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Federal Financial Relations Amendment (National Health and Hospitals Network) Bill 2010

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2008-2009-2010

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

FEDERAL FINANCIAL RELATIONS AMENDMENT (NATIONAL HEALTH AND HOSPITALS NETWORK) BILL 2010

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Treasurer, the Hon Wayne Swan MP)

 



T able of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1            National Health and Hospitals Network payments........ 7

Chapter 2            National Health and Hospitals Network Fund and payment arrangements       19

 

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The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

CGC

Commonwealth Grants Commission

COAG

Council of Australian Governments

Dedicated GST revenue for a State

Section 6A

Dedicated GST revenue payments

Section 15D

FFR Act

Refers to the Federal Financial Relations Act 2009

GST

Goods and Services Tax

NHHN Agreement

Refers to the National Health and Hospitals Network Agreement (section 4)

NHHN Fund

Refers to the National Health and Hospitals Network Fund (section 4)

National Health and Hospitals Network matter

Section 4

HACC

Home and Community Care program

Intergovernmental Agreement

Refers to the Intergovernmental Agreement on Federal Financial Relations (section 4)

Joint intergovernmental funding authority

Section 4

Local hospital network

Section 4

Non-participating NHHN State

Section 4

Participating NHHN State

Section 4

Premier

Section 4

Primary health care equivalent outpatient service

Section 4

Special payment

Section 15E

SPP

Specific Purpose Payment

 

Abbreviation

Definition

States

Refers to the States, the Australian Capital Territory and the Northern Territory of Australia

State adjustment amount

Section 15G

Top-up payment

Section 15H



Changes to the federal financial relations framework

This Bill implements changes to federal financial arrangements.  It gives effect to reforms to the financing of health and hospital services set out in the National Health and Hospitals Network (NHHN) Agreement, endorsed by the States, with the exception of Western Australia, on 20 April 2010.

The NHHN Agreement includes significant reforms to the financing of the health and hospital system that require modifications to the current framework for federal financial relations set out in the Federal Financial Relations Act 2009 (FFR Act) and the current Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement). 

Specifically, the NHHN Agreement changes the treatment of GST general revenue assistance payments and the National Healthcare SPP.  It also creates new arrangements that allow the Commonwealth to meet its financial commitments under the NHHN Agreement by making additional Top-up payments.

Under the NHHN Agreement, the Commonwealth becomes the majority funder of the Australian public hospital system by funding:

•        60 per cent of the national efficient price of every public hospital service provided to public patients;

•        60 per cent of recurrent expenditure on research and training functions funded by States undertaken in public hospitals;

•        60 per cent of block funding paid against a COAG-agreed funding model, including for agreed functions and services and community service obligations required to support small regional and rural public hospitals;

•        60 per cent of capital expenditure, on a ‘user cost of capital’ basis where possible; and

•        over time, up to 100 per cent of the efficient price of ‘primary health care equivalent’ outpatient services provided to public patients.

The Commonwealth is also taking full policy and funding responsibility for general practitioner (GP), primary health care and aged care.  This includes transferring funding and policy responsibility for aged care Home and Community Care (HACC) services and related programs from States participating in the NHHN Agreement to the Commonwealth (other than in Victoria). 

The extent of expenditure covered under the Commonwealth’s new funding commitments will be finalised with participating States as part of the implementation of the NHHN reforms.  This is not covered in the amendments to the FFR Act.

The NHHN Agreement sets up a framework for the Commonwealth to fund its increased responsibilities through a combination of:

•        retention and dedication of an agreed amount of total GST revenue to health and hospital services;

•        funding as currently provided by the National Healthcare Specific Purpose Payment (National Healthcare SPP); and

•        providing additional Top-up payments, from 2014-15, to reflect the Commonwealth’s greater responsibility for financing health and hospital expenditure growth under the NHHN Agreement.

Under the NHHN Agreement, this funding is to be paid through a new National Health and Hospitals Network Fund (NHHN Fund). 

The framework also makes provision for funding currently provided by the National Healthcare SPP to be adjusted to reflect changes to funding responsibilities for different programs under the NHHN Agreement.  This includes transferring HACC and related programs from participating NHHN States (except for Victoria) to the Commonwealth.

To provide certainty and security to the States, the framework also imposes additional conditions that the Minister must comply with when making funding decisions that relate to the NHHN Agreement. 

States that have not endorsed the NHHN Agreement are not affected by these new funding arrangements; they will continue to receive untied GST payments, for use for any purpose, and the Healthcare SPP.

