Gary Humphries (ACT, Liberal Party) Share this | Link to this | Hansard source

The committee is considering the Tax Laws Amendment (Medicare Levy Surcharge Thresholds) Bill (No. 2) 2008 and amendments (1) to (6) moved by Senator Xenophon. The question is that those amendments be agreed to.

Ian Macdonald (Queensland, Liberal Party, Shadow Parliamentary Secretary for Northern Australia) Share this | Link to this | Hansard source

I want to take this opportunity in the debate while other speakers are arriving to again highlight the impact of this legislation. I really asked Senator Fielding to explain this. The impact of this legislation will be to exacerbate the quite disastrous and critically dangerous situation that exists in hospitals in my state of Queensland. It will throw more and more people onto the public health system. Every day in North Queensland there is another media report of a crisis in Queensland Health. New hospitals were built in Townsville and new hospitals were planned for Cairns and Mackay—but, would you believe, Mr Temporary Chairman, that the number of beds in these new hospitals is considerably fewer than the beds that were available in the old hospitals? The result is now that corridors have become wards for the critically ill. Emergency wards are full of people who really should not be in emergency wards. We even have the situation where ambulances are now ‘ramping’—that is, instead of ambulances being out collecting people, they are parked out the front of the hospital because sick people cannot get a bed in the hospital. People have to stay in the back of an ambulance because there are no beds available in the health system in Queensland.

The Queensland state Labor government has been talking for years now about doing something about this. A month before the last election Mr Beattie announced that in Townsville there would be 100 new beds. As a result of that, all three of the state electorates in the Townsville area were retained by the Labor Party. Of course, four years later, how many beds have been produced? I think there are something like eight additional beds of the 100 promised before the election. This situation continues in the little town of Aramac. The Queensland government just closed the Aramac hospital down. Where do they go? To other hospitals in regional centres. This legislation which we are discussing in committee today will throw more people into those chronically overcrowded health facilities. I am delighted to say congratulations to the people of Aramac because, through a lot of pressure by a lot of people—although I am sure my speeches in this chamber had no influence—the Queensland government reversed its decision and retained the hospital there. Unfortunately, no amount of pressure has been able to stop the Hughenden hospital losing its operating theatre.

These are the sorts of problems we currently have in the health system of Queensland. I suspect that it is much the same right around Australia, but I know it to be the case in Queensland. This legislation will simply throw more and more people onto the health system. I see that Senator Siewert is here and will no doubt want to pursue the amendments that are before the chair. I hope Senator Fielding can tell us what his agreement with the government is going to mean to the hospital system in Queensland. It is already grossly overcrowded, and this sort of legislation will add to that pressure.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

While we are waiting for Senator Xenophon, I just thought I would add to the points that I made earlier today. I thought I would draw the attention of the Senate to some comments made by the Minister for Health and Ageing, Nicola Roxon, on 891 ABC this morning in an interview with David Bevan. These comments show that we have a minister for health who does not actually understand the impact that this measure will have on our health system. She does not understand the impact it will have on public hospitals. She does not understand the impact it will have in terms of the number of people leaving private health insurance as a result of this measure.

We have consistently criticised this measure because we think it is fundamentally flawed because it is going to have disastrous consequences for our health system—because it will put pressure on public hospitals, because it will put pressure on older Australians who decide to keep their private health insurance and will be faced with significant increases in premiums and because it will see hundreds of thousands of people leaving private health insurance. Even under this revised measure, that will be 583,000 people.

What did the Minister for Health and Ageing, Nicola Roxon, also known as the budding Assistant Treasurer, say on ABC Radio this morning? She was asked by Mr Abraham:

What sums have you done, your projections this would have on private health insurance premiums, if people start dropping out of private health insurance and using the public system?

That is a very good question, a question to which we have sought an answer for the last four months, and we still have not received it from the government. Do you know why we have not received it from the government? Because the government did not actually want either Treasury or the health department to do any modelling on it. They did not want to know the answer because the answer would have embarrassed them out there in the Australian community. Mr Abraham asked:

What sums have you done, your projections this would have on private health insurance premiums, if people start dropping out of private health insurance and using the public system?

ROXON:

Well, we do have the Treasury projections about there will be some people who will then choose to drop out of insurance.

‘Some people’ is exactly what Senator Ludwig said on budget day when I asked him the question, ‘When did you first tell the Australian people that you were going to do this on winning government?’ because they never did. He said, ‘Some people will leave.’ Eventually, ‘some people’ became 485,000 people. Oops, as I said this morning, they forgot about children, and it became 644,000 people. Even under this measure, it is 583,000 people. Mr Abraham then said:

What sum? What does Treasury say?

ROXON:

For these new thresholds, it’s just over 400,000 people.

Wrong! The minister still does not understand the impact of this measure. She still does not know that there are going to be 583,000 people, more than half a million people, that the government expect will leave private health insurance as a result of this measure.

I can understand why the minister is confused, because the government certainly did not provide any of that information in the explanatory memorandum that was circulated in the Senate. If you wanted to find an answer to the question, ‘How many people does the government expect to leave?’ you needed to circulate around the press gallery and find the propaganda sheet that was circulated by the minister’s hollow men. If she had had a look at the propaganda sheet which was circulated, titled ‘Medicare levy surcharge background brief: what is the government’s policy; why is the government doing this?’ and she had turned to page 2, she would have found exactly the information that I have just presented to the Senate—that is, a total of 583,000 people are expected to leave private health insurance as a result of this measure.

