Industry Focus

HEALTHCARE The healthcare economy BILL EVANS, CHIEF ECONOMIST, WESTPAC Healthcare continues to grow slightly ahead of the rest of the economy. Growth in the Australian economy has recently slowed markedly. Growth in 2013 and 2014 is likely to hold at about 2.3–2.5%. In 2012, the economy expanded by 3.7%, particularly boosted by strong mining investment and a solid boost to consumer spending, and partly due to the Reserve Bank's interest rate cuts, which were first initiated in November 2011. Over the last 10 years GDP has averaged a growth pace of 3%, whereas health output has grown by an impressive 4.8%. The slowdown in employment growth has been even more marked with employment growth in 2010 at about 3% having now slowed to 1%. We have seen a similar slowing in employment in the health industry. In 2010, employment growth in health and associated industries was running at an impressive 6%. This has now slowed to 2%—still well in excess of employment growth in the rest of the economy, but well down on the frantic pace we experienced through 2009–12 when growth averaged 6%. In fact, during the last 10 years, annual employment growth in the health industry has averaged 4.2% compared to 2.3% in the rest of the economy. This slowdown in employment growth in the health industry is partly related to a general slowing in government spending at both the federal and the state levels. Government spending growth is running at about a third of the average pace of spending growth and governments—both federal and state are indicating these trends are likely to continue. However, these are cyclical effects associated with the desires of both levels of government to repair the fiscal damage that was imposed on government balance sheets during the global financial crisis. In the two years between 2007–08 and 2009–10, the federal budget position deteriorated from a surplus of $19.8bn to a deficit of $54.5bn—a turnaround of nearly 6% of GDP. Health represents very large proportions of the federal and state budgets. Nearly 17% of federal expenditures are on health. That compares with 37% on social welfare, 8% on education and 7% on defence. In the state sphere, health represents 27.2% of expenditure compared to 22% on education; and 11% on law and order. But these ratios are not excessive—Australia spends about 2% of GDP less on public health than Canada, New Zealand, US and Germany. The ageing of the Australian population will ensure that in the longer run health spending will continue to grow rapidly. Today, about 13% of Australia's population is 65 years or older. That proportion is set to increase to 22.5% by 2050 ('Intergenerational Report'). The 'Intergenerational Report' estimates that, whereas about 4% of GDP is currently allocated to public health, that will increase to 7% by 2050 compared to reductions for education, social security, defence and superannuation. In summary, while growth in the health sector has hit a 'soft patch' the long-term outlook for growth in the sector is very encouraging. In fact, the outstripping in terms of output and employment, which we have seen from the health sector over the last 10 years, is likely to accelerate in the next 20 years as Australia's ageing population demands even more sophisticated health services. 10 Industry Focus

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