Chapter 1 outlines amendments to provide for the Commonwealth to make NHHN payments to the States.  This requires the following key changes:

•        amendments to the way the Commonwealth makes GST payments to States participating in the NHHN Agreement in order to ensure an amount of each State’s GST entitlement is dedicated to health care;

•        amendments that replace the current National Healthcare SPP with a Special payment (for States participating in the NHHN Agreement) or an equivalent Healthcare SPP (for States not participating in the NHHN Agreement); and

•        the new arrangements for additional Top-up payments, from 2014-15, to be paid by the Commonwealth to States participating in the NHHN Agreement.  These payments reflect the Commonwealth’s greater responsibility for financing health and hospital expenditure growth under the NHHN Agreement.

Chapter 2 outlines amendments that implement the funding arrangements outlined in the NHHN Agreement, including: specifying payment conditions; creating a new NHHN Fund to facilitate these payments; and imposing conditions on the Minister when making decisions relating to the NHHN Agreement.

Date of effect The new arrangements apply to payments made on or after 1 July 2011.

Proposal announced On 20 April 2010, the Council of Australian Governments, with the exception of Western Australia, endorsed the NHHN Agreement.

Financial impact Under the NHHN Agreement, between 2014-15 and 2019-20, the Commonwealth committed to provide no less than $15.6 billion in additional Top-up funding, over and above the funding sourced from the National Healthcare SPP and the fixed dedicated share of GST, in order to meet its new health care funding responsibilities.  The Bill provides flexibility for the $15.6 billion to be varied downwards, but only in the event that not all States participate in the NHHN Agreement over this period.  The maximum amount of Top-up payments for a financial year is linked to the annual Appropriation Acts.

As part of the funding package, the funding to replace the current National Healthcare SPP will be adjusted to enable a budget neutral transfer of HACC and related programs from States participating in the NHHN Agreement to the Commonwealth (other than in Victoria).  The 2010-11 Budget estimated this would equate to a total funding decrease of $38.1 million in 2011-12, $61.7 million in 2012-13 and $77 million in 2013-14.  This estimate included Western Australia which was not a participating NHHN State on 20 April 2010.  There will be a corresponding increase in Commonwealth expenses, resulting in no net impact on the Commonwealth budget over the forward estimates.

Compliance cost impact Nil

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Outline of chapter

1.1                   The amendments set up a framework for the Commonwealth to fund its increased responsibilities under the NHHN Agreement by:

•        Varying the way the Commonwealth makes GST payments for States participating in the NHHN Agreement in order to ensure a certain amount of each State’s GST entitlement is dedicated to matters relating to the NHHN Agreement.

•        Replacing the National Healthcare Specific Purpose Payment (SPP) for States participating in the NHHN Agreement with a Special payment.  These changes ensure that funding for the new Special payment is equivalent to the old National Healthcare SPP.

•        Providing for additional Top-up payments, from 2014-15, from the Commonwealth for States participating in the NHHN Agreement, to reflect the Commonwealth’s greater responsibility for financing health and hospital expenditure growth under the NHHN Agreement.

1.2                   The amendments retain the current framework for federal financial relations for States not participating in the NHHN Agreement.

Context of amendments

1.3                   The NHHN Agreement includes significant reforms to the way financial assistance is paid for States participating in the NHHN Agreement.  This includes changing the treatment of GST general revenue assistance payments and the National Healthcare SPP, and creating new arrangements that allow the Commonwealth to meet its financial commitments under the NHHN Agreement by making additional Top-up payments.

Summary of new law

Dedicated and other GST revenue

1.4                   The Commonwealth makes GST revenue assistance payments to the States equivalent to the revenue received from the GST. 

1.5                   Each State’s entitlement to GST payments is determined using a formula to ensure GST revenue is distributed in accordance with the principle of horizontal fiscal equalisation.

1.6                   For States participating in the NHHN Agreement, the amendments vary the purposes for which GST payments may be used, with two categories:

•        dedicated GST revenue payments for health and hospital services; and

•        untied GST revenue payments for use for any purpose.

1.7                   The amendments ensure GST payments for States not participating in the NHHN Agreement remain untied general revenue assistance, paid by the Commonwealth to State Treasuries, for use for any purpose.

Special and Specific Purpose Payments

1.8                   The Commonwealth provides ongoing financial contributions to the States to support service delivery in respect of health care (the National Healthcare SPP). 

