Australia's public hospital system is buckling under immense pressure, with a critical funding standoff between state and federal governments reaching fever pitch. While political leaders trade barbs, the root cause is a profound failure of imagination and a tax system that has not kept pace with the nation's wealth.
The Broken Promise of the GST
The current impasse over hospital budgets is often portrayed as a simple negotiation breakdown. However, the core issue is structural. The Goods and Services Tax (GST), introduced by the Howard government in 1999, was sold as a "growth tax" that would reliably fund state services into the future. That promise has proven false.
For decades, GST revenue growth has lagged behind economic growth. A stark analysis reveals that if GST collections had simply kept pace with GDP since the year 2000, state and territory governments would have been $231 billion better off. The shortfall for this financial year alone is a staggering $20 billion less than what the original deal envisaged.
"The problem isn't that the Commonwealth is mean or that the states are greedy," observes Richard Denniss of The Australia Institute. "The problem is that Australia's main mechanism for funding state services is broken, and what was good enough for John Howard at the turn of the century simply isn't working 25 years later."
A Rich Nation Acting Poor
This fiscal failure occurs against a paradoxical backdrop: Australia remains one of the world's wealthiest nations. Yet, governments operate with a scarcity mindset, allowing essential services to deteriorate. If Australia collected the average amount of tax levied by other OECD countries, it would have an extra $100 billion annually to invest in health, education, and infrastructure.
Instead, the system is trapped in a cycle of "performative posturing" and arguments over "Band-Aid solutions." Endless negotiations about dividing a shrinking GST pie distract from the fundamental truth: the funding model itself is unsustainable, especially as costs for medical staff, equipment, and pharmaceuticals soar.
"Australia is rich enough that we can give more than half the gas we export away for free. We are rich enough to spend $14 billion per year on fossil fuel subsidies," Denniss notes. "And, if we choose to, we are rich enough to spend a lot more on health."
Time for New Big Ideas
The solution requires moving beyond tinkering with a failed 25-year-old tax plan. Political courage is needed to redesign how revenue is raised and shared. One clear opportunity lies in the nation's vast natural resources.
Australia is a top global gas exporter, yet most new offshore gas projects pay zero royalties and often zero Petroleum Resource Rent Tax (PRRT). Astonishingly, the federal government collects more revenue from university student loans (HECS) than from the PRRT.
Implementing a significant tax on gas exports, such as the 25 per cent levy proposed by the Australian Council of Trade Unions, could generate an estimated $17 billion in new annual revenue. This money could be distributed to the states, mirroring the GST allocation process, to directly fund hospitals and schools.
"There's nothing in the Constitution that says the GST is the only way to collect money for the states and territories," Denniss argues. He suggests that long-serving leaders like ACT Chief Minister Andrew Barr should champion this kind of systemic change.
The message is clear: Australia can afford a world-class public health system. But it cannot achieve this while clinging to a declining revenue source and engaging in intergovernmental blame-shifting. Big problems demand bold leaders willing to fix broken systems, not just argue over the pieces.
