FEDERAL FINANCIAL RELATIONS AMENDMENT (NATIONAL HEALTH REFORM) BILL 2012 Explanatory Memorandum
FEDERAL FINANCIAL RELATIONS AMENDMENT (NATIONAL HEALTH REFORM) BILL 2012
2010-2011-2012
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FEDERAL FINANCIAL RELATIONS AMENDMENT (NATIONAL HEALTH
REFORM) BILL 2012
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Statement of Compatibility with Human Rights .............. 5
Chapter 2 Transitioning of responsibilities for aged care
and disability services .................................................... 7
Chapter 3 National health reform payments ................................. 11
Chapter 4 Determination of GST revenue .................................... 17
Index ..................................................................................................... 21
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ATO Australian Taxation Office
COAG Council of Australian Governments
FFR Act Federal Financial Relations Act 2009
GP General practitioner
GST Goods and Services Tax
HACC Home and Community Care
IHPA Independent Hospital Pricing Authority
Intergovernmental Agreement Intergovernmental Agreement on Federal
Financial Relations
NHR National Health Reform
NHR Agreement National Health Reform Agreement
(endorsed by the Commonwealth and the
States on 2 August 2011)
National SPPs National Specific Purpose Payments
States Refers to the States, the Australian Capital
Territory and the Northern Territory of
Australia
1
General outline and financial impact
Changes to the federal financial arrangements
This Bill implements changes to federal financial arrangements to give
effect to reforms to the financing of health and hospital services set out in
the National Health Reform (NHR) Agreement, endorsed by the
Commonwealth and the States on 2 August 2011.
The changes also reflect the transfer of policy and funding responsibilities
for different programs under the NHR Agreement for aged care and
disability services. Victoria and Western Australia are not participating in
these arrangements. A number of minor amendments have also been
made to the Minister's determination of GST revenue.
Date of effect: Amendments to provide for the Commonwealth to make
NHR payments to the States apply from 1 July 2012. Amendments to the
National Disability SPP to give effect to budget neutrality apply from
1 July 2011. Minor amendments to the GST determination apply from the
day the Act receives Royal Assent.
Proposal announced: On 2 August 2011, COAG endorsed the NHR
Agreement.
Financial impact: Under the NHR Agreement, the Commonwealth has
guaranteed that its increased contribution for efficient growth in hospital
services will be at least $16.4 billion greater than the States would have
received from the National Healthcare SPP alone between 2014-15 and
2019-20. If the amount required to fund the Commonwealth's hospital
growth commitments is less than $16.4 billion, the residual amount will
be paid to fund health services that will reduce the growth in demand for
hospital services.
Changes to the funding responsibilities of the Commonwealth and the
States giving effect to the Commonwealth's commitment to take on full
policy and funding responsibility for aged care and disability services for
people aged 65 years and over (50 years and over for Indigenous
Australians) will be budget neutral for the Commonwealth and the States
over the three year period to 2013-14. Victoria and Western Australia are
not participating in these arrangements.
Compliance cost impact: Nil.
3
Chapter 1
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Federal Financial Relations Amendment (National Health Reform) Bill
2012
1.1 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.2 This Bill implements changes to federal financial arrangements
to give effect to reforms to the financing of health and hospital services
set out in the NHR Agreement, endorsed by the Commonwealth and the
States on 2 August 2011.
1.3 The changes also reflect the transfer of policy and funding
responsibilities for different programs under the NHR Agreement for aged
care and disability services.
Human rights implications
1.4 Australia is a party to seven core international human rights
treaties. The right to health is contained in article 12(1) of the
International Covenant on Economic Social and Cultural Rights.
1.5 The change to federal financial arrangements, in accordance
with the NHR Agreement, is a positive step towards the realisation of the
highest attainable standard of health for all Australians.
1.6 The new funding approach delivers tangible improvements to
the health and hospital system for all Australians, delivering the funding
public hospitals need.
1.7 The Bill also provides for the transitioning of responsibilities for
aged care and disability services. This sees the Commonwealth becoming
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Federal Financial Relations (National Health Reform) Bill 2011
directly responsible for funding basic community care in most States for
people aged 65 and over (50 years and over for Indigenous Australians),
in addition to its existing responsibility for community aged care packages
and residential aged care. This will ensure clearer lines of accountability
for the care of younger people with disabilities, with the States taking
responsibility for people under the age of 65 years (under the age of 50
years for Indigenous Australians).
