Fact check: Did the Coalition Government cut $3b from the NSW health budget?

Updated

NSW Labor is seeking to make health a central issue in the state election.

Opposition Leader Luke Foley has announced new nurse-to-patient ratios, and attacked the Baird Government's record on health funding.

The claim: NSW Opposition Leader Luke Foley says the Coalition Government has cut $3 billion from health.

NSW Opposition Leader Luke Foley says the Coalition Government has cut $3 billion from health. The verdict: Experts told Fact Check that efficiency savings that are reinvested in health cannot be regarded as a cut. The budget papers show that spending on health has increased by $3.2 billion since Labor's last budget and by $2.3 billion in the three years since the measures were announced. Mr Foley is incorrect.

"The Liberal record of cuts and neglect, the Liberal choices that hurt, extend even to the health care we all rely on," Mr Foley said at the Labor campaign launch on March 1, 2015.

"Three billion dollars cut by Mike Baird and $15 billion cut by his good friend Tony Abbott."

Did the Coalition Government cut $3 billion from the NSW health budget? ABC Fact Check investigates.

Where does the $3 billion figure come from?

Mr Foley's office told Fact Check the $3 billion figure came from an announcement by Health Minister Jillian Skinner on September 13, 2012. Mrs Skinner told a media conference that over four years, local health districts would be required to reduce labour costs by $775 million and find $2.2 billion in efficiency measures.

At the time, Labor called the changes a $3 billion cut to health funding, a claim Mrs Skinner denied in Parliament on September 19, 2012, and denounced as scaremongering in a media release the same day.

Mrs Skinner told Parliament that the $2.2 billion efficiency saving was to be retained by the health department and this measure continued a policy implemented by the former Labor government.

"We are taking money out of inefficient back-of-house services and putting it on the front line," she said.

"This year we are providing 50,000 additional emergency department treatments on top of the 2.6 million that we will see this year; we are providing 30,000 extra overnight stays and 2,000 extra elective surgeries; we are building on our nursing workforce."

Her media release acknowledged that $775 million would be saved over four years as the health portfolio's contribution to a "labour expense cap" imposed across all portfolios.

However, she said the 2012-13 budget contained increased funding for health.

"It's important to remember that even after the labour expense cap has been applied, all local health districts received significant growth in the recent budget. This will allow them to increase the number of patients they treat in the 2012-13 financial year and this can only be a good thing for the people of NSW."

A NSW Health document on local health district service agreements dated December 3, 2012 contained more details.

"A whole-of-government labour expense cap was introduced in the 2012-13 state budget to limit unnecessary employee related and contractor expenses," it said.

"NSW Health's share of the cap is $89 million in 2012-13. This savings target has been distributed proportionally across all NSW Health entities.

"Over the next four years $2.2 billion in efficiency savings is also required to be reinvested back into health services. Each local health district and specialty network retains these efficiency savings. The $940 million budget growth and retained efficiency savings allow NSW public hospitals to continue to deliver more front line resources to treat more patients."

Capping labour costs

The 2012-13 NSW budget contained details of a new labour expense cap. It was applied across all government departments and was designed to avoid anticipated growth in labour costs of $2.2 billion over four years. Mrs Skinner acknowledged in 2012 that the health portfolio's share was $775 million.

The cap limits growth in employee-related and contractor expenses but exempts staffing commitments already made, such as nurses in hospitals. The method by which departments make the savings has not been mandated and the budget papers noted that if they were achieved solely by staff reductions, the cap would affect 10,000 employees.

The director-general of each department has instead been given the option of imposing the cap with measures such as improving efficiency of staffing arrangements to better manage overtime, and increasing temporary, part time and casual staff during peak workload times, among other measures.

Efficiency savings

NSW Health has been moving progressively over the last decade towards a system of moving control of health funding and delivery to 15 geographical local health districts. They are allocated funding based on expected patient activity and the level of service provided, within agreed targets.

When the Government required efficiency savings of $2.2 billion over four years from 2012, it stipulated that each unit had to reinvest the savings back into health services.

Neither the Department of Health nor the Minister's office could provide Fact Check with details of where the efficiency savings have been spent. But a spokeswoman for Mrs Skinner told Fact Check that the $2.2 billion in efficiency savings has been retained in the health portfolio.

John Dwyer from the University of NSW, who founded the Australian Health Care Reform Alliance, says efficiency dividends are part of everyday business practice. "But it has also for some time in hospital budgets been an instrument for trying to make up for unanticipated losses in other areas," he said.

"The efficiency gains that are asked of the system are often unrealistic and often are not met."

Stephen Duckett, health program director at the Grattan Institute, says taking out $2.2 billion by improving efficiencies and reinvesting it elsewhere in the health system cannot be regarded as a budget cut.