1.9                   For States participating in the NHHN Agreement, the amendments will repeal the National Healthcare SPP and replace it with a new Special payment. 

1.10               The amendments ensure a Healthcare SPP will continue to be paid for States not participating in the NHHN Agreement.

Additional Top-up payments to meet the Commonwealth’s financial commitments

1.11               For States participating in the NHHN Agreement, the amendments enable the Commonwealth to make Top-up payments to reflect its greater responsibility for financing health and hospital expenditure growth under the NHHN Agreement.

•        Under the NHHN Agreement, the Commonwealth has guaranteed that Top-up payments will be no less than $15.6 billion between 2014-15 and 2019-20.  This funding commitment was made on the basis that all States endorsed the NHHN Agreement.  In the event that not all States endorse the NHHN Agreement over this period, the total funding of $15.6 billion may be reduced to reflect this.

•        In the event that the Commonwealth’s responsibility for financing growth in health and hospital expenditure is less than $15.6 billion, the Commonwealth will still provide $15.6 billion in Top-up payments.  This is to ensure that the Commonwealth’s guarantee on total Top-up payments between 2014-15 and 2019-20 is met.

1.12               States not participating in the NHHN Agreement will not receive Top-up payments.

NHHN Fund

1.13               Dedicated GST revenue, Special and Top-up payments will be paid to a State or joint intergovernmental funding authority for a State though a new NHHN Fund, created to facilitate the new funding arrangements under the NHHN Agreement.  Details of the NHHN Fund are in Chapter 2.



Comparison of key features of new law and current law

New law

Current law

States participating in the NHHN Agreement are paid GST revenue by the Commonwealth as either:

•        dedicated GST revenue payments for health and hospital services — paid through the NHHN Fund; or

•        untied GST revenue payments for use for any purpose — paid by the Commonwealth to the relevant State.

They are also paid ongoing Special payments to replace the current National Healthcare SPPs and Top-up payments to reflect the Commonwealth’s greater funding responsibility under the NHHN Agreement.

States not participating in the NHHN Agreement are paid GST revenue by the Commonwealth as general revenue assistance to be used by that State for any purpose.  They also continue to be paid ongoing Healthcare SPPs, but do not qualify for Top-up payments.

GST revenue is paid by the Commonwealth as general purpose financial assistance to be used by the States for any purpose.

Ongoing National Healthcare SPPs are paid to the States.

Detailed explanation of new law

Preliminary

1.14               The amendments expand the object of the FFR Act to provide ongoing financial assistance for States participating in the NHHN Agreement in the form of NHHN payments.  [subsection 3(ba)]

•        This funding includes dedicated GST revenue payments, Special payments and Top-up payments.  [sections 15D, 15E and 15H]

•        The amendments retain the objective of the FFR Act for States not participating in the NHHN Agreement including the provision of untied GST payments and Healthcare SPPs.

1.15               Under the amendments, States participating in the NHHN Agreement will be determined at the start of the financial year.  [section 4]

Dedicated and other GST revenue

Certainty about future funding arrangements

1.16               To provide the States with certainty and security about future funding arrangements relating to the GST, the NHHN Agreement requires the Commonwealth to exercise its best endeavours to put in place legislation to prevent it from making any further changes to:

•        the provision of GST revenue to States as untied general revenue assistance; and

•        the amount of GST to be dedicated to health care.

1.17               The amendments ensure that the Parliament acknowledges the intention that the Commonwealth will not seek to change provisions in the FFR Act dealing with untied GST revenue grants and dedicated GST revenue payments.  [section 4A]

Untied GST revenue grants

1.18               The Commonwealth will continue to provide payments to the States equivalent to the revenue received from the GST.

1.19               From 1 July 2011, the GST payments for States participating in the NHHN in a financial year will be:  [section 5]

•        the State’s share of untied GST revenue payments for use for any purpose;

reduced by

•        dedicated GST revenue payments for matters relating to the NHHN Agreement.

1.20               GST payments for States not participating in the NHHN Agreement in a financial year will remain available for use for any purpose.  [section 5]

Dedicated GST revenue payments

1.21               From 1 July 2011, the amount of dedicated GST revenue to be paid for each State participating in the NHHN Agreement in a financial year will be determined by the Minister and be paid through a new NHHN Fund.  [section 6A]

•        The Minister will make these determinations based on recommendations of the Commonwealth Grants Commission (CGC).

