The Aussie Rules Brownlow Medal and health insurance have a lot in common.
They are prize examples of foolish governments squandering our money for the greater glory of personality and ideology.
Both examples surfaced this week.
Let’s go to health insurance first.
In August 1996 the Government introduced its incentive scheme for low and middle income earners to join or stay in private health insurance.
It was a completely brainless scheme. Anyone with Year 10 arithmetic could work out on the back of an envelope how stupid the scheme was. The Government must have known, but it continued. And this week, the results of the Government’s folly are in.
It has spend $600 million on this scheme and still (as everyone out of government predicted) people leave private health insurance. Now only 31.6 per cent of the population have private cover. In the three months to December, 66,000 people left private funds.
Prime Minster John Howard tried to put a brave face on it. He said that without the scheme even more people would have left private health insurance. Health Minister Michael Wooldridge’s office put the figure at 300,000.
Well, let’s be generous and say the figure is right. It means the Government has spent $600 million to keep 300,000 people in health insurance. Let’s get out the back of an envelope again. 300,000 divided into $600 million goes $2000. And how much does health insurance cost? About $1500 per year per family, or at most $750 a head.
So this extraordinarily dumb Government which prides itself on good economic management has spent $2000 a head to keep 300,000 people in private health insurance which only costs $750 to buy from a health insurance fund.
Let’s face it, for the money it spent, the Government could have picked one million names out the phone book and posted the insurance premium to them. Then it would have had a million extra people in private health insurance, not just 300,000.
The Government spent $600 million for $225 million worth of health insurance (300,000 times $750).
And this is on the Government’s own figures.
How could the Government be so stupid? The only explanation is that the $600 million was not to encourage people to join or stay in private funds at all. Rather it was just a whopping big subsidy paid from taxpayers’ money to the Government’s mates in the private health insurance industry.
This Government is blinded by the ideology that private is good and public is bad.
The fundamental trouble with the incentive scheme was that it was paid to people who were already in private insurance and who were likely to stay in anyway. It’s not very bright, is it? — paying an incentive to someone to do something they were going to do anyway.
The problem for the Government is that the politics and finances do not coincide. Opinion polls show overwhelming support for Medicare, and the Government would lose a lot of votes if it mucked about with it. The trouble is that the Medicare levy raises only $4.5 billion. It goes nowhere near covering its costs. That’s why people like it; it is a bargain. And that is why people are leaving the private funds. The only use of private cover is to queue jump or for high income people to avoid the fine of an extra 1 per cent levy for not having private cover.
Private cover raises about $4.5 billion. That leaves about $14 billion in health spending uncovered by the levy or private premiums. It either comes straight from general revenue or from people’s pockets as they pay for health services not covered by Medicare or private insurance.
The shortfall will get worse. Unless something sensible is done, private funds will continue a terminal decline. As more people leave, the premiums go up, causing more people to leave. The people leaving are generally younger and healthier, leaving the funds with the older, sicker poor risks. That’s why health-insurance premium have risen much faster than inflation.
The government must increase the Medicare levy, scrap community rating and allow health insurance funds to charge premiums according to risk, and allow the funds some control over costs instead of making them helplessly cop whatever bill the medical profession sends to them. This would get more much-needed money into the health system much more effectively than the Government’s blanket incentive scheme.
But all of that is far too hard for a government and may cost it short-term popularity. Much better to spend our money in wasteful, unworkable schemes and hope they don’t get caught.
And now to the Brownlow medal. NSW Premier Bob Carr was rejoicing this week in capturing the Brownlow award ceremony from its tribal base in Victoria. We will never know precisely how much taxpayers’ money was spent on this folly. It is usually hidden in commercial-in-confidence arrangement. Carr is not alone. The person he stole the Brownlow from — Victorian Premier Jeff Kennett — is notorious for spending tax money on attracting big events. He stole the Grand Prix from Adelaide. Victoria won a little from that, but Australia lost, according to an Industry Commission report on state subsidies to industry.
The table shows just how much of these subsidies to attract events and industries goes on.
Usually, the successful attraction of industry is accompanied by a lot of political grand-standing and self-congratulation. Remember, Kate Carnell trumpeting the Unisys deal under which Unisys got all sorts of tax holidays in return for locating in Canberra and bringing JOBS. Similarly, with all the events and industry other states and territories have attracted. But the cheers and claps from business and the masses are utterly misplaced.
First, everyone else has to pay higher taxes to fund the tax holiday. Second, the company might have come anyway. Third, the company might not find appropriately qualified people in the new state and bring people from elsewhere. Fourth, the extra industry, jobs and people, like everyone else has to be supported with infrastructure and services, so unless they pay their fair share of tax the state is behind. Fifth, even if the industry does bring benefit to the new state, Australia is worse off because the state where the industry came from loses and industry and all the moving costs are wasted to the nation.
So, next time a politician gloats over attracting something or other, remember who is paying.