain at the centre of the policy process, our problems in health care and elsewhere will continue to worsen.

John Quiggin is Professor of Economics at James Cook University and author of Great Expectations: Microeconomic reform and Australia, published by Allen & Unwin.

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