Fiscal stress and health policy in the A.C.T.

Abstract

Since 1981 the financing of the ACT has been subject to four inquiries by the Commonwealth Grants Commission. These inquiries have heralded the inclusion of the ACT in the fiscal equalisation process between Australian States and Territories, which significantly affects their general revenue grants from the Commonwealth. These inquiries have also produced evidence of generous Commonwealth funding of the ACT compared with the other States. These funding levels have given rise to "over-spending" on service provision by the ACT government. The ACT government is not currently responsible for all identified "over-spending", being buffered to some extent by transitional allowances recommended by the Grants Commission. The ACT government is, however, experiencing fiscal stress for the "over-spending" for which it is responsible. This stress is expected to increase in the future as ACT government comes to bear the the full burden of all "overspending". A significant cause of the "over-spending" identified by the Grants Commission was health services expenditure. This situation has raised a number of interesting questions. Is this "over-spending" on health a conscious policy decision to produce a higher quantity/quality combination of health services in the ACT? Or, does it represent inefficiency? What policy options are appropriate in view of the "over-spending" on health? This paper addresses these questions using data from the Grants Commission inquiries and a recently released study of hospital utilisation and costs in Australia. It is concluded that, at least with respect to public hospitals in the ACT, that excessive staffing is the primary cause of "over-spending". There is little evidence to support an argument that this "over-spending" is resulting in superior health outcomes for ACT citizens. Show more