Let us go on through the interview. What else did Minister Roxon say? Mr Abraham asked:

And how will you stop them from putting up their rates—

that is, private health funds—

to compensate for this, because you wouldn’t want them to go broke, would you—

particularly in the current context of a global financial crisis, when investment returns by health funds are likely to be seriously affected, which in itself will put pressure on health insurance premiums, and this will of course put additional pressure on those health insurance premiums and put pressure on older Australians on low and fixed incomes. This is what Minister Roxon said:

Well, no, that’s why I say, you’ve got to balance those things and—

listen to this—

I don’t want to pretend to the community that, you know, there isn’t an inevitability of some increases …

Here we go. All morning, senators on the other side have been accusing us of scaremongering: ‘Coalition senators are suggesting that premiums are going to go up. It’s scaremongering. It’s just not true. There’s no evidence.’ Well, here the minister for health, on ABC Radio this morning, said:

… I don’t want to pretend to the community that, you know, there isn’t an inevitability of some increases…

It gets better. Mr Abraham then asked:

What’s the Treasury projections if you lose 400,000, and it could be more, but let’s say that 400,000 is a ballpark figure—

which of course it isn’t. He continued:

What’s the projection, Nicola Roxon, Health Minister, on 891 Mornings, of the impact of that on health premiums? Is it five percent, 10 percent, over and above what would normally occur?

ROXON:

No, look, there aren’t any projections that have been provided by Treasury because there are too many variables.

So here we go: Treasury has not actually modelled the impact of this measure on future premium increases. That is the crux of the matter. They are giving us figures here in the budget and in this revised measure today which actually do not stack up. They are telling us that they expect to save $879 million from not having to pay the private health insurance rebate to people they expect to leave. But they have not included in those costings the impact of future—inevitable, according to the health minister—increases in those premiums. I just make the point again: all we need is a 2.43 per cent additional increase for that supposed $354 million overall saving to be totally eradicated.

Senator Cameron earlier pointed out that Professor Deeble gave evidence at the Senate inquiry, and he did. And do you know what Professor Deeble said? He said that, in his estimation, according to his assessments and his modelling, he expected private health insurance premiums to increase by an additional five per cent. Now let us assume for a second that Professor Deeble is right—because he is hardly an apologist for health funds; he is hardly running the political agenda for private health insurance vested interests and allegedly big businesses in private health. If it is five per cent, and you apply five per cent across the $14.5 billion forecast to be spent by the Commonwealth government over the next four years on the private health insurance rebate, that is actually $728 million in additional expenditure that is not currently shown in the budget but is hidden in the contingency reserve. There is no saving. This is actually going to have a negative bottom-line impact.

I actually asked the question of Professor Deeble—and I respect that he might have a different perspective from mine on this, from a policy point of view; he is broadly supportive of what the government is trying to do—as an expert and as a professional, I asked him: ‘Don’t you think that, whatever the impact is going to be, if there is going to be an impact on the health system, the government should have properly modelled or assessed the impact on public hospitals of a measure like this?’ And the answer was: ‘Yes, they should have.’ And I said, ‘Well, the government say’—as Minister Roxon said today on ABC radio—“It can’t be done; it’s too difficult—we can’t possibly, with all these variables.” ‘But you know what? There are actuaries around—I am sure there are actuaries in Treasury, and the Commonwealth government have a chief actuary—and that is their core business; that is what they do.’ And Professor Deeble made a very simple statement. He said: ‘I could do it, so I am sure they could.’ Never a truer word was said.

If Professor Deeble can do it, if Access Economics can do it, if a whole heap of other organisations can do it, why can’t the Commonwealth of Australia? Because the government did not want to know the answer—they did not want to see in black and white the impact it would have on future health insurance premiums; they did not want to see in black and white what it would do to public hospitals; they did not want to see in black and white the funding that would be lost to the health system overall as a result of this measure. So they essentially started to hide behind, ‘Oh, these are second-round effects. In accordance with convention and with what happened in the past, we do not have to assess second-round effects.’ Well, I thought things were going to change. How can you have the Rudd Labor government today trying to rely on statements like, ‘Oh well, that is the way the previous government did it.’ That is absolutely not the point. Kevin Rudd and the then Labor opposition campaigned on the mantra that things would be different: ‘We’re going to start a new era of cooperative federalism on health. We’re going to end the blame game. We’re going to take responsibility.’ Well, start taking responsibility. Start telling us exactly what is what. Start telling us what the impact of this measure is going to be on our health system. And withdraw this measure immediately.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

The Greens, as I have said in my speech in the second reading debate on this legislation, reluctantly supported the move from $100,000 to $75,000. We supported the $75,000 because we thought that that was a justifiable figure—trying to meet, as I understood it, the concerns of Senator Xenophon in terms of where that threshold would move to. The $75,000 mark for the Greens represented the level below which we would not go in terms of reducing the threshold. The figure of $75,000 was at the top end of where the threshold would have been had indexation been applied to this measure in the first place. If you used CPI you got to the figure that Senator Xenophon now has in his amendment. That was the CPI figure. If you used MTAWE—male total average weekly earnings—I think you got to around $76,000. So, in other words, a range of figures were arrived at, depending on the different level of indexation used. We thought $75,000 was at the top of that range and so we could support that because it was at the top of that indexation range.

