Opinion
It’s not perfect, but here’s why our health system is one of the best
Ross Gittins
Economics EditorWhen it comes to self-belief, Australians are funny. We have no doubt that Australia punches well above its weight in almost every sport. And our Diggers are braver and more dependable than the rest. In other departments, however, we don’t rate ourselves highly.
Australians pay among the lowest taxes of all developed nations, but the belief that we’re among the highest taxed is so widely believed it’s impervious to facts.
Illustration by Simon Letch
Take the latest headline that we’ve been “flattened by the biggest tax increase in the world”. “There, I knew it,” I hear you mutter. Well, not quite. It’s true, as the story said, that in 2023 working Australians suffered the biggest increase in their average tax rates in the developed world, according to figures issued by the Organisation for Economic Co-operation and Development.
The increase was caused by bracket creep and the Morrison government’s sneaky decision to end the “low- and middle-income tax offset” (a move that never made it to a press release, meaning most of the media didn’t notice and didn’t tell their audience about).
But that doesn’t in any way confirm our belief that we’re highly taxed. It may have been true last year, but it will be far from true this year as the huge stage 3 tax cuts take effect in July.
Nor is it confirmed by the repeated assertion that we are more dependent on income tax than any of the other OECD countries. This is literally true, but only because, unlike almost all the others, we don’t impose separate social security contribution taxes on the incomes of workers and employers.
The more important point, however, is that so far we’ve been talking only about the biggest and most noticeable of our taxes, personal income tax. Surely you don’t think that’s the only tax we pay?
What about a little thing called the goods and services tax? (Or, to other rich countries bar the United States, value-added tax.) Our tax rate of 10 per cent is way lower than even the Kiwis’, let alone all the Europeans’. They’re up in the 20s.
No, all told, we pay less tax than almost all the others. But how would you rate us on, say, healthcare? My guess is most people’s answer would be, at best, nothing to write home about. Wrong. We keep hearing about problems with Medicare, but every country’s healthcare system has its shortcomings. New research by the Productivity Commission – hardly known for its boosterism – has found that our health system “delivers some of the best value for money of any in the world”.
The commission has been measuring the productivity of our healthcare system – roughly, what we get for what we pay – and, for the first time, taking account of changes in the quality of that care.
In principle, the system covers all our spending on healthcare: public and private; hospitals, GPs and specialists, whether paid for by taxpayers, health insurance or directly out of our pockets.
Over this century, our total spending on healthcare has risen from 8 per cent of national income to about 10 per cent – meaning it’s grown much faster than the economy has, including the growth in our population.
The continued rise in the average age of our population, the growing burden of chronic diseases and our expectations that governments will keep spending more to improve our health means our spending on healthcare will continue to grow faster than on most other things.
This being so, it’s important to check that the increased spending is leading to better health. The researchers were able to check the performance of only part of the system: the treatment of cancers, cardiovascular diseases, blood and metabolic disorders, endocrine (organs and glands) disorders, and kidney and urinary diseases.
These account for about a third of healthcare spending. The study found that, after allowing for changes in quality, the “multifactor” (that is, combining labour and physical capital) productivity of this care improved by about 3 per cent a year over the six years to 2017-18.
If that doesn’t impress you, it should. It compares with productivity improvement of just 0.8 per cent a year in the whole market sector of the economy.
Importantly, all the healthcare improvement came from improved quality in the treatment of ailments. This arose from technological advances in how they are treated, rather than from simply doing more with less. And the gain was in lives saved rather than the reduced illness of people living with those diseases.
But here’s the kicker. When the commission compared the level of our productivity with that of 27 other rich countries (after allowing for differences in risk factors, such as obesity – the big one – smoking, diet, alcohol and age) it found we came third, beaten only by Iceland and Spain.
Coming a distant last was the United States. The Yanks win two prizes: one for the most expensive system, the other for coming last on value for money. Why? Because their system is designed to maximise medicos’ incomes. At which they take away another prize.
Ross Gittins is the economics editor.
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