1.22               For each participating NHHN State in each financial year, the Minister will also determine the amount of a State’s dedicated GST revenue to be paid through the NHHN Fund to each State and the amount to be paid through the NHHN Fund to a joint intergovernmental funding authority for the State.  [subsections 15D(1) and 15D(2)]

Special and Specific Purpose payments

Current Healthcare SPP

1.23               The amendments will replace the current arrangements enabling the Commonwealth to make an ongoing financial contribution to support State service delivery in respect of healthcare — the National Healthcare SPP.  [section 10]

Funding for Special payments

1.24               From 1 July 2011, the amendments provide for the Commonwealth to make ongoing financial contributions with either a:

•        Special payment (for States participating in the NHHN Agreement); or

•        Healthcare SPP (for States not participating in the NHHN Agreement). 

1.25               The amendments ensure total funding for these new payments will be equivalent to the financial assistance States would have received under the existing National Healthcare SPP arrangements in 2011-12, and will be indexed annually by a growth factor determined by the Minister for later financial years.  [subsections 15F(1) and 15F(2)]

•        The Minister will determine the indexation arrangements by legislative instrument that will be registered on the Federal Register of Legislative Instruments.  [subsection 15F(2)]

•        The Intergovernmental Agreement provides that the National Healthcare SPP will be indexed by a growth factor that will be the product of: a health specific cost index; growth in population estimates weighted for hospital utilisation; and a technology factor.

1.26               The Minister will determine by legislative instrument the share of payments that will be paid:  [subsection 15F(3)] :

•        for States participating in the NHHN Agreement (as Special payments); and

•        for States not participating in the NHHN Agreement (as Healthcare SPPs);

-       The Minister’s determination will be made on the same basis as the current National Healthcare SPP.

1.27               Under the NHHN Agreement, funding responsibilities for different programs will also change.  As a result, the amendments allow the Minister to adjust total funding for Special payments (for States participating in the NHHN Agreement) that would have been received under the existing National Healthcare SPP so that they reflect these changes in funding responsibilities.  [section 15G]

•        The Minister will make these adjustments (either up or down) for each State for a financial year.  These adjustments will be known as a State adjustment amount.  [section 15G]   

•        To provide the States with certainty and security about Special payments, section 21A requires the Minister to consider the NHHN Agreement when making determinations about NHHN funding arrangements.  Section 21B sets out the procedure the Minister must follow if making determinations that are inconsistent with the NHHN Agreement.  [sections 21A and 21B]

Example 1.1 State adjustment amounts

Under the NHHN Agreement the Commonwealth agreed to take full funding and policy responsibility for HACC and related programs from States participating in the NHHN Agreement.  Victoria did not endorse this aspect of the NHHN Agreement. 

The Minister may adjust each State’s Special payment to achieve a budget neutral transfer of funding for HACC and related programs to the Commonwealth.  As Victoria did not endorse this aspect of the agreement, and will continue to fund HACC and related programs, Victoria’s Special payment will not be adjusted in relation to this transfer.

Special payments for participating NHHN States

1.28               From 1 July 2011, the National Healthcare SPPs will be replaced with Special payments for each State participating in the NHHN Agreement and will be paid through a new NHHN Fund.  [subsections 15E(1) and 15E(2) and section 15B]

1.29               The Minister will determine the amounts of the Special payment to be paid through the NHHN Fund to each State and the amounts to be paid through the NHHN Fund to a joint intergovernmental funding authority for each State for a financial year.  [subsections 15E(1) and 15E(2)]

1.30               To provide clarity, section 15E allows the Minister to make multiple determinations and grants.  [subsections 15E(1) and 15E(2)]

1.31               The base funding for the Special payments in a financial year will be the component of total funding for Special payments and Healthcare SPPs payable under subsection 15F(3) attributed to participating NHHN States (the participating NHHN States component). [subsections 15E(4) and 15F(3)]

•        If all States are participating NHHN States, the base funding is the total funding payable under subsection 15F(3).  [subsection 15E(4) and section 15G]

1.32               The total base funding for participating NHHN States can be increased or decreased by the Minister for a financial year based on the total of the adjustments made for each State (State adjustment amounts).  [subsection 15E(4) and section 15G]

Specific purpose payments for healthcare for non-participating NHHN States

1.33               For States not participating in the NHHN Agreement, the amendments replace the National Healthcare SPP with an equivalent Healthcare SPP from 1 July 2011.  [section 10A]

1.34               The base funding for the new Healthcare SPP payment will be the component of total funding for Special payments and Healthcare SPPs payable under subsection 15F(3) attributed to non-participating NHHN States (the non-participating NHHN States component).  [subsections 10A(3) and 15F(3)]

•        If all States are participating NHHN States, there will be no Healthcare SPP under section 10A.

