PM'S scramble to brink of a health victory

KEVIN Rudd is five out of six steps towards the historic agreement he needs with the premiers on his election package on health, but he will be forced into more concessions to deliver the resources giant of Western Australia.

Rudd and West Australian premier Colin Barnett are deadlocked.Australia's federation agreement demands six states, not five. And the West will be difficult to deliver since it faces hybrid problems over both the distribution of GST revenue as well as Rudd's proposed one-third GST

clawback for hospital funding. Note, however, both Rudd and Barnett said last night they believed the deal would be done. It seems, therefore, Rudd is on the eve of sealing his most important first-term reform and enshrining health and hospitals at the centre of his re-election campaign.

Revealing his confidence, Rudd crossed the Rubicon last night and took his phony referendum fallback off the table. Much hard negotiation remains between Canberra and Perth. But the Prime Minister, having made many concessions to the premiers in terms of money, structure and state powers, will surely be prepared to offer more concessions to secure Western Australia.

For Rudd, it has been a chaotic scramble towards the edge of victory. This is no textbook example of sound governance or sensible process. The concessions Rudd has made to the premiers are significant, yet he will rightly claim a key health and hospitals reform. Canberra will take full responsibility for aged care and prime care and become the dominant funder of the public hospital system.

There was a Kafkaesque fix last evening at Rudd's victory media conference. The PM hailed the meeting as "historic". It was "a good day for working families" (yes, that's what he said), a win for patients, mums, dads, doctors and nurses. It was, assured Rudd, a "very big reform" and a "significant agreement".

The problem, however, is that there was no agreement. The five Labor premiers signed. But the single Liberal premier refused to sign. Western Australia, Barnett said, did "not wish to rain on the parade". But the agreement was "not acceptable to me and it is not acceptable to Western Australia". The West would not buckle on Rudd's GST clawback to finance his hospitals scheme. Barnett said later the West's GST had been recently "plundered" by the Grants Commission, whose decision meant it would get back only 68c in the dollar for the tax raised. Now Rudd wanted to claw back another third of the GST. "I don't trade, I deal with issues on merit," Barnett said.

Rudd said he would stick by a co-operative approach. He kept declaring he was "confident" that agreement could be reached with the West. Having eliminated the referendum option, Rudd will be forced to accommodate Barnett. Provided there is a comprehensive agreement, the Tony Abbott-led Coalition, regardless of what it says now, will face irresistible political logic and public pressure to legislate Rudd's scheme.

The crisis unleashed by Rudd's health plan lies in its nexus. It was about hospital reform and reform of federation finances. It vested greater funding and policy responsibility in the national government with a matching shift in

financial powers towards Canberra via the GST.

Rudd offered the premiers an immense gift but he was always asking them to pay a price. The story of the past few days is that premiers reduced the price they paid and extracted more from Rudd. The tying of a public hospitals solution to Canberra's GST

clawback had a fiscal convenience and incendiary political impact.

Rudd misjudged Victoria and Western Australia. He misjudged premiers John Brumby and Barnett. While Brumby finally settled, Barnett will require a more exacting negotiation.

Consider the concessions Rudd has made. The premiers have won an extra $5 billion for health over the forward estimates covering the next four years. This is a hefty increase. Treasurer Wayne Swan must finance such funds with saving offsets. Rudd has also guaranteed an extra $15.6bn over 2014-19 in addition to one-third of the GST pledged to public hospitals, thereby honouring his 60 per cent national government funding target.

In addition, Rudd has softened his proposal that the national government control the funding of the Local Hospital Networks. He has agreed the Local Hospital Networks will be reduced from 150 to 90. There will be seven separate common funds in each state and territory to finance the Local Hospital Networks.

The system is elaborate and complex. Brumby insisted yesterday the states would retain funding control.

Rudd insists his model will reduce bureaucracy, but the jury remains out on this score. He argues the principle of activity-based funding to create a more competitive system endures and will mean a more efficient hospital system.

The irony of the past two days is that the sticking point was the GST provision. The further irony is that the GST is a national government tax. It is not a state tax. It is raised by the national government and all the revenue is given to the states under a political deal negotiated by the Howard government. Rudd can claw back 10, 20, 30 or 99 per cent of the GST by simply passing a law. There is no constitutional issue here whatsoever. Yet Rudd cannot get such a law through the Senate without an inclusive agreement with the premiers since it would be absurd to think the Coalition would save Rudd's plan in the Senate after the premiers had failed to back it.

In recent weeks Rudd warned the premiers in public and in private that he was serious about the referendum threat. A number of senior ministers were alarmed by this tactic.

The argument for the referendum was that (1) it guaranteed that health would dominate the election campaign; and (2) polls showed strong public support for greater national government involvement, the essence of Rudd's plan.

In truth, the referendum was heroic folly. It would have been

inspired not by consensus but in discord.

Consider the absurdity of the situation: if Rudd held both the referendum and the election together and won the election but lost the referendum (the likely result) then his opponents would argue his health mandate was compromised.

The near-deal yesterday absolves Rudd from the referendum burden and leaves him in a stronger political position.

His target will soon become the Abbott-led Coalition, not the premiers. Once he gets to this stage - and that means satisfying Barnett - then Rudd can mobilise health as an issue against Abbott.