When you look at the use of indexation, CPI is not used for setting the base rate of the pension. In fact, for setting the base rate of the pension you look at CPI and MTAWE, you find whichever one is the best one, the higher one, and you apply that, because over the years it has been found that CPI does not really reflect the true increase in the cost of living. So a range of threshold mechanisms have since been used. Of course, there is a great deal of concern. In fact the report of the Senate Community Affairs Committee inquiry into the cost of living for older Australians very notably remarked on the fact that the current level of indexation—the current way that indexation is applied to the base rate of the pension—is inadequate, and it made some recommendations to look at how that is indexed. Of course, that is now being looked at in the overall review.

So, for a start, we have some very deep concerns around the fact that it is CPI that has been relied on in this particular amendment to set that figure of $69,000 because CPI is recognised as not being an effective mechanism for indexation of this type. So we have some concerns there. As I have said, the Greens reluctantly came down to supporting the $75,000 threshold, and we find ourselves absolutely unable to support any further reduction of that threshold. The Greens are very publicly and extensively on record as not supporting the private health insurance rebate—in fact, we want to see it abolished. As part of that, we do not support the surcharge. We supported the government’s original $100,000 threshold. We were extremely disappointed when they dropped it. As I said, we reluctantly agreed to that, being as it was at the top end of the suite of indexation mechanisms that could be used and that are used for indexation.

So unfortunately we are not going to be able to support Senator Xenophon’s amendment, which I know that he knows. We urge him to look at the impact that the surcharge is having on low income families and urge him to reconsider what we thought was the very generous compromise that the government made to come down from $100,000 to $75,000 and I think the very generous compromise that the Greens made in supporting the government’s compromise reduction. We are very pleased that the government has in fact picked up the issue of indexation, which the Greens first put on the table, because that helps address this ongoing issue around failure of the surcharge to keep up with incomes.

We believe that the overall measure is a good measure, bearing in mind that we would like the government to support our review mechanism, on which I will introduce an amendment later, but also bearing in mind the comments that the government has made about no negative impact on the public hospital system.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I will respond to Senator Siewert’s remarks. I have great regard for Senator Siewert in the limited time that I have got to know her in the work we have done on committees together. My dilemma has always been this: to what extent would you get a tipping point of having such a significant number of people exiting from the private health system that it would put upward pressure on premiums directly as a result of those people leaving the private health system, and as a consequence of those premium increases there being a cascading effect of even more people living the private health system?

I have always acknowledged that the government’s bill in its current form would see 330,000 Australians receiving a tax cut in that they would no longer be subject to the threshold, which would be increased to $75,000. With $69,000 it would be about 220,000 people who would receive a tax cut, based on the figures that I have obtained from Treasury on its actual impact. Treasury’s own forecasting indicates that something like 583,000 people will drop out of private health insurance, which includes the dependants of policyholders, as a result of what the government is proposing, $75,000. You would see about 100,000 less dropping out at $69,000. My concern is the tipping point in terms of the impact that it will have on premiums and on the public system. I note the work that the health minister has done, and I congratulate her for that work, on injecting further funds into the public health system. These are all very laudable measures and no doubt the government will be making more statements in the future about the public system. But why put pressure on an already stretched system? Why put pressure unnecessarily on a system where a number of states are having real difficulty in managing their health systems? Why mess up what I think is a pretty reasonable equilibrium between the public and private systems in this country?

The other issue is that when the then coalition government introduced this measure in 1996, coming into effect from 1 July 1997, at $50,000 and $100,000 respectively, it was not indexed for inflation. I would like to ask Senator Cormann a question in relation to the coalition’s position on this. I am grateful for the dialogue we have had and the material he has provided to me, which has been very helpful. But my fundamental problem is that it is a question of getting the balance right. I do not believe it is fair to keep the threshold at $50,000, the same as when it was introduced back in 1997. It is not tenable to have it $8,000 below what are currently average weekly earnings. I do not think that is fair. But I also do not think it is fair to put pressure on private health insurance premiums by having many people jump out of the system, as has been forecast by Treasury. We note from the private health insurers that they are saying an even greater number would drop out. I think there is a difference of 30 to 40 per cent between the figures of the private health insurers and the Treasury’s own forecasts. That is my concern.

That is also why I flagged in my second reading contribution several weeks ago on the earlier version of this bill that I would be pushing for a Productivity Commission inquiry into the comparative outcomes in the private and public health systems with surgical outcomes, infection rates and informed financial consent. I want to acknowledge the work that the health minister has done in relation to this. I think most recently in the Weekend Australian the health section flagged the work that the health minister had done in relation to that, and she deserves to be commended by every health consumer in this country for pushing the issue of informed financial consent as a significant priority. But I believe that we need to get to the facts of how our health system works, and the government, the public system and the private health insurers could not answer some very basic questions on comparative health outcomes when I put that to them. I am not blaming anybody for that; that information is not available and the comparison has not been made. The best way forward is to get the Productivity Commission to look at that. I believe the Productivity Commission would give it a robust analysis without fear or favour. The Productivity Commission is the most appropriate and I believe most capable body to actually deal with that. I hope that tomorrow there will be an opportunity for the Senate to vote on a motion requesting that the Productivity Commission move forward on that, although of course it would be preferable for there to be an instruction from the Treasurer, under the legislation that governs the commission, to allow fast-tracking of such an inquiry.

My point is this. In these times, private health insurers will inevitably feel pressure in that a significant proportion of their income comes from investments which have taken a hammering because of the financial market meltdown, notwithstanding that Australia is in a better position than other parts of the world, fortunately. I am concerned that that will put increased pressure on private health insurers in the context of premium increases. But my sympathy is not with the private health insurers of this country. It is with the private health policy holders, close to 11 million Australians who have private health insurance or are covered by private health insurance.

