Arthur Sinodinos (NSW, Liberal Party) Share this | Hansard source

I rise to join the debate on the Fairer Private Health Insurance Incentives Bill 2012 and related legislation. I begin by taking up a point that was raised by my colleague Senator Cormann in his contribution. He referred to a report from 1993 commissioned by—I think he would have been the Minister for Health—Senator Graham Richardson that was about private health insurance. That report found that coverage in the community of private health insurance had fallen to very low levels. We are talking about participation rates in the low 30s from memory. At the time I thought it was remarkable that the Labor government had commissioned such a report, simply because there had been a history of Labor, with almost a malignant neglect, seeking to reduce the private health insurance sector in Australia to something of a rump. It was heartening that he did that because that encouraged a debate in the community about private health insurance and the coalition went to the 1996 election with promises around a private health insurance incentive. Over the next few years that became a private health insurance tax rebate, which essentially is the measure we are talking about today in this series of bills before the Senate.

The point to be made about that measure is that it was quite deliberate, quite calculated and had a policy rationale. It was not simply a handout to the big end of town, as some people are alleging. The whole purpose of the incentive was to encourage people to exercise greater choice and to facilitate that choice. Just as we sought to do that in the education system—that is, the split between public and private schools and the assistance governments give to independent schools—so it was in the case of health: we were seeking to provide an incentive which facilitated choice. This had a benefit to the health system as a whole—that is, to take pressure off the public hospital system. That was the rationale in part for the measure. It was to provide a form of tax relief in its own way, but it was also to provide a measure to encourage the greater use of the private hospital system and to reward people who put their own resources into private health insurance. It encouraged a greater pool of people into private health insurance and it restrained the growth in premia and the like. That was important because the bigger the insurance pool, the more you can restrain the growth in the costs of premia.

We have a situation today where the government has decided, allegedly on budgetary grounds, that it must do something about this particular measure. I dispute that the government is doing this simply on budgetary grounds. I believe there is a history of Labor wishing, if not to negate this measure entirely, then at least to substantially cripple it. If we go back to when Labor went into opposition in 1996, there was a history of them attacking our initiatives around private health insurance. I believe that was driven by ideological considerations around their concern or their support for the public hospital system. We all support a strong and viable public hospital system, but we need to have other strong pillars to the health system and having a viable and strong private health system is one of them. So Labor for a long time opposed what we had done in government on private health insurance, but, as my colleagues have read onto the record, Labor increasingly came to the view that it was not politically sustainable to keep attacking this private health insurance incentive. From the 2004 election onwards, after the ill-fated experiment with one Mark Latham, Labor realised that having a hit list of independent schools was not a good way to show that it was for the community as a whole rather than sections of the community. It is important to put some ideological context around this: that there has for a long time been a view within Labor that the private health insurance system should be gutted or crippled.

Finally, there is a mechanism here in these bills which seeks in part to achieve Labor's objective. I do not believe it will end private health insurance as a whole, but it will significantly dent it and it will dent it by making cover ultimately more expensive and reducing the pool of people who are covered or who downgrade their cover. That will be to the cost of not only those people who, as Senator Brandis said, have been saving their money in order to afford such health insurance, but it will also be at a cost to the public hospital system, which will be under greater pressure. This is an important point because the health reforms that the Labor government introduced under the rubric of the Council of Australian Governments in recent years do not in any way have a structural reform component to them. I do not believe they will lead to better health outcomes. We have a situation where the pressure on the public hospital system as a result of Labor's health reforms will not abate and we are adding to that pressure by taking this incentive away.

This is one of a series of measures which this government has taken to means test various benefits. There is a rationale for means testing. We cannot offer everything to everybody and means testing has its place within the social security system and the like. The fact of the matter is we do not want millionaires to get pensions and the rest. However, this increasing trend toward means testing is starting to butt up against another objective of all governments which is: how do we reduce effective marginal tax rates? What is happening with more and more means testing as we go up the income scale is that we are adding more and more of these poverty traps into the system. There was a very good article written recently by Judith Sloan in the Australian, which went through the impact this sort of means testing on effective marginal tax rates. In brief, it means that, when we are means testing on family income as a whole, there is often then a disincentive if we increase the means testing for the secondary income earner—often the woman in the household—to cut back their hours of work because the family as a whole find that they lose income if they undertake more work. They start to lose income that comes through government benefits and the like, including incentives of this sort.

We have to look at this issue of private health insurance not only in the context of the merits of the debate around the contribution that governments make to the health system, but also in the context of the macro implications for the tax and transfer system. I believe that the Treasurer, Wayne Swan—someone who in the past has professed great support for tackling these sorts of poverty traps and high effective marginal tax rates—is undermining one of his own objectives by measures of this kind. My view has always been that if you want to tackle what you broadly describe as allegedly middle-class welfare by taking benefits away, means testing and all the rest of it, you should be compensating those people by at least reducing tax rates so that you improve incentives to work and save. That would be a much more balanced system, but that is not what we are doing here. This is essentially an ideological measure dressed up as a budgetary measure. Part of the sleight of hand in this process has been to prevent the cost of the private health insurance incentive, if it were allowed to keep on going over the next 30, 40 or 50 years. Of course, I could sit here and go through every element of the budget and do a similar analysis of the cumulative cost, whether it is the age pension, assistance to the automotive industry, assistance to other sections of the community—