The NSW Intergenerational Report 2016 – Future State NSW 2056 projects future informed views on a number of key growth areas.
The state Treasury identifies factors that will contribute to expense-growth trends. First, the ageing population will put pressure on services, particularly health. Second, and more importantly, as household incomes have increased, we have expected government to deliver more and higher-quality services, and if these trends continue, the cost of service delivery will climb by 5.3 per cent each year – outpacing revenue growth and placing the state’s fiscal sustainability at risk.
Health services are by far the largest contributor to projected expense growth. The Treasury expects growth of 6.3 per cent a year in health costs during the next decade and six per cent during the long term, mostly in the hospital system. As a result, health expenses would increase from around 28 per cent of the state’s budget today to 36 per cent in 2056.
Interestingly, the largest driver of rising health costs is likely to be non-demographic.
The Grattan Institute estimated that around 60 per cent of the roughly $41 billion increase in Australian governments’ annual health expenditure between 2003 and 2013 was for “new, improved services and more services per person” with the remainder due to population growth, inflation and ageing. It is this trend that is expected to drive health growth. Ageing is also a significant factor, contributing around 10 per cent of health cost growth.
Advances in health technology, from genomics to online apps, are likely to be a big part of these new services. New health technologies, although often expensive, radically improve quality of life. Other innovations bring benefits such as shorter hospital stays and safer treatments.
However, as unit costs decline, demand often increases, so aggregate spending can still rise. For example, in the US, increased use of medical technology is contributing 40-50 per cent of yearly increases in health spending.
For more details of the report’s forecasts, look out for the July issue of Retail Pharmacy magazine.