Conclusion
1.8 The Bill is compatible with human rights because it advances
the protection of human rights.
The Hon Wayne Swan MP, Deputy Prime Minister and
Treasurer
6
Chapter 2
Transitioning of responsibilities for aged
care and disability services
Outline of chapter
2.1 These amendments give effect to the agreement between the
Commonwealth and the States that the changes to roles and
responsibilities in respect of the transitioning of responsibilities for aged
care and disability services should be budget neutral for all parties to
2013-14.
2.2 The amendments enable the Commonwealth to take into account
current indexation arrangements and subsequently adjust the National
Disability SPP to reflect the new policy and funding responsibilities for
aged care and disability services.
2.3 Beyond 2013-14, an adjustment will continue to be made to the
National Disability SPP based on the budget neutral adjustment made in
2013-14, with jurisdictions to fund growth in their areas of responsibility
from 2014-15, consistent with the NHR Agreement.
Context of amendments
2.4 The amendments reflect the transfer of policy and funding
responsibilities for aged care and disability services. The changes to roles
and responsibilities will enable the creation of a national aged care system
and a national disability services system.
2.5 Consistent with Schedule F to the NHR Agreement and the
National Partnership on Transitioning responsibilities for aged care and
disability services, the Commonwealth will take full funding, policy,
management and delivery responsibility for a consistent and unified aged
care system covering basic home care through to residential care, and
specialist disability services for Older People, defined as those people
aged 65 years and over (50 years and over for Indigenous Australians).
2.6 The States will be responsible for Young People, defined as
those people under the age of 65 years (under the age of 50 years for
Indigenous Australians) in the above policy areas.
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Federal Financial Relations Amendment (National Health Reform) Bill 2012
2.7 Victoria and Western Australia are not participating in these
arrangements. The amendments provide that these two jurisdictions may
later join in the aged care and disability services reforms with no further
legislative amendments required.
Summary of new law
2.8 The National Disability SPP will be indexed, as per current
arrangements, and subsequently adjusted to reflect new policy and
funding responsibilities for aged care and disability services.
Comparison of key features of new law and current law
New law Current law
The National Disability SPP is The Federal Financial Relations Act
adjusted to take into account both 2009 sets the amount of base funding
current indexation requirements and for the National Disability SPP for
an additional adjustment to reflect 2009-10 and provides for the funding
new funding responsibilities for aged to be indexed annually by a growth
care and disability services. factor determined by the Minister.
As Victoria and Western Australia
are not participating in these
arrangements, the adjustment to their
National Disability SPP entitlements
will solely relate to current indexation
arrangements, which will be
maintained as per the
Intergovernmental Agreement on
Federal Financial Relations.
Detailed explanation of new law
2.9 The Federal Financial Relations Act 2009 (FFR Act) provides a
standing appropriation for the Commonwealth to make ongoing financial
contributions to the States through National SPPs. The Act establishes the
amount of base funding for each National SPP for 2009-10 and provides
for the funding to be indexed annually by a growth factor determined by
the Minister. The arrangements for calculating the growth factor are set
out in the Intergovernmental Agreement on Federal Financial Relations.
2.10 The amendments provide for the National Disability SPP to be
adjusted, enabling the Commonwealth to continue indexation
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Chapter 2: Aged care and disability services
arrangements and subsequently adjust the National Disability SPP to
reflect new policy and funding responsibilities for aged care and disability
services. [Schedule 1, items 3 and 4, paragraph 13(2)(c) and subsection 13(4) of the
FFR Act]
2.11 Consistent with the NHR Agreement and the National
Partnership on Transitioning responsibilities for aged care and disability
services, the National Disability SPP will be adjusted to maintain budget
neutrality, whereby no party is financially advantaged or disadvantaged
between 1 July 2011 and 30 June 2014 due to the agreed changes in roles
and responsibilities.