I would like to pose a question to Senator Cormann. Does he believe it is untenable—I will rephrase that, Mr Temporary Chairman, so I do not put it in such an inflammatory way. This measure was introduced by the coalition back on 1 July 1997, when the threshold was $50,000 for singles and $100,000 for couples. Does he consider that was above average weekly earnings? I do not have the figures in front of me; perhaps Senator Cormann may have those figures, although I do not expect him to have them at his fingertips. We now have a situation where the $50,000 threshold is some $8,000 below average weekly earnings. Given the intent and rationale given at the time by the then Treasurer, Peter Costello, of this encouraging people to get into private health insurance, does he consider, given that times have changed and 11 years have elapsed, it appropriate that there be a shift in that threshold of $50,000, given all the reasons that the coalition gave at the time, given the policy intent and given the fact that, in terms of what $50,000 meant, it was for those earning above-average incomes, compared to average weekly earnings back in 1997?

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

In responding to Senator Xenophon’s question, let me state for the record that we in the opposition have very much appreciated the very open and transparent dialogue that we have had with Senator Xenophon and that we very much understand the intent of what he is trying to achieve. In relation to his question in particular, the reality is this. Firstly, there is the point that I made this morning: when the measure was introduced as a new measure with a threshold for singles at $50,000, it was introduced at a level that was too high to be immediately effective. That is not just my saying so; Mr David Kalisch, deputy secretary of the health department said this in evidence to the Senate inquiry. When the measure was introduced in 1997, it did not have much of an effect because it was introduced at a level that was too high to be immediately effective. In my view, and this is my assessment of the situation, the Medicare levy surcharge started to become effective over the last two or three years or even perhaps over the last three or four years. That is the first point.

The second point is that this is not just a tax issue; this is a health policy issue. If you want to make a change like the one proposed by the government and like the one that Senator Xenophon is trying to slightly amend and water down and improve, you have a responsibility to assess the flow-on consequences for our health system. This measure was introduced to stop a dramatic situation that was developing in Australia. Private health insurance membership was in freefall. It was declining at more than two per cent a year. Then former Senator Graham Richardson told the Labor cabinet in 1993 that if things continued private health insurance membership would go down to 25 per cent by the end of the decade. It is in that context that former Senator Richardson first proposed to introduce a Medicare levy surcharge, and the threshold that he was looking at was $50,000 for singles and $75,000 for families. But the rest is history: Paul Keating, who did not like private health insurance, forced former Senator Richardson to consult with a caucus-ACTU working party which of course shot the proposal down in flames.

The final point is that we on this side of the chamber are all for tax relief. Over its nearly 12 years in office, the Howard-Costello government provided tax relief to lower income families year in and year out. If you look at the tax situation of somebody earning between $50,000 and $75,000 per year today compared with that of somebody in 1997, you note that it is very different. The income tax thresholds have progressively been increased. There have been significant changes to family tax benefits part A and part B and the circumstances of an Australian individual earning between $50,000 and $75,000 today are not in any way, shape or form comparable with the circumstances of an Australian individual earning between $50,000 and $75,000 in 1997.

The main point is this. The government are trying to sell this as a tax relief measure because they think that could be politically popular. They think it might win them some votes. But if they were really so convinced that it was such a popular measure, why did they not announce it before the election? Why did they keep it secret? Why did they keep the plan secret if it was going to be so popular? The reason is very simple. Deep down the government know that this is bad public policy, they know that this is going to push premiums up for 10 million Australians and they know that this is going to put pressure on public hospitals, which is why they have not asked any questions. They have not asked the health department and the Treasury department to give them advice on it, because they have not wanted to know the answer. If this were just about providing tax relief to people earning between $50,000 and $75,000, we would be having a very different debate. We are all in favour of lowering taxes but it has to be done in a way that is not going to have the same negative consequences for our health system. There are other ways available and if the government want to put forward a measure to provide tax relief in a less irresponsible way than what they are proposing with this measure, then that will be a totally different debate altogether.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I appreciate the response from Senator Cormann. I know that there are arguments, in terms of the way the threshold was first set by the coalition back in 1997, as to whether that was an appropriate level for it to do its work. I do not want to misrepresent the coalition’s position about how it was to do its work, but it took a while for it to have an effect in terms of its intended impact.

There has been no shift, though, from 1997 to 2008. The thresholds are the same. The cost of living has increased significantly in that period. Is the coalition saying that its position is that the threshold should never increase from $50,000 or $100,000? I acknowledge that there are other measures, community rating and lifetime cover, which are important in maintaining a healthy balance between the private and public sectors. I am just trying to understand what the coalition’s position is. Are you saying that this threshold, introduced for certain reasons for higher income earners back in 1997, is something that the coalition will not be budging on, given that more Australians are caught with it? That is why I proposed the amendment that it be moved in line with the CPI.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

Just to clarify the coalition’s position: we do not support this legislation because it would have a bad impact on our health system. It would push up health insurance premiums, it would put pressure on public hospitals, it will see up to a million Australians leave private health insurance, it will take billions in funding that would otherwise be available for hospital treatment out of our health system. So we do not support the legislation put forward by the government.

