The Australian, p33 "Few things excite politicians more than spending money and cutting ribbons. Few things annoy voters more than tax hikes, especially if the extra tax is supporting government spending addictions.

Across the world, governments have resolved this dilemma by accumulating debts, passing the buck to future generations.

Australian state governments are on to a better trick - convince the federal government to raise taxes, and then get hold of the money.

As we debate a higher GST, distinguish between two very different motives. The first is pure. Raise GST and give all the money back by reducing other taxes (especially eliminating income tax bracket creep, company tax and stamp duty) and the necessary welfare adjustments. This is good policy which will drive investment, savings, work participation and growth.

The second is more cynical. Give the money to the states so they can avoid confronting their demons - the desperate need for productivity improvements in public services like health and education. In the past, federal government grants have allowed the states to delay this crucial work by generously funding their inefficient and highly unionised health and education systems.

State health spending is a case in point. At the heart of this is hospital spending, which is growing at a breakneck pace. The Grattan institute tells us that hospital spending growth dwarfs all other areas of health spending growth, at almost three times GDP growth. If we can't solve this problem, then higher taxes and higher debt (or both) is inevitable.

Central to hospital spending is acute-care bed numbers. It might seem paradoxical that lower bed numbers is a good thing, but it means that we are keeping people out of hospital. Turning away seriously ill patients is obviously unacceptable, but it is also unsustainable. The only way to reduce bed numbers sustainably is to keep people healthy, and to get them healthy quickly when they go to hospital. A simple comparison of Australia's beds per capita across the world is sobering.

Across the world, countries are successfully working to keep people out of hospital, by keeping them healthy and finding better options. Britain has seen a 30 per cent reduction, Italy and Norway over 20 per cent, Denmark, Switzerland, France and Canada of 10-20 per cent. The US, Germany and The Netherlands have also seen solid reductions. In the decade from 2000, Australia saw little change in bed numbers, at around 3.4 acute beds per thousand people. We are, quite literally, making no progress.

OECD research tells us that admission rates increase as more resources become available - "supply-induced demand". It also tells us there is significant room for improvement.

A recent review of hip and knee replacements showed Australia had the longest stay among peers at 60-70 per cent more than average. We also have huge variation across regions which can't be explained by demographics. For instance, there is a sevenfold difference across Australia in admission rates for procedures such as cardiac catheterisation and knee replacements.

Some states are beginning to address this. South Australia is pursuing a "'transforming health" program to deliver "right first time, every time care", seeking to avoid unnecessary hospitalisation.

Across the world, there are many good examples of what can be done. Some of these were a result of hardship following the global financial crisis, but most were in motion well before then. In Ireland bed numbers were reduced from 3.2 to 2.9 per 1000 in just three years while preserving quality of outcomes and increasing life expectancy. In the Valencia region of Spain, a decade-long redesign of health systems resulted in 25 per cent cost reductions through greater choice and privatisation, while wait times are now the lowest in Spain. In Britain the consolidation of 32 hyper-acute stroke care units into eight hubs reduced death rates to four times lower than the national average, reducing the length of stay by 20 per cent. 

Achieving significant gains in Australia will require a focus on much more innovative models. It will mean providing integrated care outside of hospitals to avoid hospitalisation, particularly for chronic disease. It means consolidating high complexity procedures into centres of excellence. It will require highly efficient centres of routine elective surgeries like cataract surgery and knee replacements. It means directing general unscheduled patients to the lowest cost point of care, recognising that emergency departments are typically not the right answer.

The federal government needs to be part of the solution. Grattan estimates savings of $1 billion per annum in avoided hospitalisation, although the opportunity is likely to be far bigger.

This will require a sharp focus on more patient focused and integrated primary care. The review set up by Sussan Ley, the Minister for Health, and being led by Dr Steve Hambleton, is crucial to achieving this. All of this will mean opening up the health system to more contestability.

The Harper competition review made this point very clearly, with a focus on user choice, separation of funding, regulation and service delivery while ensuring we have a diversity of providers. These service providers should cover the spectrum from traditional government-owned services through to public-private partnerships, mutuals, not-forprofits and private players.

Unlike a revenue-neutral change to the tax mix, tax hikes are not real reform.

We shouldn't be considering an increase in the overall tax burden on Australians when we have barely started the necessary reforms to drive out government waste." 

Angus Taylor interview on November 5 with ABC Radio RN Breakfast >>

Angus Taylor interview with ABC TV Capital Hill >>