Federal election 2016: reform is casualty of ALP’s Medicare scare

Is that an election campaign we just lived through or a remake of Wag the Dog, the movie in which a spin doctor and a Hollywood ­director fabricate a war with ­Albania to distract from a presidential scandal?

“What difference does it make if it’s true?” asks the president’s minder, Conrad Brean. “If it’s a story and it breaks, they’re going to run with it.”

After his presumed victory in a fictitious battle to save a government-run insurance scheme that was never under threat, Bill Shorten now claims an imaginary mandate for non-existent solutions to real and pressing challenges.

We all know what they are — the government is spending ­beyond the nation’s means and the economy is growing too slowly — but what’s Shorten going to do if he wins government?

He’s going to legislate same-sex marriage within 100 days.

Voters older than 50 might ­remember a time when Labor ­oppositions presented careful eco­nomic and social proposals before an election and, if successful, would implement them with minimum delay. So it was that in 1983, barely six months after taking ­office, the Hawke government introduced the Health Legislation Amendment Bill to deliver what Neal Blewett promised would be “a simple, fair, affordable ­insur­ance system that provides basic health cover to all”.

Medicare settled a longstanding political argument about healthcare by providing a crafted and popular solution to perceived market failure. Yet, like most government ­inter­ventions, it introduced the parallel problem of non-market failure. An absence of price signals, bureaucratic self-interest and political pressure to expand benefits beyond the system’s ­capacity would make it ever more expen­sive to deliver.

Blewett, as befits a Labor minister, didn’t trouble parliament with anything as tedious as fiscal projections. Suffice to say, he assured parliament, that Medicare “will be substantially self-funding” by ­imposing a 1 per cent levy on ­taxable income and rearranging other health subsidies.

“I reject the arguments of those opposite who say providing cover to everyone will encourage overuse of health services,” Blewett told the chamber.

Blewett’s valiant assumption proved wrong. In Medicare’s first year 45 per cent of services were bulk-billed. By the time John Howard took office in 1996 the proportion had risen to 71 per cent. In 2014-15 it hit a record 78 per cent and — in defiance of Labor’s dire predictions about the frozen ­rebate — is still rising.

It gets worse: in 1984-85 the ­average Australian called upon a Medicare subsidy once every seven weeks. Within a decade it was down to five weeks. Today the average green card is swiped every 23 days, justifying predictions that, if left unchecked, health spending will eventually consume the government’s entire budget.

Let’s dispense with the fiction that Medicare was ever self-­funded or operated like a commercial insurance scheme. The Medicare levy — now 2 per cent — is little more than a ruse to raise personal tax rates while avoiding the political consequences.

A private insurer would ­respond to the increasing cost of claims by raising premiums. A government scheme simply draws on consolidated revenue until the nation either runs out of money or it elects a government with the courage to fix it.

Shorten is right about one thing: Medicare needs saving, not from Malcolm Turnbull but from the unsustainable course on which Labor plans to take it.

His populist campaign against the non-policy of outsourcing the Medicare payments slapped the political equivalent of a heritage order on a dilapidated monument in desperate need of repair. From now on it will take an exceptionally brave party leader to touch it. Shorten’s hostility to health ­reform — one of the central policy challenges of the day — will set the tone for his government, should he ever form one.

His response to spending challenges in health, welfare and education is to continue where the Rudd-Gillard-Rudd administrations left off, locking in even higher levels of recurrent spending.

That in itself is no surprise since the chief designer of Labor’s new economic strategy — if we can call it that — is Wayne Swan, whose 2033 days as treasurer formed the common thread to two terms of Labor misadventure.

Swan heads the Inclusive Prosperity Commission at the party’s think tank, the Chifley ­Research Centre, which has persuaded itself that by spending money governments can create wealth.

The Inclusive Prosperity Commission’s prospectus was ­discussed in this column two weeks ago, but since Shorten has come close to securing a mandate for this mutton-headed ­alchemy, its central conclusion ­deserves repeating.

“Slicing of the proverbial economic pie differently, towards a ­redistribution to the middle and the poor, can simultaneously ­increase the size of the pie,” says the manifesto, authored by Julia Gillard’s former adviser Stephen Koukoulas.

Labor, in other words, claims to have discovered the economic equivalent of a perpetual motion machine, the audacious attempt by early scientists to defy the second law of thermodynamics.

In economics, as in physics, the output power of a heat engine is ­always smaller than the input heating power. Just as we have yet to develop a light bulb in which ­energy is not wasted, so we have yet to devise a way to tax and redistribute wealth without fattening the bureaucracy.

And so, with net debt forecast to hit $356 billion in two years’ time and growth consistently falling short of the levels required to accelerate our way out of trouble, the prospects of an effective ­response to this structural crisis are not exactly bright.

On one side is a government that has self-evidently failed to persuade the nation of the case for fiscal responsibility and may yet have to barter with maverick rent-seekers to get back into office.

On the other is Shorten’s Labor, uninterested in controlling spending or encouraging private-sector growth, that would bring little to government save the hubris of winning a phony war.

“Yeah, but there wasn’t a war,” Brean admits towards the end of the movie.

The fictional director swells with pride. “All the better the ­accomplishment.”

Nick Cater is executive director of the Menzies Research Centre.