2.12 Beyond 2013-14, an adjustment will continue to be made to the
National Disability SPP based on the budget neutral adjustment made in
2013-14, with jurisdictions to fund growth in their areas of responsibility
from 2014-15, consistent with the NHR Agreement.
2.13 Consistent with the National Partnership on Transitioning
responsibilities for aged care and disability services, the adjustment to the
National Disability SPP will balance the following payment flows:
· payments made or owing by the Commonwealth for basic
community care services to the agreed recognised age cohort;
· payments made by the Commonwealth for specialist
disability services delivered to Older People, defined as those
people aged 65 years and over (50 years and over for
Indigenous Australians);
· payments made by the States for Community Packaged Care
delivered to Younger People, defined as those people under
the age of 65 years (under the age of 50 years for Indigenous
Australians); and
· payments made by the States for Residential Care delivered
to Younger People, defined as those people under the age of
65 years (under the age of 50 years for Indigenous
Australians).
2.14 The amendments provide that the Minister must have regard to
the NHR Agreement when determining financial assistance for disability
services. [Schedule 1, item 5, after paragraph 21(a) of the FFR Act] The definition
of the Intergovernmental Agreement on Federal Financial Relations is
amended to include reference to any future amendments and a definition
of the NHR Agreement is inserted. [Schedule 1, items 1 and 2, section 4 of the
FFR Act]
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Federal Financial Relations Amendment (National Health Reform) Bill 2012
Application and transitional provisions
2.15 The amendments apply to financial assistance for the 2011-12
and later financial years. [Schedule 1, item 6]
2.16 Advance payments in respect of National SPPs are provided
throughout a financial year based on estimates of each State's entitlement.
Residual adjustments, to account for the difference in advances and the
final determined amount for each State are made in the following financial
year. Accordingly, the application of this amendment is consistent with
current practices, whereby final amounts are determined by the Minister at
year end.
10
Chapter 3
National health reform payments
Outline of chapter
3.1 The amendments set up a framework for the Commonwealth to
make payments to fund its responsibilities under the NHR Agreement by:
· repealing the National Healthcare SPP, and replacing it with
NHR payments; and
· providing that financial assistance payable is conditional on
amounts being spent in accordance with the NHR
Agreement.
Context of amendments
3.2 The amendments reflect key elements of the payments
architecture set out in the NHR Agreement, endorsed by COAG on
2 August 2011. This includes replacing the National Healthcare SPP with
NHR payments.
Summary of new law
Replacing the National Healthcare SPP with NHR payments
3.3 The Commonwealth currently provides ongoing financial
contributions to the States to support service delivery in respect of
healthcare through the National Healthcare SPP.
3.4 The amendments repeal the National Healthcare SPP and
replace it with NHR payments.
3.5 Financial assistance payable is conditional on amounts being
spent in accordance with the NHR Agreement.
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Federal Financial Relations Amendment (National Health Reform) Bill 2012
Comparison of key features of new law and current law
New law Current law
The National Healthcare SPP is Financial assistance is payable to a
replaced by financial assistance in the State for the financial year starting on
form of NHR payments. 1 July 2009 and for each later
Payments are conditional on financial financial year, for the purpose of
assistance being spent in accordance expenditure on healthcare (through
with the NHR Agreement. the National Healthcare SPP).
Financial assistance is payable to a
State on condition that the financial
assistance is spent on healthcare.
Detailed explanation of new law
Replacing the National Healthcare SPP with NHR payments
3.6 Under the NHR Agreement, the States have full discretion over
the application of public health funding to the outcomes set out in the
National Healthcare Agreement.
3.7 The amendments provide that an object of the FFR Act is to
provide ongoing financial support for the delivery of services by the
States through NHR payments, to be spent by the States in accordance
with the NHR Agreement. [Schedule 2, item 1, after paragraph 3(b) of the FFR
Act]
3.8 The amendments replace the National Healthcare SPP with
NHR payments from 1 July 2012. [Schedule 2, items 2 and 3, Section 10 and
Part 3A of the FFR Act]
3.9 Consistent with current payment arrangements for all National
SPPs, the Minister will make a determination for the purpose of granting
financial assistance to the States in respect of NHR payments. [Schedule 2,
item 3, subsection 15A(1) of the FFR Act)]
3.10 In accordance with the NHR Agreement, Commonwealth NHR
funding replaces the National Healthcare SPP.
