Healthcare costs to pose a 'fiscal risk'

"The important thing about health projections is that it's not just about the ageing effect it's also about the increase in real per-capita costs of health expenditure with technological change," Phil Gallagher, manager of the retirement and intergenerational modelling unit, the tax analysis division, said yesterday.

"Health is actually a very productive industry," he said. "Every time a new technology comes around that lowers costs, demand goes up, swamping any decline in outlays.

"Demand and technological pressures are projected to lift health spending across every age group. This is not just about the aged . . . we're saying that for every age group, because health is a superior good, health costs will increase."

Speaking at a conference of economists in Melbourne, Mr Gallagher drew attention to the skyrocketing costs of the federal pharmaceutical benefits scheme since the 1990s, particularly for people aged 65 and above.

"So overall . . . we've got ageing population effects . . . but we think the demand for health services will expose the Commonwealth to fiscal risk," he said in a speech on the implications of population ageing for Australian fiscal policy. Citing the latest international report, released in 2010, Mr Gallagher said that as a proportion of gross domestic product, spending on health was projected to rise from 4 per cent in 2009-10 to 7.1 per cent in the 40 years to 2049-50.

Age-related pensions and aged care were projected to rise from 2.7 per cent and 0.8 per cent of GDP, to 3.9 per cent and 1.8 per cent respectively in 2049-50. The report warned that spending on healthcare and age-related pensions could almost double to about 50 per cent over the decades to 2050 "without action to curtail spending growth".