THE TIMES THEY ARE A CHANGING

At a Glance

The new Parliament has only sat for two weeks, but already change is in the wind.  With change comes potential uncertainty and the healthcare sector is possibly facing more uncertainty than others.

Changes worthy of note:

  • The resignation by stealth of Labors’ Deputy Leader of the Opposition in the Senate and 20-year veteran Senator Conroy
  • The passage of the Governments $6 billion budget savings omnibus bill
  • George Christensen a Government MP from Queensland threatening to resign over a tax measure called the ‘backpacker’ tax, which would imperil the Governments 1 seat majority
  • The resignation of long serving departmental secretary Ms Jane Halton from the Department of Finance
  • The Clerk of the Senate, Rosemary Laing the most powerful Senate bureaucrat has also called it a day (effective from March)

The resignation of Ms. Halton in particular caught the Canberra bureaucracy and media by surprise.

Ms. Halton was Canberra’s longest serving departmental secretary with nearly 15 years’ service and has flagged a quick departure by giving the Government only 4 weeks’ notice, a short period of time in which to ensure a smooth transition.

Ms. Halton’s permanent replacement will be eagerly anticipated, none more so than by the healthcare sector and the pharmaceutical industry in particular.  Ms. Halton was well known to the pharmaceutical sector having been health department secretary for over 10 years.

The Ongoing Challenge

It has been reported that the Department of Finance’s incoming ministerial brief to Mathias Cormann has specifically identified two areas of expenditure that could potentially prevent the Government from meeting its budget surplus target.

  1. The National Disability Insurance Scheme (NDIS)
  2. The Pharmaceutical Benefits Scheme (PBS)

The inclusion of the PBS would be of concern to the pharmaceutical industry, having only last year taken a $6 billion cut in the PBS Sustainability package of reforms.

The loss of Ms Halton has exacerbated this uncertainty as she was considered the most knowledgeable bureaucrat in regards to the PBS and the health budget.

The loss of Ms Halton represents a huge loss of institutional corporate knowledge.  While some stakeholders may cheer her departure, she was always considered in her advice to Government, but now the healthcare sector faces a period of distinct uncertainty with her departure.

How will her new replacement approach the need to ensure billions of dollars in savings in the health budget are realised?

Ms Halton may be gone but the health budget savings target remains.

Let’s not forget and it has been little reported that advice to the Government was that there remained $18 billion in unlegislated policy savings from the last Parliament.

This has now been reduced by $6 billion due to the passage of the budget savings omnibus bill, so it now stands at $12 billion.

Included in this $12 billion are the outstanding health saving measures, such as the PBS co-payment, changes to pathology and diagnostic imaging rebates and other measures that total approximately $2 billion over the 4 year forward estimates.

If all the current measures cannot be legislated into realised savings, the health budget savings will still need to be found.

For health industry participants in particular the question becomes – what other savings proposals might they face and how might a new secretary of finance advise the Government on how they could be delivered?

Budget Repair – That Much Harder

Budget repair is front and centre for the Government.  Its starting point is $12 billion in unlegislated savings measures from the last Parliament – this will prove to be a major challenge.

In December, the Government will be required to release the mid-year economic and fiscal outlook (MYEFO).  This will include an update on the nations finances, including the Governments election commitments.

My prediction is, it will likely paint a less than rosy picture for the Government, in terms of the current state of the budget.

At the same time that MYEFO will be released, preparation and planning will already have begun for what will be a tough 2017/18 federal budget.

The question on every ones’ lips should be, what other savings measures might the Government look to make?

If they are still unable to legislate the $12 billion in savings measures from the last Parliament what are their chances of legislating new savings measures in the current Parliament?

The Department of Finance is the key central agency tasked to find budget savings.  The next secretary of the department will enter the role at an incredibly important time for the healthcare industry.

For those stakeholders in big spending portfolios, such as health and social welfare the next 6-12 months will prove to be very uncertain times with a heightened level of political risk.

An example when the MYEFO is released later this year, it will provide a full costing on the new hepatitis C medications, over the forward estimates and this is likely to show a big increase in spending on the PBS.

This outcome has the potential to have major implications on the pharmaceutical industry, who could face calls for more to be done to rein in PBS spending.  What view will a new Secretary of Finance take in their advice to the Government?

Conclusion

The Department of Finances advice to the Minister presents a stark picture of the budget repair challenge facing the Government.

For the Government its starting position is $12 billion in unlegislated savings from the last Parliament, before it even considers additional savings for the 2016/17 budget.

Of this $12 billion, approximately $2 billion of these savings are health related measures which stand little chance of being passed in the new Parliament.

If these $2 billion in savings measures aren’t realised, they are still going to have to be found within other programs in the health portfolio.  This may be the first major challenge for the Secretary of the Department of Finance.

The upcoming publication of the updated budget forecasts will show an increase in spending on the PBS.  The pharmaceutical sector in particular needs to be mindful of the inevitable calls to restrain growth in the PBS.  This is a clear political risk for the industry.

Given the magnitude of the budget repair task, no one area of Government expenditure is immune from consideration.  The question will be what portfolios may be asked to contribute more than others?

The new Department of Finance Secretary may well hold the answer.

For more information, in regards to this or any other public affairs issue you may require assistance with please don’t hesitate to contact me or visit the Insight Strategy website at www.insightstrategy.com.au

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