1.35               A non-participating State’s share of the Healthcare SPP in a financial year will be determined by the Minister.  [subsections 10A(4) and 15F(3)]

•        The Minister’s determination will be made on the same basis as the current National Healthcare SPP.

1.36               The amendments treat the new Healthcare SPP for non-participating States in the same manner as the current National Healthcare SPP meaning that:

•        the Minister’s determinations under subsection 10A(4) will be legislative instruments, thereby disallowable; and [subsection 10A(4)]

•        the conditions for the new Healthcare SPP will continue within their current scope.  That is, they must be spent on healthcare, but non-participating States will have full budget flexibility to allocate funds within the healthcare sector as they see fit to achieve any mutually agreed objectives for that sector.  [subsection 10A(5)]

Top-up payments

1.37               From 1 July 2014, the Commonwealth will provide a new type of financial assistance, known as Top-up payments, for States participating in the NHHN Agreement to reflect its greater responsibility for financing health and hospital expenditure growth under these arrangements.  [section 15H]

1.38               The additional Top-up payment reflects that hospital costs have been growing at close to 10 per cent per annum and are expected to grow at around 8 per cent per annum over the medium term .  This means that hospital costs are expected to outpace growth in GST of around 6 per cent per annum, over the medium term, as well as growth in the existing National Healthcare SPP.

1.39               For each participating NHHN State in each financial year, the Minister will determine the amounts of the Top-up payments to be paid through the NHHN Fund to each State, and the amounts to be paid through the NHHN Fund to a joint intergovernmental funding authority for each State.  [subsections 15H(1), 15H(2) and 15H(3)]

1.40               The amendments give effect to the Commonwealth guarantee that Top-up payments during the period 2014-15 to 2019-20 will be at least $15.6 billion if all States participate in the NHHN Agreement.  [subsection 15H(4)]

1.41               In the event that not all States participate in the NHHN Agreement over this period, the amendments provide flexibility for the Minister to reduce the total funding of $15.6 billion to reflect this.  [subsections 15H (4), 15H(5) and 15H(6)]

1.42               In the event that the Commonwealth’s responsibility for financing growth in health costs is less than $15.6 billion over this period (or a lower amount if not all States endorse the NHHN Agreement), the Commonwealth will still provide $15.6 billion in Top-up payments.  This is to ensure that the Commonwealth’s guarantee to participating States of total Top-up payments of $15.6 billion between 2014-15 and 2019-20 is met.

Payment conditions

1.43               The Minister will determine payment conditions for dedicated GST revenue, Special and Top-up payments.  These are outlined in Chapter 2.

Legislative instruments

1.44               The Minister’s determinations about:

•        dedicated GST revenue for a State made under subsection 6A(2) and dedicated GST revenue payment amounts made under subsections 15D(1) and 15D(2);

•        Special payments (made under subsections 15E(1) and 15E(2)) and State adjustment amounts (made under section 15G); and

•        Top-up payments (made under subsections 15H(1), 15H(2) and 15H(5)).

will be legislative instruments, but they will not be disallowable.  [subsections 6A(4), 15D(9), 15E(9), 15G(3) and 15H(13)]

1.45               The Minister’s determinations will not be disallowable on the basis that the determination facilitates the operation of an intergovernmental body or scheme involving the Commonwealth and a State and is made for the purposes of the body or scheme.

1.46               The Minister’s discretion in making these determinations is limited by section 21A requiring the Minister to consider the NHHN Agreement and the Intergovernmental Agreement.  Section 21A is discussed further in Chapter 2.  [section 21A]

1.47               In addition, section 21B prevents the Minister from making determinations inconsistent with the NHHN Agreement that would result in a substantial financial detriment to one or more States unless a proper process is followed.  [section 21B]

•        As part of this process, the determination must be tabled and approved by each House of the Parliament.

•        Section 21B is discussed further in Chapter 2.

1.48               To provide clarity, the Minister’s determinations under section 15F about the indexation of Special payments and the share of payments that will be paid for States participating in the NHHN Agreement (as Special payments) and for States not participating in the NHHN Agreement (as Healthcare SPPs) will be legislative instruments.  They will be disallowable.