We do not support your amendment either, even though it is a slight improvement. We have made it very clear: we think that the Medicare levy surcharge at its current threshold levels is an important tool to ensure that we maintain the right balance between the private and the public health systems. The other part of our position is that any proposal that the government wants to bring into this chamber to make changes to the Medicare levy surcharge should be accompanied by a proper and thorough assessment—an actuarial analysis, some proper modelling—of the flow-on implications for private health insurance premiums and for public hospitals, the flow-on implications of the number of people expected to leave private health insurance, so that we can all go into this with our eyes wide open. Because right now we cannot.

With all due respect—and I do have a lot of regard for what you are trying to achieve—even if your amendment were to be successful we still would not know what the impact on private health insurance premiums would be, because the government has refused to ask Treasury to conduct proper modelling. I understand what you are trying to achieve. You are trying to get close enough to making a change without actually going over the tipping point. I am not trying to verbal you, but that is what I understand you are saying.

How do we know? Are we going to put a finger in the air and see how the wind is blowing? There have to be some professionals in government, in Treasury or in the Commonwealth Actuary’s office, who are going to do a proper assessment. What does any cost shift from the Commonwealth and the privately insured mean to the public system? What is it going to mean for future increases in private health insurance premiums? The government tell us that under the $75,000 threshold for singles they expect to save $879 million from not having to pay the private health insurance rebate. That $879 million comes straight out of the health system—but it is only 30 per cent of what comes out of the health system. There is another 70 per cent, the contribution of the privately insured, which the health minister and senators this morning just dismissed: ‘Well, they wouldn’t need access to hospital care anyway. They wouldn’t need to go to public hospitals, so what is all the fuss about? Why are you worried about additional demand on public hospitals when the people who are going to leave private health insurance are not the people that access hospitals?’ The reason we are concerned is that they will walk out of that door with $2.9 billion worth of funding that would otherwise be available to fund hospital treatment.

Senator Xenophon made reference before to—I am trying to remember the exact quote—the ‘laudable initiatives’ put forward by the health minister for public hospitals—the $600 million elective surgery reduction package which was a pre-election commitment. Initially when the government were under pressure about the impact on public hospitals of the Medicare levy surcharge change, they scrambled to see whether they could find something they could reannounce. Kevin Rudd was sent down to Victoria to the Labor Party conference in Melbourne to reannounce $150 million for something that had previously been put out as a $600 million elective surgery reduction package.

This is a total fraud; it is all spin. This is another one of those Hollowmen spin packages; $600 million must sound good. There must have been some market research: ‘How much do we have to put into it so that the people will say, “Whew!”?’ That is what they say on the Hollowmen: ‘Has it got the whew factor?’ Six hundred million dollars must have done the trick.

Let’s look at the fine print in the budget papers, Senator Conroy. A $600 million package sounds good. It was previously announced before the Medicare levy surcharge change was mooted, so presumably it was there to address a problem that already existed, to address pressure that was already there. The first $150 million is the only funding that will be available to increase hospital services. Only $150 million out of that $600 million will actually fund additional services. My home state of Western Australia got less than $15 million—a drop in the ocean when you compare it to $2.9 billion taken out of the system as a result of this measure. And that is not based on my figures; that is based on Treasury’s figures that we had to hunt for, figures that they were not prepared to easily release in this explanatory memorandum. The next $150 million is there to provide funding for improvements in infrastructure and systems. That is not funding for services. What is that going to do? And then there is another $300 million that the government has not yet actually committed to.

The government said in the budget: ‘Oh, well. If the states meet performance targets, which have not yet been specified—and they are doing the right thing cutting waiting lists et cetera—then perhaps in the last two years of the budget cycle we might make available another $300 million.’ That is a $600 million package! Out of $600 million that they are pushing out there, only $150 million is actually going to fund additional services.

They have also mentioned an increase in funding of a further $1 billion. Half a billion of that was as a result of a CPI adjustment—which happens as a matter of course. And why did they have to add some more money to it? Because the Rudd government was not prepared to sign the Australian Health Care Agreement—which ran out months ago. This is part of getting a 12-months extension so they can screw over the states through a measure like this, not providing appropriate compensation for the impact of it. It is older Australians who will suffer, because they will be faced with increases in health insurance premiums. They will still struggle to scratch together every dollar they can to afford the health insurance premiums, because they will not want to be forced into those public hospital queues. They will be faced with increases of five to 10 per cent in health insurance premiums on top of what will happen anyway—and at a time when, in the current climate of the global financial crisis, health funds will be under pressure anyway. This is a double-whammy—one on top of the other. It will be older Australians—the most vulnerable in our community—that will suffer because of the impact on premiums for those that want to stay and because of the impact on those that will be forced into public hospital waiting lists.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

I just wanted to respond—

Julian McGauran (Victoria, National Party) Share this | Link to this | Hansard source

Senator McGauran interjecting—

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

Welcome, Senator McGauran. We have missed your intellectual grunting for some time now, but we are glad to see you back. There are a couple of issues that I want to respond to—to Senator Xenophon in particular. He raised the subject of average weekly earnings. It is the benchmark that Senator Xenophon is so worried about—he has stated publicly that we cannot leave the threshold at $50,000. This benchmark is the subject of eternal embarrassment for Senator Cormann. As much as he wants to wave his arms around and gesticulate, it is something that the former government did. They defined high income earners and they set the limit. They did it, not us. You defined high income earners, Senator Cormann. Now you are trying to pretend that high income earners earn more than $50,000. It is below average weekly earnings, for goodness sake. So you have absolutely zero credibility on this. This is your policy—where you created a definition for high income earners. But all of a sudden, when we actually try and make it a realistic figure, you say that this is some sort of atrocity. So we welcome your intellectual contribution on that.

