Budget update brings cuts to the health and aged care sector

On Tuesday the Federal Government announced that the health and aged care sector has been targeted for savings in a budget update that forecasts deficits bigger than expected in May 2015.

It announced that $472.4 million will be cut from the health and aged care sector over the next four years by "better aligning" funding claimed by providers to the level of care actually provided.

Cessation of Aged Care Education and Training Incentive program (ACETI).

The  update included the announcement of $595m being cut from health and aged care workforce funding over 4 years.

However, this seems largely to have been programs already scheduled to finish this financial year – and only a small proportion of funding was specifically for aged care.

The aged care cuts come from ceasing the Aged Care Education and Training Incentive program (ACETI). The ACETI provided an incentive payment to encourage workers in the aged care sector to undertake training to increase their skills.

In 2014-15, the program supported 12,518 participants at a cost of $10.4m.

In the 2015-16 Budget, the program was extended to 31 March 2016.

The cuts represent an estimated 0.2% of the Australian Government’s funding for health workforce redistribution, and approximately 69% of health workforce development funding.

Increased compliance activities for residential aged care providers

The Government also aims to achieve savings of $61.9m over four years through improved compliance activities for residential aged care subsidies:

  • updating audit systems and processes to target high risk claimants

  • strengthen debt recovery arrangements

  • expand fees and fines for repetitive false claims.

Revision to Aged Care Funding Instrument (ACFI) Complex Health Care (CHC) domain

The Government has announced a reduction of $472.4m (for the three years 2016-17 to 2018-19) in budgeted expenditure from the ACFI. It is intended that  the Minister will consult with providers to identify ways in which these savings can be achieved.

These savings are in a context where the Government has projected an additional $1bn being spent on ACFI subsidies over the period 2015-16 to 2018-19.

Including rental income from former principal place of residence in pension means test.

The Government aims to achieve savings of $60.8m over the three years 2016-17 to 2018-19 by including rental income from a person’s former principal place of residence in the pension means test.

This income will be included in the aged care means test from 1 January 2016 (this was not an element of the MYEFO update).

Overall macroeconomic projections

The Government is projecting the Australian economy to continue to grow below potential. Treasury has revised its estimate of the economy’s potential growth from 3.5% to 3%, reflecting lower population growth and slowing growth in hours worked.

Real GDP is projected to grow at 2.5% in 2015-16 and at 2.75% in 2016-17, with inflation (CPI) growing at 2% and 2.25% in each year. Unemployment is projected to remain steady at 6%.

In short, the Government is predicting a small improvement in macroeconomic fundamentals over the next 18 months, but not enough to raise inflation or to have a material impact on unemployment.

For more information please contact:

Mark Hammerschlag
Moore Stephens Victoria
+61 3 9608 0165
Level 18, 530 Collins Street
Melbourne VIC 3000