Dedicated GST revenue

1.49               In addition to section 21A and section 21B, the exemption from disallowance for the determinations under subsection 6A(2) reflects that the Minister will make them based on recommendations of the CGC and the determinations will not affect the total amount of GST revenue appropriated by the Commonwealth, only the distribution of GST between participating NHHN States.

Special payments

1.50               In addition to section 21A and section 21B, the exemption from disallowance for the determinations made under section 15G reflects that the Minister will make them based on actual funding transfers.  The determinations made under section 15E will not be disallowable because they do not affect the total amount of Special payments appropriated by the Commonwealth, only the distribution of that funding between participating NHHN States.

Top-up payments

1.51               In addition to section 21A and section 21B, the exemption from disallowance for Top-up payments reflects that the maximum amount of Top-up payments for a financial year is linked to the annual Appropriation Acts, which are subject to Parliamentary scrutiny.  [subsections 15H(7) and 15H(8)]

•        Subsection 15H(7) provides for the annual Appropriation Acts to declare that a specified amount is the general drawing rights limit in relation to a particular financial year.

•        The general drawing rights limit will operate by restricting the total amount that may be covered by drawing rights under the Financial Management and Accountability Act 1997 , and hence, the amount of Top-up payments that can be paid out from the NHHN Fund in a financial year to States and joint intergovernmental funding authorities for States.

Application and transitional provisions

1.52               These amendments apply from 1 July 2011.  Arrangements for Top-up payments will apply from 2014-15.

Consequential amendments

1.53               Nil.

 

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Outline of chapter

2.1                   The amendments modify the current framework to implement the funding arrangements outlined in the NHHN Agreement, including: creating a new National Health and Hospitals Network Fund (NHHN Fund) to receive payments; specifying conditions on payments through the NHHN Fund; and imposing conditions on the Minister when making decisions relating to the NHHN Agreement.

Context of amendments

2.2                   The NHHN Agreement includes payment arrangements that provide the Commonwealth and participating States with certainty about the changes to the financial assistance framework under the FFR Act.  They also ensure the framework is consistent with the NHHN Agreement.

Summary of new law

2.3                   A new NHHN Fund will receive dedicated GST revenue, Special and Top-up payments for the purpose of making payments to the States and joint intergovernmental funding authorities. 

2.4                   Dedicated GST revenue, Special and Top-up payments will be subject to payment conditions.

2.5                   To provide greater certainty and security to States, the Minister is subject to additional conditions when making determinations under the FFR Act that relate to the NHHN Agreement.

Comparison of key features of new law and current law

New law

Current law

Dedicated GST revenue, Special and Top-up payments are paid through the NHHN Fund for participating NHHN States and paid to States or joint intergovernmental funding authorities for States.

Untied GST revenue payments and Healthcare SPPs paid to non-participating NHHN States continue to the paid to State Treasuries.

The Minister must consider the NHHN Agreement when making determinations that relate to the Agreement and comply with a set procedure for making determinations that are inconsistent with the NHHN Agreement and would result in substantial financial detriment to one or more participating States .

The Minister must continue to consider the Intergovernmental Agreement and, if applicable, other written agreements between the Commonwealth and the States when making determinations that do not relate to the NHHN Agreement.

GST revenue payments and National Healthcare SPPs are paid to State Treasuries.

The Minister must consider the Intergovernmental Agreement and, if applicable, other written agreements between the Commonwealth and the State when making determinations.

Detailed explanation of new law

Establishment of the NHHN Fund

2.6                   The NHHN Agreement requires the Commonwealth’s funding contribution to be paid into a NHHN Fund.

2.7                   To facilitate the payment of dedicated GST revenue, Special and Top-up payments under the FFR Act the amendments establish the NHHN Fund and specify that it will be a Special Account for the purposes of section 21 of the Financial Management and Accountability Act 1997 [section 15A]

•        A Special Account is an appropriation mechanism that sets aside an amount within the Consolidated Revenue Fund to be expended for specific purposes.  Any amounts credited to the NHHN Fund are quarantined from the rest of the Consolidated Revenue Fund and can only be debited from the NHHN Fund for the purposes specified.

2.8                   The purpose of the NHHN Fund will be providing:

•        dedicated GST revenue payments; [section 15D]

•        Special payments; and [section 15E]  

•        Top-up payments [section 15H]

to States and joint intergovernmental funding authorities for States participating in the NHHN Agreement.  [section 15C]

2.9                   The amendments do not require untied GST (for all States) or Healthcare SPPs (for States not participating in the NHHN Agreement) to be paid into the NHHN Fund.