3.11 For the financial years 2012-13 and 2013-14, the
Commonwealth will provide funding equivalent to the amount that would
otherwise have been payable through the former National Healthcare SPP.
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Chapter 3: National health reform payments
Payments for Services Funded on an Activity Basis
3.12 From 1 July 2014, the Commonwealth will fund 45 per cent of
efficient growth in activity based services, increasing to 50 per cent from
1 July 2017.
3.13 Funding will be calculated individually for each State by
summing:
· the previous year amount -- determined by multiplying the
volume of weighted services undertaken in the previous year
by the proportion of the national efficient price paid in the
previous year and multiplied by the national efficient price in
the previous year;
· a price adjustment -- the volume of weighted services
provided in the previous year multiplied by the change in the
national efficient price relative to the previous year,
multiplied by 45 per cent in 2014-15, 2015-16 and 2016-17,
increasing to 50 per cent from 1 July 2017;
· a volume adjustment -- the net change in volume of
weighted services relative to the volume of weighted services
provided in the previous year, multiplied by the national
efficient price, multiplied by 45 per cent in 2014-15, 2015-16
and 2016-17, increasing to 50 per cent from 1 July 2017.
3.14 Under the NHR Agreement, the Administrator of the National
Health Funding Pool will be responsible for calculating and advising the
Commonwealth Treasurer of the Commonwealth contribution to the
National Health Funding Pool under this Agreement. In determining the
Commonwealth contribution, the Administrator of the National Health
Funding Pool will obtain key information from the Independent Hospital
Pricing Authority (IHPA) and the States.
3.15 The IHPA will determine the national efficient price for
services.
3.16 States will provide the Administrator with a confidential
estimate of weighted service volumes for a financial year.
Payments for Public Health Activities
3.17 Payments for public health activities for 2014-15 will be equal
to the previous year's derived amount indexed by the former National
Healthcare SPP growth factor.
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Federal Financial Relations Amendment (National Health Reform) Bill 2012
Payments for Block Funded Services
3.18 A proportion of the total amount for hospital services to patients
in public hospitals will be funded through block grants. Where services or
functions are more appropriately funded through block grants and for
teaching, training and research, the Commonwealth will fund 45 per cent
of growth in the efficient cost of providing the services or performing the
functions from 1 July 2014, increasing to 50 per cent from 1 July 2017.
Minister's determination
3.19 The Minister's determination is a legislative instrument.
3.20 Legislative instruments are usually disallowable by Parliament;
however, determinations in respect of NHR payments will not be
disallowable. This is because they facilitate the operation of an
intergovernmental body or scheme involving the Commonwealth and a
State and are made for the purpose of the body or scheme. [Schedule 2, item
3, subsection 15A(2) of the FFR Act]
3.21 This is consistent with current arrangements, such as for
National SPPs, where there is an obligation on the Commonwealth to
make payments in a prescribed manner as part of an intergovernmental
body or scheme involving the Commonwealth and the States.
3.22 Financial assistance payable is conditional on amounts being
spent in accordance with the NHR Agreement. [Schedule 2, item 3, subsection
15A(3) of the FFR Act]
3.23 This is consistent with paragraph 21(b) of the FFR Act, which
directs the Minister to consider any other written agreement between the
Commonwealth and the State that relates to financial assistance. The
amendment specifically referring to the NHR Agreement clarifies the
importance of the NHR Agreement to NHR payments.
3.24 In accordance with the NHR Agreement there are four payment
types:
· efficient growth funding of public hospital services funded
on an activity or block grant basis;
· payments for public health activities;
· payments for teaching, training and research functions
undertaken in public hospitals; and
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Chapter 3: National health reform payments
· top-up funding that will reduce the growth in demand for
hospital services.
3.25 Further information regarding the basis for the determination is
included at schedule A of the NHR Agreement.
