Labor pains over naive funding approach

It's all about context and timing. When the Gillard Government confirmed it was planning to cut health payments to the states towards the end of last year it was scrounging for spare change to deliver its promised budget surplus.

It was so desperate it was opted to inflict retrospective cuts worth $107 million this financial year on the state hospitals, justifying the decision using technical downward revisions to Victoria's population estimates.

The thinking was that health has traditionally been linked to state governments, which carry the larger burden for funding and decision making. The Gillard Government believed any political pain it incurred would be relatively short-lived. After all, federal funding for Victorian hospitals under the new funding model was still going to rise from $3.6 billion in 2012-13 to $4.5 billion by 2015-16, which was a better result than under the old system.

As hindsight has shown, it was a naive strategy. What the Gillard Government failed to realise was that under the "activity based" model it introduced, Commonwealth health funding could now be directly traced to individual hospitals.

Rather than the traditional approach which involved handing over a wad of cash, there was now a direct channel from Federal Treasury's coffers to Victoria's emergency waiting rooms, to elective survey waiting lists and to hospital bed numbers.

The Commonwealth might claim greater credit in the good times, but there were enormous downside risks, as Health Minister Tanya Plibersek has now discovered. Barely a month after the decision to inflict the cuts, the Gillard Government abandoned its pledge to bring the budget back to surplus.

A more astute government would never have imposed retrospective cuts on Victoria's health system. If there had to be pain, a more sensible approach would have been to spread it over future budget years. Hospitals would be given time to prepare and the loss of funding could be absorbed into the $900 million increase in federal funds over three years.

Inside, the issue has become so painful the the Commonwealth Victorian federal Labor MPs are now worried it will become powerful weapon for the Coalition in the upcoming September 14 federal election.

The Baillieu Government – which has itself inflicted $616 million worth of cuts on Victoria's health system – also sees the health funding debate as a political battlefield slanted in its favour. From now on, problems such as rising waiting lists for elective survey or overcrowding in emergency departments or an overstretched ambulance service can directly be blamed on the Commonwealth.

But this approach may also be short sighted. While Liberal governments are typically seen as better at handling economic management and border security, Labor is seen as having the comparitive advantage on health.

The Baillieu Government's focus on health funding may have solved a short-term problem, but it has also served to propel health to the top of the political agenda. Once the federal election is over, with an Abbott Government likely, Victorian voters will again turn to health as a state issue.

At this point, in the shadow of the November 29, 2014 state election, health cuts inflicted by the (former) Gillard government will be ancient history. Blaming problems in the health system on an unedifying blame game playing out in early 2013 won't cut it.

This story Labor pains over naive funding approach first appeared on The Sydney Morning Herald.