2.10               The Minister can pay amounts to the NHHN Fund by written determination, which can specify when payments will be paid into the fund.  [section 15B]

Payment conditions

2.11               The Minister will determine in writing payment conditions for dedicated GST revenue payments (under section 15D), Special payments (under section 15E) and Top-up payments (under section 15H) paid through the NHHN Fund.  [sections 15D, 15E and 15H]

2.12               These must include the standard condition that the State or joint intergovernmental funding authority for the State spends the payment on one or more specified NHHN matters.  [subsections 15D(6), 15E(6) and 15H(10)]

2.13               Alternatively, the Minister may determine that the payment is to cover a State or joint intergovernmental funding authority for the State for particular costs in relation to capital expenditure for public hospitals or primary health care facilities where that expenditure has already been incurred.  [subsections 15D(7), 15E(7) and 15H(11) and section 4]

•        The focus of these amendments is on capital expenditure for public hospitals.

•        The reference to primary health care facilities provides flexibility in the event that such an approach is required as part of the implementation of the NHHN reforms in consultation with participating States.

2.14               If the Minister determines a payment must be spent on one or more NHHN matters , it must be spent on those matters: [subsections 15D(6), 15E(6) and 15H(10) and section 4] :

•        the provision of public hospital services to public patients;

•        training in public hospitals;

•        research in public hospitals;

•        general practitioner medical services;

•        primary health care services;

•        primary health care equivalent outpatient services; or

•        a matter that relates to health care and is specified in the regulations.

2.15               Costs in relation to capital expenditure for public hospitals or primary health care facilities where the expenditure has already been incurred include depreciation and borrowing costs or other costs as specified in the regulations.  [subsections 15D(7), 15E(7) and 15H(11) and section 4]

2.16               Particular amounts already spent on capital for public hospitals or primary health care facilities may be reimbursed by the Commonwealth to a different entity than the one that incurred the cost.

Indirect spending of payments

2.17               To ensure that joint intergovernmental funding authorities are able to effectively manage the payments they receive while satisfying the payment conditions, they are able to forward all or part of the payments to local hospital networks, provided they are still spent on NHHN matters.  [section 15J]

•        If local hospital networks forward all or part of the payments to one or more bodies corporate, the joint intergovernmental funding authority will still satisfy the payment conditions, provided the bodies corporate spend the payment on those matters.

•        These conditions only affect the ability of a State or joint intergovernmental funding authority for the State to receive and forward payments under the FFR Act.  They do not concern other payment conditions that may be agreed between joint intergovernmental funding authorities, local hospital networks or bodies corporate.

2.18               To provide clarity, if payments are made through the NHHN Fund to a joint intergovernmental funding authority for a State they will not be considered to be public money for the purpose of the Financial Management and Accountability Act 1997 .  If the funding authority forwards the money to a local hospital network it will also not be considered to be public money.  [section 15K]

•        The Financial Management and Accountability Act 1997 sets out the financial management, accountability and audit obligations of agencies that are financially part of the Commonwealth.  In particular, the Act requires agencies to manage public resources efficiently, effectively and ethically.  It also requires that proper accounts and records be maintained for the receipt and expenditure of public money.

2.19               State legislation establishing joint intergovernmental funding authorities will deal with financial accountability issues, including reporting requirements and auditing arrangements.  In addition, the Commonwealth can impose additional requirements through making regulations for the purposes of defining a joint intergovernmental funding authority.  [section 4]

•        The regulations can require that the State law that establishes the authority must include certain provisions relating to governance, financial management and accountability, auditing and reporting obligations. 

•        Alternatively, the Commonwealth can attach these conditions to any payments to the joint intergovernmental funding authority that are made through the NHHN Fund.  [subsections 15D(5), 15E(5) and 15H(9)]

Legislative instruments

2.20               The Minister’s determinations about paying amounts to the NHHN Fund under section 15B will be legislative instruments, but they will not be disallowable.  [subsection 15B(2)]

2.21               The Minister’s determinations will not be disallowable on the basis that the determinations facilitate the operation of an intergovernmental body or scheme involving the Commonwealth and a State, and are made for the purposes of the body or scheme.

2.22               The Minister’s determinations about payment conditions under subsections 15D(5), 15D(7), 15E(5), 15E(7), 15H(9) and 15H(11) are not legislative instruments.  This is because they are administrative rather than legislative in nature.  [subsections 15D(10), 15E(10) and 15H(14)]

Payment arrangements

2.23               The amendments extend the payments arrangements for financial assistance that currently operate under the FFR Act to NHHN payments under Part 3A of the Act.

