Fund health and hospital reform with a carbon tax

At the Council of Australian Governments (COAG) meeting, the Prime Minister will have tried to get the premiers and chief ministers of the states and territories to agree to his health and hospitals plan. This calls for 60 per cent federal funding of public hospitals and fully funding primary health services, as well as decentralised administration. Some commentators have been positive, for the first time the Federal Government will share in funding for actual growth in hospital use. The plan offers better aged and community care and reduced waiting times for emergency and elective surgery. Standing between the PM and success however are political and budgetary issues – improving the health system and paying off the states and territories is expensive and there are no obvious sources of surplus funds.

One solution proposed has been to increase the tax on smokers. The government's National Preventative Health Taskforce has called for a tax rise that would add $6.50 to the cost of a pack of 30 cigarettes in the May budget. But there is a much bigger set of smokers who it would be more in the national and global interest to tax: major air polluters such as coal-fired power stations and oil companies. The PM could fund his health and hospital reforms with a tax on major emitters of greenhouse gas emissions. A low to moderate health linked carbon tax would raise in the order of $3-7 billion a year and a substantial proportion of this could be used to fund Rudd’s health package.

Such a proposal provides a practical solution to two of the great policy challenges of our generation: how to effectively respond to the healthcare needs of an aging population and how to deal with man-made climate change. It would immediately signal to other major emitting countries that Australia can play a leadership role in an effective international climate agreement. It would in one move allow the Rudd Government to deliver on two of its critical policy objectives.

The Government’s Carbon Pollution Reduction Scheme (CPRS) is due to be reintroduced into Parliament for a third time in May. The chances of it passing the Senate in its current form are slim. But a carbon tax used to provide necessary additional funds for hospital and primary health care is likely to draw support from the Greens and possibly also several other senators, giving the Government the numbers it needs to pass a carbon price bill.

Already the Greens have expressed support for a modified form of the CPRS that is, in effect, a carbon tax. Under the Greens’ scheme, the Government would sell permits to emit greenhouse gases to the atmosphere at a set price and major polluters would be required to relinquish sufficient permits at the end of each year to cover their carbon emissions. This is the same “bridging” greenhouse gas reduction scheme that the Government’s first climate advisor, Professor Ross Garnaut, has called for. Our proposal modifies this by directing the funds paid for the permits to hospitals and primary health care.

Under the CPRS the federal government is proposing to give billions to the business sector, either in the form of direct subsidies or free permits. Critics from across the political spectrum have argued that these planned handouts are excessive. As Professor Garnaut has repeatedly explained, the more the Government gives to industry, the higher is the cost of cutting emissions. Overly generous industry assistance is also unfair. Why should industry get billions in subsidies when there is a crying need for funds to support essential public services such as hospitals?

Reallocating funds from a carbon tax to health and hospitals would broaden support for a carbon price. Revenues from a health linked carbon tax could also sustain health and hospital initiatives necessary to respond to climate change related problems over coming decades such as changing infectious disease patterns and increasing intensity of major drought and flood events, as well as emissions reductions in developing nations and reducing deforestation and forest degradation.

Another benefit of a health-linked carbon tax over the Government’s CPRS is simplicity. The federal government has found it hard to build public support for the CPRS chiefly because of its complexity. The average citizen appears concerned it may be little more than an exercise in paper shuffling. A health-linked carbon tax on major emitting entities, where the revenues are collected by the government and redistributed to hospitals and health care is easy for people to understand. It is also easy to administer, easy to comply with and easy to change.