Application and transitional provisions
3.26 These amendments apply from 1 July 2012. [Schedule 2, item 7]
Consequential amendments
3.27 Consequential amendments are also made to the FFR Act to
refer to NHR payments. [Schedule 2, item 4, paragraphs 17(b) and 18(1)(b) and
(2)(b) of the FFR Act, item 5, paragraph 21(aa) of the FFR Act, and item 6, section 22
of the FFR Act]
15
Chapter 4
Determination of GST revenue
Outline of chapter
4.1 The amendments remove the requirement to separately
determine components of GST revenue where the data are not available or
where the data provide little or no insight into GST collections. The
removal of these requirements has no impact on the total GST revenue
determined.
Context of amendments
4.2 Subsection 6(1) of the FFR Act requires the Minister to make an
annual determination of GST revenue. The determination is not a
legislative instrument. The determination must contain a breakdown of
several specific components of GST revenue.
4.3 Currently, two of the components, under paragraphs 6(3)(c)
and (4)(b), cannot be quantified separately. This is due to the Australian
Taxation Office's (ATO) GST collections information not allowing for
these particular items to be separately recorded and tracked.
4.4 Another component of the determination, specified under
paragraph 6(3)(d), requires a significant amount of work for the ATO to
calculate this amount separately. However, the independent determination
of this figure provides no insight into GST collections.
Summary of new law
4.5 The amendments remove the requirement to separately
determine these three specific amounts. However, they will remain
incorporated in the total GST revenue determined, which remains
unchanged.
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Federal Financial Relations Amendment (National Health Reform) Bill 2012
Comparison of key features of new law and current law
New law Current law
The determination of GST revenue The determination of GST revenue is
will continue to incorporate these required to separately determine three
three amounts in the total revenue but amounts for which data is either not
they will not be separately itemised. available or provides no insight into
GST collections.
Detailed explanation of new law
4.6 The amendments repeal the existing subsections 6(1), (2), (3)
and (4), and replace them with provisions that do not require the separate
determination of these three specific amounts.
4.7 The provisions incorporate as a non-separately determined
amount:
· the GST that was collected;
· the payments made to the Commissioner of Taxation
representing amounts of GST that would have been payable
if the Constitution did not prevent tax from being imposed on
property of any kind belonging to a State and section 5 of the
GST Imposition Acts had not been enacted; and
· the additional GST that would have been collected if the
Commonwealth and Commonwealth entities could be made
subject to taxation by a Commonwealth law and section
177-1 of the GST Act made those entities actually liable
rather than notionally liable.
4.8 The amounts relating to general interest charge collected and
voluntary GST payments by local government bodies will continue to be
determined separately.
4.9 The new provisions also incorporate as a non-separately
determined amount:
· payments under the GST refund provisions; and
· what was payable under the GST refund provisions and was
(rather than being paid directly under those provisions)
allocated, applied or refunded in accordance with Part IIB of
the Taxation Administration Act 1953 to the extent that the
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Chapter 4: Determination of GST revenue
amount is attributable to GST. [Schedule 3, item 1, subsections
6(1), (2), (3) and (4) of the FFR Act]
Application and transitional provisions
4.10 The amendments apply to determinations for the 2011-12
payment year and later payment years. [Schedule 3, item 2]
19
Index
Schedule 1: Aged care and disability services
Bill reference Paragraph number
Items 1 and 2, section 4 of the FFR Act and item 5, after paragraph 2.14
21(a) of the FFR Act
Items 3 and 4, paragraph 13(2)(c) and subsection 13(4) of the FFR 2.10
Act
Item 6 2.15
Schedule 2: National health reform payments
Bill reference Paragraph number
Item 1, after paragraph 3(b) of the FFR Act 3.7
Items 2 and 3, Section 10 and Part 3A of the FFR Act 3.8
Item 3, subsection 15A(1) of the FFR Act 3.9
Item 3, subsection 15A(2) of the FFR Act 3.20
Item 3, subsection 15A(3) of the FFR Act 3.22
Item 4, paragraphs 17(b) and 18(1)(b) and (2)(b) of the FFR Act, 3.27
item 5, paragraph 21(aa) of the FFR Act, and item 6, section 22 of
the FFR Act
Item 7 3.26
Schedule 3: Determination of amounts affecting GST revenue
Bill reference Paragraph number
Item 1, subsections 6(1), (2), (3) and (4) of the FFR Act 4.9
Item 2 4.10
21