2.24               The Minister will have the authority to determine in writing the frequency and amount of NHHN payments to States or joint intergovernmental funding authorities for States during a financial year.  [subsections 19(1), 19(1A) and 19(1B)]

•        This continues the payment arrangements under the current FFR Act.

2.25               The Minister will also be able to make advance payments of portions of NHHN payments that the State will be entitled to under Part 3A for a financial year.  This includes payments to a joint intergovernmental funding authority for the State.  [subsections 17(2) and 17(3)]

•        The extension of section 17 to NHHN payments enables the Minister to make payments for the States based on the latest available estimates prior to determining the final amount to be paid.  The final amount may typically be determined in the year following the year that advances of payments are made.

2.26               To provide clarity, the amendments to section 17 (advance of payments) and section 19 (frequency and amount of NHHN payments) allow a different Minister to be responsible for:

•        the payment of NHHN payments under Part 3A; and

•        the payment of other amounts under the remainder of the FFR Act.

2.27               This can be done by way of Administrative Arrangement Orders.

2.28               The amendments also ensure that the Minister responsible for payments under Part 3A can delegate their powers under section 17 and section 19.  [subsection 23(3)]

2.29               The under or overpayment of grants under section 18 of the FFR Act is also extended to include dedicated GST revenue, Special or Top-up payments to a State or to a joint intergovernmental funding authority for the State.  This ensures that an adjustment amount (which may be positive or negative) to account for any difference between the estimated and actual outcome for dedicated GST revenue, Special or Top-up payments is to be deducted from any amount that the State or joint intergovernmental funding authority for the State is entitled to receive by way of financial assistance in the following financial year.  [section 18]

2.30               The amendments also extend the current requirements to repay financial assistance under section 20 of the FFR Act if a condition of payment is not satisfied. 

•        This ensures that if a State or joint intergovernmental funding authority for the State is required to spend dedicated GST revenue, Special or Top-up payments in accordance with certain conditions, the Minister can determine that the State or joint intergovernmental funding authority should repay an amount to the Commonwealth, if the required conditions are not fulfilled.  [subsection 20(6)]

2.31               The amendments also clarify that if the Minister has determined a joint intergovernmental funding authority must repay financial assistance because a condition of payment is not satisfied, the Minister may deduct this amount from any future financial assistance that the joint intergovernmental funding authority is entitled to receive.  [subsection 20(9)]

Minister to have regard to the NHHN Agreement

2.32               To provide greater certainty and security to States participating in the NHHN Agreement, the Minister must consider the NHHN Agreement as well as the Intergovernmental Agreement when making a determination about dedicated GST revenue for a State under section 6A or NHHN payments under Part 3A.  [section 21A]

•        If the determination relates to financial assistance for a particular State or the joint intergovernmental funding authority for a particular State, the Minister must also consider any other written agreement between the Commonwealth and that State.  [subsection 21A(e)]

Procedure for making determinations that are inconsistent with the NHHN Agreement

2.33               To provide the States with certainty and security about future funding arrangements, the NHHN Agreement requires the Commonwealth to exercise its best endeavours to put in place legislation that sets out a specific process, should the Commonwealth seek to vary the NHHN Agreement in a way that involves substantial financial detriment to States.

2.34               To provide this additional assurance to the States, a proposed determination must be approved by participating States through COAG and by each House of Parliament if: [section 21B]

•        it relates to dedicated GST revenue under section 6A or NHHN payments under Part 3A;

•        would be inconsistent with the NHHN Agreement; and

•        would cause substantial financial detriment to one or more States participating in the NHHN Agreement. 

2.35               Before participating States can approve the proposed determination at COAG they must:  have received a copy at least three months before the approval; or have received a copy and waived the three month notice requirement.  [subsection 21B(2)]

2.36               The procedure in section 21B is a sign of good faith on behalf of the Commonwealth to the States in regard to the NHHN Agreement.  As a result, it is intended there be a high threshold in relation to what is substantial financial detriment to one or more States.  It is intended that this threshold would only be met in exceptional circumstances.

Application and transitional provisions

2.37               These amendments apply from 1 July 2011.  Arrangements for Top-up payments will apply from 2014-15.

Consequential amendments

2.38               Nil.

 

Do not remove section break.