To Senator Xenophon, if you acknowledge that you cannot leave your threshold at $50,000, then why can you not accept a threshold of indexation that is based on wages? You almost seem to contradict yourself a little bit there and I hope that we can get some clarification on that. You raise the issue—and I appreciate that it is a genuine concern—about the pressure on public hospitals, but the 330,000 people who are currently paying the surcharge are not using private hospitals. They are using the public hospitals when they need a hospital.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

How do you know that?

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

By definition, they do not have private health insurance. They are paying the surcharge because they do not have private—

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

Do you know whether they are using public hospitals?

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

Yes, they will make the economic choice that they will go wandering into a private hospital rather than a public hospital! That would be a very rational choice!

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

You are totally inconsistent.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

Feel free to join the debate in a moment, Senator Corman. I appreciate that you want to respond, and I would actually be interested in hearing you try to explain why a person that has chosen not to have private health insurance would then go and use a private hospital. I would be interested in the economics of that, and perhaps you can enlighten me on it.

On the subject of the 583,000 that drop out, many of these people do not use hospitals anyway. These are policies that Access Economics, who were commissioned by the AMA, have defined as ‘Clayton’s policies’. By definition, therefore, they are not people who are rushing into private hospitals at the moment. They are people who have taken out a policy simply in order to not pay the surcharge. That is why they are there. It is acknowledged by the AMA through the Access Economics report. They are referred to as ‘Clayton’s policies’. To try and suggest that these people are suddenly going to jump into the public health system is to completely misunderstand what has actually happened in the marketplace. It is about behavioural economics here. I would be interested in your perspective on this, Senator Cormann—quite genuinely. I have almost finished. On these areas Senator Xenophon shows genuine concern, and I appreciate that. I do not accept that you have got a genuine concern about this at all, Senator Cormann, because if you did you would not be trying to pretend that high income earners earn $50,000. You would actually be supporting a sensible change. You are not even prepared to do that. I am interested in how you respond, Senator Cormann, but I am particularly interested in the response of Senator Xenophon.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

The minister has just demonstrated the fundamental problem with this government. They do not think things through. They do not know that an action over here has a flow-on impact on a whole range of other levels. I was very interested to hear the minister say that somehow he knows what the behaviour is of the 330,000 people that choose not to take out private health insurance—as to whether they would access hospitals or not. But he knows for sure that people who do take out health insurance will not use them. Let me just try and clarify this. Minister: do you perhaps concede that people might not take out private health insurance because they do not expect to need access to hospitals in the near future? I put it to you, Minister, that people who are most likely to require access to public hospitals would much rather have the peace of mind of being covered by private health insurance. The government cannot have it both ways. They are trying to tell us that they know for sure that the 583,000 people that will leave private health insurance would not have accessed hospitals anyway. But the 330,000 people are the ones that are accessing public hospitals for sure! How do you know that? Have you done some modelling to ascertain that?

I will just try to explain this very carefully again. The minister says the 583,000 people who will leave are young and healthy and will not need access to public hospitals. But, Minister, what about the $2.9 billion in funding that they will take away with them? Just listen to what former Senator Graham Richardson said in 1993. He was talking about all the funding that the people who leave private health insurance would take with them. I will read from this quote again. It is from an opinion piece in the Canberra Times on 21 December 1993. He talks about the 2.2 per cent who drop private health insurance every year. In those days, that meant $85 million worth of private health insurance contributions was being lost to the national health budget. That is the crux of the matter. I am using your figures, Minister. The figures provided by Treasury in the budget show there would be $960 million in savings. The figures provided now, under this revised bill, show that your government expects to save $879 million because it will no longer have to pay the rebate to those whom it expects will leave.

If that is what the saving is made up of, that is only 30 per cent of the total funding for hospital treatment that has been lost to the system. If you extrapolate: if $879 million is 30 per cent then $2.9 billion is 100 per cent. Through this measure, you are taking $2.9 billion out of the health system—and replacing it with what? There are two things you can replace it with. Either you cost-shift to the states and territories, and force them to cover the additional demand that will be coming their way, or there will be significant increases in private health insurance premiums. You cannot take $2.9 billion out of the health system with no impact whatsoever. That is the core problem with this legislation. You did not do your homework. You did not ask Treasury and the Department of Health and Ageing to do a proper assessment of the flow-on implications. You should have had a read of the private health insurance reform discussion paper that former Senator Graham Richardson circulated towards the end of 1993, because all of the problems you will face as a result of this measure, if it were to be successful, are outlined there in black and white, in very eloquent detail. I am sure that you would remember former Senator Graham Richardson well. He had a knack for saying things the way they were.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

The claims that medical support and the health system in Australia are going to go to pot if this legislation is passed are clearly nonsense. The argument that private health insurance is the saviour of the health system is, again, clearly nonsense. Waiting lists at public hospitals are still long. Low-income earners are still struggling to get access to the health system. They have the poorest access to the health system. They have some of the poorest health indicators. The current system is not meeting the needs of the community.

As I said in my speech in the second reading debate, the decisions people make about private health insurance have to do with a whole range of other factors in any case. So to say that these people are going to be dropping out of private health insurance is not actually supported by a lot of the research, as was indicated by the committee inquiry. We had a number of submissions from academics who are studying this. They highlighted the problems with the current industry and why people make the decisions that they make on private health insurance.

