Catallaxy Files

Insiders had a discussion on the billion dollars that Tony Abbott is alleged to have gouged out of health spending. Let’s remind ourselves what Kevin Rudd told the Parliament (emphasis added).

It goes to the question of indexation. Under the previous healthcare agreement, his predecessor had an indexation clause of 6.3 per cent. That was based on a calculation about the costs in the system. In the subsequent healthcare agreement, which this minister for health presided over—the now Leader of the Opposition—he reduced it to 5.3 per cent. He gouged a billion dollars out of the system. He pretends that that is not a gouge out of the system.

That isn’t quite what they said on Insiders. It turns out that Kay Patterson was the Health Minister when the last healthcare agreement was struck with the States, not Abbott. So Abbott did not reduce the indexation at all. So that part of the Rudd allegation is false. But what of the substance of the claim?

Rudd again.

We say he gouged a billion dollars out of the system. Who did we cite as our evidence? We cite that noted purveyor of untruths, Peter Costello and Peter Costello’s budgets of 2003-04, 2004-05, 2005-06, 2006-07 and the forward estimates for 2007-08. We have one figure after another of money being gouged out of the system.

On Insiders Michael Stutchbury said that if you had a look at the Budget papers you could see in the forward estimates how much was planned to be spent and then you could see the actual spend decline, so this is an argument about forecasts. Okay; as I said before forecasts are not reality.

I went and had a look at the Budget Papers. I looked at two sets of numbers. This first was the actual healthcare figures and the second was the Special Purpose Payments for health made to the States. The story is more or less the same for both sets of figures – the data below are for the healthcare agreement. Data are in $billion and are sourced from Budget Paper 3 (various).

In any given year, five figures are released. First an estimate of spending for the immediate year (remember the budget comes out in the last month of the previous financial year), a budgeted amount for the financial year, and forward estimates for the next three years. In the table, the red figure is the estimate for the spending in the immediate year, the bold figure is the budgeted amount for the financial year and the forward estimates follow. For example, the 2001-02 budget has a estimate of spending for 2000-01 of $6.2 billion, a budgeted amount of $6.6 billion for the financial year 2001-02 and then forward estimates of $7 billion, $7.4 billion and $7.8 billion over the next three financial years. All of that can be seen in the first column. The second column shows that while the government budgeted to spend $6.605 billion in 2001-02, they estimated at the end of the year to have actually spent $6.649 billion. Going further, in 2001-02 the government had estimated that it would spend $7.008 billion on the healthcare agreement in 2002-03, but in 2002-03 they budgeted to spend $7.059 billion and in the 2003-04 budget estimated they had actually spent $7.113 billion. Hopefully you get the idea. If Stutchbury’s explaination of Rudd’s argument is correct, and Rudd is to be believed, somewhere in that table is a missing billion dollars.

A problem in looking for that missing billion dollars is the ‘nfp’ codes given for the 2008-09 financial year (that’s ‘not for publication’). That is when the new healthcare agreement was meant to come into operation and the government did not specify any funding for those years. That makes looking for the Rudd billion somewhat difficult. It also makes Rudd’s comment ‘and the forward estimates for 2007-08′ look a bit silly.

What I did was calculate two forward estimate figures. The first was simply an aggregation of the three forward estimates in any year. The second was to update the estimates in each budget for the year ahead (basically I added up the diagonal under the bold figures). I then calculated the budgeted spend over the period of the forward estimates and then the actual spend over the period of the forward estimates. The results of that exercise are shown in the table below. Due to the ‘nfp’ codes I can only do that exercise to 2004-05. (Rudd also has the ‘nfp’ problem in his argument but is strangely silent as to how he overcame it. Maybe he knows what those numbers were – but then there is no information in the public domain to corroborate his story).

If you look at the rows labelled ‘Original Estimate’ and ‘Budgeted Spend’ and ‘Actual Spend’ it does look like the amount of money going to health has declined. But if you look at the row ‘Updated Estimate’ the amount of money spent has increased. In other words, Rudd is criticising Abbott over changes in the last year of the forward estimates – three to four years into the future.

But we know budget numbers are rubbery. Look for example at the row labelled 2006-07. The first number we see is a long-term forecast for 2006-07, made in 2003-04, of $8.8 billion. Spending is then ‘cut’ in the next year (2004-05) to $8.7 billion, before being ‘increased’ to $8.811 in 2005-06 before the actual budgeted amount of $8.813 billion is announced in 2006-07 and then $8.819 billion actually spent. To claim that this sort of thing amounts to money being gouged out of the system is simply nonsense.

I get similar results for the Special Purpose Payments for Health and would be happy to undertake a similar analysis for any other health data – so long as the data are available and well specified in any request.