Federal Financial Relations Amendment (National Health Reform) Bill 201

Bills Digest no. 159 2011–12

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WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Rebecca de Boer
Social Policy Section
18 June 2012

Financial implications
Key provisions 

Date introduced:  22 March 2012
House:  House of Representatives
Portfolio:  Treasury
Commencement:  Schedules 1 and 3: the day after Royal Assent.
Schedule 2: 1 July 2012.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.


This Bill amends the Federal Financial Relations Act 2009 to take into account the new payment arrangements and policy responsibilities agreed under the National Health Reform Agreement (NHRA).


This Bill was subject to cognate debate with the National Health Reform Amendment (Administrator and National Health Funding Body) 2012 Bill. Both Bills passed the House of Representatives on 31 May 2012. The Government circulated amendments to the Bill prior to debate and these were passed without further amendment. These amendments were agreed with state and territory governments prior to their introduction.

National Health Reform Agreement

The NHRA was agreed by the Council of Australian Governments (COAG) on 2 August 2011. The main features of the NHRA were the changes to the financing of public hospital services, the establishment of health governance agencies and the transfer of aged care and disability services to the Commonwealth (except in Victoria and Western Australia). [1] This Bill gives effect to the changes to the federal financial arrangements as a result of the NHRA.

Changes to Federal Financial Relations

From 1 July 2012, public hospitals in Australia will be funded according to activity based funding (ABF) arrangements. Some public hospital services, such as teaching and research, and some smaller public hospitals will be ‘block’ funded. The Independent Hospital Pricing Authority (IHPA) will determine the ‘efficient’ price for each public hospital service and the block funding amounts. Payments will be made to State accounts of the National Health Funding Pool on the basis of the determinations of the IHPA. There will be monthly and annual reporting of the funding flows to and from the National Health Funding Pool.[2]

Previously, states were funded for public hospitals on a block mode basis through the National Healthcare Special Purpose Payment (SPP). The National Healthcare SPP will be replaced with National Health Reform Funding on 1 July 2012.[3] The amount of funding for 2012-13 will be $13.5 billion, equivalent to what would have been provided under the National Healthcare SPP.[4]

The Commonwealth has also guaranteed an additional $16.4 billion over 2014-15 to 2019-20. This is to account for the Commonwealth meeting 45 per cent of the efficient growth of public hospital services, increasing to 50 per cent from 2017-18. The efficient growth refers to the increase in the efficient price. In other words, the Commonwealth will be funding 45 per cent of the growth in the efficient price, not 45 per cent of the overall price.

To enable the creation of national aged care and national disability services systems, the Commonwealth agreed to take full funding and policy responsibility for aged care and disability services for people aged 65 years and over (50 years and over for Indigenous Australians). This is expected to be budget neutral for the Commonwealth and the states until 2013-14.[5] Victoria (VIC) and Western Australia (WA) are not participants in these arrangements and will maintain separate funding agreements with the Commonwealth.

Committee consideration

The Senate Standing Committee on the Scrutiny of Bills had no comment on the Bill.[6] The Senate Selection of Bills resolved not to refer this Bill to Committee.[7]

Financial implications

This Bill has no additional financial implications beyond that which had previously been agreed in the context of the NHRA agreed by COAG. In this, the Commonwealth guaranteed that its increased contribution for the growth in the efficient price would be at least $16.4 billion.

Key provisions

The Explanatory Memorandum adequately explains the provisions of the Bill. This section of the Digest does not attempt to replicate this but highlights key points.

The Bill has three Schedules:

  • Schedule 1 – Aged care and disability services
  • Schedule 2 – National health reform payments
  • Schedule 3 – Determinations of amounts affecting GST revenue

Schedule 1

This Schedule allows for the National Disability SPP to be adjusted after indexation. Items 3 and 4 of this schedule insert proposed paragraph  13(2)(c) and subsection 13(4) into the Federal Financial Relations Act to give effect to this. It also means that there is scope for additional adjustment to reflect new funding responsibilities for aged care and disability services.[8]

The adjustments to the National Disability SPP for VIC and WA will be indexed according to the Intergovernmental Agreement on Federal Financial Relations.  

Schedule 2

This Schedule establishes the framework for the Commonwealth to make payments under the NHRA. The National Healthcare SPP will be repealed by  item 2 of Schedule 2 and a new part will be inserted. Proposed Part 3A of the Federal Financial Relations Act, to be inserted by item 3 of Schedule 2 to the Bill, will enable the Minister to determine and make payments to the states in accordance with the NHRA. Payments under this Schedule will be known as national health reform payments.

The Minister’s determination is a legislative instrument, but it will not be disallowable by Parliament  as:

it facilitate[s] the operation of an intergovernmental body or scheme involving the Commonwealth and a State and are made for the purpose of the body or scheme.[9]

Schedule 3

Subsection 6(1) of the Federal Financial Relations Act requires the Minister to make an annual determination of GST revenue. This Schedule removes the obligation of the Commonwealth to provide a specific breakdown of goods and services tax (GST) revenue where informative data are not available. Currently, two of the components of the GST revenue, under paragraphs 6(3) (c) and (4)(b) of the Federal Financial Relations Act cannot be quantified separately. The third part of the determination, specified under paragraph 6(3) (d) of the Federal Financial Relations Act requires a significant amount of work for the Australian Taxation Office (ATO).

Proposed new subsection 6(1), (2), (3) and (4) of the Federal Financial Relations Act incorporate a non-separately determined amount based on:

  • the GST that was collected
  • the payments made to the Commissioner of Taxation representing amounts of GST that would have been payable if the Constitution did not prevent tax from being imposed on property of any kind belonging to a State and section 5 of the GST Imposition Acts had not been enacted and
  • Commonwealth law and section 177-1 of  A New Tax System (Goods and Services Tax) Act 1999 made those entities actually liable rather than notionally liable.[10]

GST payments by local government bodies will still be determined separately under proposed paragraph  6(3)(c) of the Federal Financial Relations Act.

These arrangements will apply to determinations for the 2011-12 payment year and subsequent payment years.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2503.

[1].       For further information see A Boxall, National Health Reform Agreement – what might it achieve? Flagpost, Parliamentary Library, 4 August 2011, viewed 15 June 2012, http://parliamentflagpost.blogspot.com.au/2011/08/national-health-reform-agreement-what.html

[2].       For further detail, see R de Boer, National Health Reform Amendment (Administrator and National Health Funding Body) Bill 2012, Bills Digest, no. 142, 2011-12, Parliamentary Library, Canberra, 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F1677740%22 

[3].       Australian Government, Budget measures: budget paper no. 3: 2012-13, Commonwealth of Australia, Canberra, 2012, p. 27, http://www.budget.gov.au/2012-13/content/bp3/html/index.htm

[4].       Ibid.

[5].       Explanatory Memorandum, Federal Financial Relations Amendment (National Health Reform) Bill 2012, p. 3

[6].       Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 5 of 2012, 9 May 2012, p. 10, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=scrutiny/alerts/2012/index.htm 

[7].       Senate Selection of Bills Committee, Report No. 5 of 2012, 10 May 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=selectionbills_ctte/reports/2012.htm, paragraph 3.

[8].       Explanatory Memorandum, op cit, p. 8.

[9].       Schedule 2, item 3, subsection 15A(2) of the FFR Act as cited in the Explanatory Memorandum, p. 14

[10].      Explanatory Memorandum, op. cit., p. 18

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