One of the issues that came up at the hearing in my home state of Western Australia—and I know Senator Cormann was there—was that 14 per cent of people who seek admission to a public hospital already have private health insurance. They go to the public system because they cannot afford the gap. What the private health insurance industry cannot tell us, because they do not collect the data, is how many of their policyholders are low-income people. There is fairly firm anecdotal evidence that shows people are accessing public hospitals because they have low-quality private health packages and high gaps and cannot really afford to access the public hospital system.

The fact is that this country is channelling $3.2 billion into the private health insurance industry. The Greens want to see that money go straight into our public health system. We do not want to see it channelled through the private health insurance industry so that the industry can make big fat profits at the expense of the public health system. We need to dismantle this mantra that the private health insurance industry is going to be the saviour of the health system in this country, because the evidence shows it is clearly not doing that.

This legislation does not go as far as the Greens want it to go. We have made no secret of the fact that we want to get rid of the rebate and the surcharge and directly fund a strong public health system in Australia. That is what we should be doing to help those who need medical help. We should not channel further money through the private health insurance industry. It is no wonder that the private health insurance industry is squealing, because their privileges are being cut. They are getting a tiny bit less from the public teat. So of course they are squealing. And, shock horror, the modelling shows that this is supposedly going to have a massive impact on the public health system. I would not have expected them to say anything different.

When you look at the figures from the academics, who do not have a vested interest in this, they say there will be a small impact on health premiums and the public health system. It is the public health system in particular that the Greens are concerned about, which is why we have sought an assurance from the government that there will not be a negative impact on the public health system—and the government have said they will fix it if there is. This legislation goes a small way to addressing public health in Australia, but there is a long way to go. We need to keep confronting the mantra that the private health insurance industry is going to fix our health system. It is not. At this stage, with waiting lists growing longer, it makes it more inaccessible for low-income earners, who have the poorest health incomes. As I said, the Greens support this legislation. It does not go far enough, but we reluctantly agree to support a reduction in the threshold to $75,000.

Mathias Cormann (WA, Liberal Party, Shadow Parliamentary Secretary for Health Administration) Share this | Link to this | Hansard source

Just a quick comment in relation to the remarks made by Senator Siewert: I do not think that anybody in this chamber has said that private health insurance is going to be the saviour of our health system. What we do say is that it is an important part of the success of our mixed health system; that it is important to keep the balance right; that it is important that we do not go back to the situation we had in 1996, when private health insurance was in free fall; and it is important that, as we introduce measures like this, they are properly assessed in terms of the impact they will have on our health system so that those impacts can be properly managed. None of that has happened.

Australians taking additional responsibility for their healthcare needs and accessing public hospitals are entitled to do that. Every Australian taxpayer pays the Medicare levy. Australians are entitled to access free universal health care. The reality is that 44.7 per cent of Australians make a choice to take additional responsibility—to make additional contributions—and, by doing so, they have the option of accessing services in private hospitals.

If you look at the Australian Institute of Health and Welfare statistics on hospital utilisation data from the period of 1999 onwards, you will find that significantly more of the growth in hospital episodes was absorbed by the private sector. The private sector absorbed about 46 per cent of the growth in demand. There was increase of about 46 per cent in private hospital episodes contrasted with an increase of about 20 per cent in the public sector.

The point I am making is this: yes, there are still challenges in the system; of course there are. State Labor governments have been responsible for running most of those health systems at the state level. Of course there are challenges. But, believe you me, the situation would be significantly more if it were not for the 10 million Australians prepared to take additional responsibility for their healthcare needs by taking out private health insurance. Like Senator Xenophon, those are the people that I am concerned about. This is not a debate about private health insurance funds; this is a debate about the people that choose to take additional responsibility for their healthcare needs and whether this Senate is going to allow the government to force these people’s premiums up by between five and 10 per cent on top of any increase in the normal course of events. That is what this question is all about, and our answer to that question is no.

I do not think that Senator Siewert’s comments were accurately pitched when she suggested that somehow we were saying that private health insurance was going to be the saviour of the health system. What we are saying is that, if it had not been for the initiatives introduced by the Howard government—the Lifetime Health Cover initiative, the private health insurance rebate and the Medicare levy surcharge—things would be significantly worse. If you are going to make a change to a system that has turned the ship around and restored balance in our health system then, before you proceed, you ought to conduct a proper assessment of the impact of that measure on our health system. To do anything else is totally irresponsible.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

If people want to take out private health insurance or not, that is their choice. What is happening now is that people are being required to take out private health insurance. So those that are choosing have no choice as to whether they want to take out private health insurance. Senator Cormann says that people have a right to take out private health insurance. That is fine—at the moment we are subsidising that, and people who cannot really afford private health insurance are subsidising private health insurance.

We do not believe that public money that could be assisting those people to directly get treatment under the public system should be used to subsidise those that are able to make a choice to take out private health insurance. I will say it again: we would prefer the money that Australia is pouring into the coffers of the private health insurance industry go directly into the public health system so that everybody gets a fair share of the services of the medical treatment in this country.

