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Federal Financial Relations Amendment (National Health Reform) Bill 2012

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2010-2011-2012

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

federal financial relations amendment (national health reform) bill 2012

 

 

 

 

 

 

REVISED EXPLANATORY MEMORANDUM

 

 

 

(Circulated by the authority of the

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

 

 

 

THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE HOUSE OF REPRESENTATIVES TO THE BILL AS INTRODUCED



T able 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

 

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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



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 the date of Royal Assent .  Amendments in respect of aged care and disability services to the National Disability SPP give effect to budget neutrality arrangements 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.



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 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

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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.

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 adjusted to take into account both current indexation requirements and an additional adjustment to reflect new funding responsibilities for aged care and disability services.

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.

The Federal Financial Relations Act 2009 sets the amount of base funding for the National Disability SPP for 2009-10 and provides for the funding to be indexed annually by a growth factor determined by the Minister.

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 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]

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. 

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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.

Comparison of key features of new law and current law

New law

Current law

The National Healthcare SPP is replaced by financial assistance in the form of NHR payments.

Payments are conditional on financial assistance being spent in accordance with the NHR Agreement. 

Financial assistance is payable to a State for the financial year starting on 1 July 2009 and for each later financial year, for the purpose of expenditure on healthcare (through 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.

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. 

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

•        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 the day this Act receives the Royal Assent in order to ensure that there is flexibility in the event that some or all parties to the agreement resolve that initial Commonwealth payments be made ahead of 1 July 2012 to support the implementation of the new funding arrangements under the National Health Reform Agreement.  [Schedule 2, item 7]

Consequential amendments

3.27               Consequential amendments are also made to the FFR Act to refer to NHR payments.  [Schedule 1, item 5, after paragraph 21(a) of the FFR Act Schedule 2, item 4, paragraphs 17(b) and 18(1)(b) and (2)(b) of the FFR Act, and item 6, section 22 of the FFR Act]



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.

Comparison of key features of new law and current law

New law

Current law

The determination of GST revenue will continue to incorporate these three amounts in the total revenue but they will not be separately itemised.

The determination of GST revenue is required to separately determine three amounts for which data is either not 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 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]



4.11                



Schedule 1:  Aged care and disability services

Bill reference

Paragraph number

Items 1 and 2, section 4 of the FFR Act

2.14

Items 3 and 4, paragraph 13(2)(c) and subsection 13(4) of the FFR Act

2.10

Item 5, after paragraph 21(a) of the FFR Act

2.14

Item 5, after paragraph 21(a) of the FFR Act

3.27

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(2) of the FFR Act

3.20

Item 3, subsection 15A(3) of the FFR Act

3.22

Item 3, subsection 15A(1) of the FFR Act

3.9

Item 4, paragraphs 17(b) and 18(1)(b) and (2)(b) of the FFR Act

3.27

Item 6, section 22 of the FFR Act

3.27

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