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News & Trends - Pharmaceuticals

Health budget: Are critical programs facing underfunding crisis?

Health Industry Hub | May 13, 2024 |

If Tuesday’s Federal Budget neglects substantial new investments in health, numerous critical health functions will face significant underfunding, warns policy analyst and former senior public servant, Charles Maskell-Knight.

Outside social welfare, health is the largest expense for the federal government. Approximately 15.6% of federal government spending from taxpayer funds has been allocated to the health portfolio ($106.6 billion) and aged care ($32.7 billion) in 2023-24.

The Federal Budget investment in health needs to take into account the consumer price index (CPI) growth, in addition to the population growth and ageing. Neglecting to do so would result in a regression of investment in real terms.

Projections for CPI growth in the 2023 Budget indicate a cumulative increase of 8% over the three-year period leading to 2026-27. This suggests that health portfolio sub-functions, including the Medicare Benefits Schedule (MBS), Pharmaceutical Benefits Scheme (PBS), and public hospital funding, must experience a spending uptick of at least 8% to avoid regressing in real terms.

The eligible population group for most health spending is expected to align with overall population growth. A conservative estimate anticipates a 5% population growth* over the next three years.

When coupled with an estimated CPI growth of 8%, investment in the health portfolio sub-functions should increase by a minimum of 13.4% to maintain per capita real spending.

Data from last year’s Budget indicates that only three of the health portfolio sub-functions – MBS, public hospital funding, and aged care – are growing at a rate exceeding the 13.4% threshold required to keep pace with inflation and population growth.

The static nature of the PBS investment (~$18 billion) is attributed to price reductions and the policy decision to reflect new drug listings only after the decision is made. Post-budget decisions on new PBS listings from the 2023-24 MYEFO statement total just under $3.5 billion across the four years leading to 2026-27.

The minimal growth in spending estimates for First Nations health programs stems from the fact that many programs receive funding for a fixed duration, necessitating new policy decisions for reauthorisation.

Two sub-functions in the health portfolio, Administration and Health services, are projected to experience sharp declines in nominal terms. The Administration function encompasses funding for primary healthcare, workforce measures, rural health initiatives, and general administrative costs associated with healthcare. Health services include funding for population health, medical research, mental health, allied health services, and health infrastructure.

The initial decline in both sub-functions in 2024-25 can be attributed to the final wind-down of COVID-19 measures. However, beyond that, the absence of growth in investment suggests the termination of what should be ongoing health investment.

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*Australia’s population grew by 2.5% to 26.8 million people, in the year to 30 September 2023, with net overseas migration driving 83% of the annual population growth, while natural increase accounted for the remaining 17%. The population Statement 2023 released by the Government’s Centre for Population suggests a gradual easing to 1.2% in 2033-34.


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