There is no denying that there are poorer health outcomes for those on lower incomes. We do not believe that is fair in the so-called ‘lucky country’. We believe that that money should be directly helping those low-income people. We do not believe it should be poured into the coffers of the private health insurance industry. That is the basis of our policy. We make no apologies for it and it has been our policy since the previous government introduced these changes. We have been very vocal in our opposition to the rebate and the public subsidy that goes so heavily into the private health insurance industry. People deserve a choice—that is fine—but what this does is to force people into the system. They have no choice. That is not fair.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

I just want to respond to some of the more hysterical commentary from Senator Cormann. If the Liberals had one fig leaf of credibility on this debate, then Senator Cormann would be responding and dealing with the facts and admitting that, in actual fact, it was his government—the previous government—that introduced the surcharge, with a high-income test. How he can stand here credibly and try and defend that $50,000 represents high-income earners continues to astound. So why don’t you just come clean? You are not interested in protecting low-income earners here and giving them a tax cut. There are 300,000 Australians you are denying a tax cut to; it is that simple.

You do not have any credible argument as to why it should stay at $50,000—none; zero. You have had many opportunities, and I invite you again, to try to justify defining $50,000 as a high income. Feel free at any stage in this debate—and you have spoken many times now—to try to explain why $50,000 remains a high-income threshold for something you introduced—when was it, 10 years ago? Seriously, your credibility is zero, Senator Cormann. But I invite you once again to try to justify your resistance to moving the $50,000 income threshold.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

We are specifically debating Senator Xenophon’s amendment, which is about the CPI and the $69,000 surcharge threshold. I come back to the issue that the $69,000 surcharge limit is based on the CPI. As I explained earlier, the CPI is not used, for example, as the sole indicator for determining the base rate of the pension because it is recognised that it does not accurately reflect the cost of living and increases in wages. We need to look for a fairer mechanism that truly reflects where the surcharge would have been if the previous government had thought to index it. It was a complete failure on the part of the previous government not to index this measure, and it has been allowed to sit there for 11 years. Increasingly it has caught low-income workers, whose salaries have not gone up, and people who, as I understand it, were never intended to be caught by this measure.

As I said, the Greens do not support the surcharge but, even if we took on board and agreed with the concept of a surcharge, our perspective is that it is not fair that an increasing number of people have been caught up under this and are no longer able to choose whether or not they want private health insurance. I should correct that: their sole choice really is whether they get a lower end product from a private health insurance company or pay the surcharge; it is one or the other. That is not truly a choice. You either pick a product that you are not able to access or use properly or pay a surcharge. That product is usually the lowest quality product, the basic health insurance that people very rarely access. We know they very rarely access it because a lot of the people with that basic level of health insurance access the public system. I do not think that is fair. They are not able to exercise their choice of picking either the public system or the private system; in fact, they end up in the public system despite the fact that they are paying for private health insurance.

I have had emails and letters about this matter. Those people would prefer not to have to pay the surcharge. And I am very sure that the people who have been sending us letters would prefer that the government pay the money that goes to the private health insurance industry into the public system so that those people can access a quality public health system. The No. 1 issue in feedback that politicians get from the community is the health system.

For those of you who do not know, I have recently taken over the health portfolio for the Greens. I sent out a letter to constituents and have been overwhelmed with people’s responses about the health system and the need for a stronger public health system. Do you know what? I have not had one response saying, ‘I want you to protect the private health insurance industry.’ The responses are always about wanting a stronger public health system; they never say, ‘We want you to go and fight for the private health insurance industry.’ They do not say that, because the private health insurance industry does not deliver for people on low incomes. It delivers for people who can pay a lot of money; it does not deliver for people on low incomes, who, as I said, have the poorest access to the health system.

As Senator Sterle is from my home state of Western Australia, he will know this. Where can you find a private hospital outside the Perth or greater Bunbury areas? Can you think of one?

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

No, I can’t.

Judith Adams (WA, Liberal Party) Share this | Link to this | Hansard source

Geraldton.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

In Geraldton there is a small one. But if you have private health insurance in Western Australia and you live outside Perth you cannot get access to the private system. You have to go public because Western Australia does not have those services. The whole of Western Australia is not covered by private hospitals, so if you have private health insurance you have to go to Perth. My office did some figures on how much it costs to go to Perth to access a private hospital. If you have ever tried to travel around Western Australia you will know very well that it is very expensive to fly down from Karratha or Broome or to come up from Albany. To fly to Perth from regional Western Australia is very expensive.

Dare I touch on the issue of Aboriginal access to private health? I would hazard a guess that there are very few people, particularly among those living in remote Australia, who have any access to private health insurance or private hospitals. They rely totally on the public health system. I know where I would rather my tax dollars were going. I would rather they were going to help improve the health system for Aboriginal Australians, who have very poor health outcomes compared to non-Indigenous Australians. There is a 17-year gap in life expectancy between Aboriginal Australians and non-Aboriginal Australians. I know, also from feedback, that my constituents are very concerned about that gap and want the government to do everything they can to address it. One of the key things we need to address the 17-year gap in life expectancy for Aboriginal Australians is the provision of primary health care.

The experts say that you need $450 million per year for 10 years to deliver good health outcomes for Aboriginal Australians. That is where I would prefer that Australia’s tax dollars were going—to delivering better health outcomes for Aboriginal Australians and for low-income Australians. That is where we need to be investing our money. Three-point-two billion dollars would provide a lot of primary health care cover for Aboriginal Australians. I would strongly suggest that this is a bit of a step towards dealing with those issues.

We do not support Senator Xenophon’s amendments, and we strongly urge him to consider the benefits, albeit small in terms of stepping to a private health system, that this particular legislation would provide.

Progress reported.

Ordered that consideration of this bill in Committee of the Whole be made an order of the day for the next day of sitting.