"Reinvesting is never a bad thing, unless it impacts on quality," he said.

Increases in health spending

The matter was raised again in Parliament by the Opposition on May 9, 2013. Labor listed cuts totalling $244 million made to 10 local health district budgets and said when front-line staff other than nurses resigned, their positions were not replaced and were redirected into nursing.

Government members responded by saying the health budget had increased by $940 million in 2012-13.

The then Opposition health spokesman, Andrew McDonald, said this failed to take into account that health costs were increasing by more than the budgeted increase.

"Health costs increase by about 8 per cent each year," he said. "About 4 per cent for increases in staff costs, 2 per cent for changes in technology and 2.3 per cent for increases in demand, totalling about 8 per cent a year.

"Last year the NSW Government increased the health budget by 5.4 per cent; already the gap is 2.6 per cent between what we need to provide and what the Government has provided."

Fact Check asked Mrs Skinner's office for more information on the $2.2 billion efficiency savings.

A spokeswoman said there had been no $3 billion cut.

"You'll note the health budget has grown by more than $3 billion since Labor was in office, a 20 per cent jump," she said.

What do the budget papers say?

Labor's last budget contained health spending of $15.5 billion in 2010-11.

This year's budget assumes the Coalition will spend $18.7 billion in 2014-15, an increase of 21 per cent.

Spending has increased by $2.3 billion since Mrs Skinner's changes were announced, but the data show the percentage by which the budget has increased over time is getting smaller.

NSW health budget Year 2010-11 2011-12 2012-13 2013-14 2014-15 Total health expenses ($ billion)* 15.471 16.420 16.987 17.872 18.717 Variation (%) compared with previous year 6.1 3.5 5.2 4.8 *Excluding Health Care Complaints Commission and Cancer Institute NSW Sources: NSW budget papers 2010-11 to 2014-15

The NSW Budget Paper No 2 for 2014-15 refers to "additional cost pressures in health". It notes that the Commonwealth Government has abolished funding guarantees and from 2017-18 will index state health funding to population growth and the consumer price index, which the NSW Government says represents a worsening of the State's position.

"This new formula does not recognise the additional cost pressures in health such as ageing and technology that add around 0.5 and 1.2 percentage points respectively to demand growth each year," the budget paper said.

It said NSW health expense pressures were projected to grow at around 6 per cent a year over the long term.

Yet NSW health funding for 2014-15 only grew by 4.8 per cent over the previous year, suggesting funding is not keeping pace with growth in the health system in the last three budgets the NSW Coalition has handed down.

Dr Duckett says the six per cent is more of an "aspirational" target, and is a difficult measure to calculate. But he says the data does show that the budget is increasing faster than general inflation and in real terms per head of population.

Australian Bureau of Statistics figures show that the NSW population increased by 1.53 per cent in the year to June 2014.

What do the experts say?

John Wanna, from the Australian and New Zealand school of government at the Australian National University, said if costs are increasing by six per cent a year and if the system is not managing to contain costs, then the budget is falling slightly back in real terms.

"Should this be described as a cut? Probably not in my view," he said. "A better description would be health funds are marginally not keeping up with increased costs and demand drivers."

Andrew Wilson, director of the Menzies centre for health policy at The University of Sydney said there's no doubt that the increase in costs in the health sector has grown faster than the consumer price index but he can't see that there's been a cut in the NSW health budget.

"I think its an unreasonable claim to make, to say that this government has selectively done that, because all [state and Commonwealth] governments have done that," he said. "But if anything, NSW has done it less than anywhere else."

An Australian Institute of Health and Welfare analysis in 2012-13 shows that state and territory government health spending grew by 1.4 per cent in real terms.

It says that in 2012-13, NSW was one of only two states to increase the proportion of its revenue spent on health, and it experienced "marked growth" of 7.5 per cent.

The verdict

Mr Foley claims the Coalition Government cut $3 billion from health funding, based on an announcement made in September 2012. The Government confirmed that a quarter of the $3 billion sum ($775 million) was taken out of the health portfolio in the form of a labour expense cap, spread across four years from 2012-13 to 2015-16. The Government says the rest of the announced change was an efficiency measure with the savings reinvested.

Experts told Fact Check that efficiency savings that are reinvested in health cannot be regarded as a cut.

The budget papers show that spending on health has increased under the Coalition. It has increased by $3.2 billion since Labor's last budget and by $2.3 billion in the three years since the measures were announced. It can be debated whether it should have gone up more to keep pace with rising costs in health, but it is growing by more than the rate of general inflation and population growth. Experts say they would not describe any shortfall here as a cut.

Mr Foley's claim is incorrect.

Sources

Topics: government-and-politics, elections, health, alp, nsw

First posted