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Submission to the Ralph Committee 1
Tax Reform Agenda and the Catholic Health Care Sector 2
Taxation Expenditure 4
Catholic health and aged care services are conducted on a non-profit basis. The Government’s tax reform plan will have significant impact on these services. This impact is largely the result of a paradigm shift in policy support for the non-profit sector.
Pursuit of ‘competitive neutrality’ issues will not only restrict the capacity of Catholic health and aged care services, it threatens the nature of these services in the communities they seek to serve.
The Catholic health care sector is a significant part of Australia’s overall health care industry. It employs more than 20,000 people throughout Australia and provides a wide range of health care services to the community, specifically through:
As a guide to the actual size of the Catholic health care sector, it provides in the order of 17,000 nursing home and hostel beds, and includes 60 hospitals, comprising 22 public hospitals, including seven teaching hospitals. There are several major medical research institutes (primarily funded by way of government grant or subsidy and private or commercial sector donations) as well as a significant number of community-based care organisations.
The types of services provided by the Catholic health care sector are similarly expansive, covering medical and surgical, aged care, social welfare and community services; and various commercial and non-clinical services. The not-for-profit private hospitals within the Catholic health care sector also provide a substantial range of social welfare programs that are accessible to the wider community.
It seems that the basis of the tax reform agenda with respect to health care has been the pursuit of a system of ‘equivalence’ between public and private not-for-profit organisations and for-profit organisations operating in the health care sector.
In recent years in Australia, the pursuit of tax equivalence and competitive neutrality has been applied in sectors in which there are some organisations, typically owned by the Government, that have received beneficial treatment (with respect to taxation treatment and other matters) by virtue of their government ownership. Where an equivalence of purpose and core business can be established, competition amongst provider organisations should be predicated on equal terms.
In such circumstances, the pursuit and application of competitive neutrality principles may improve market efficiencies and provide various benefits to consumers.
However, not all industries readily lend themselves to market oriented solutions. Although investor owned groups provide some private sector health and aged care services, they do so primarily to make profit. Their strategic business decisions are based on this ‘profit-first’ orientation and the type and range of services they provide are determined accordingly.
In contrast the Catholic health, aged care and other community services are conducted as a direct consequence of the Catholic Church’s non-profit ethos and community orientation. This is not the same objective and focus of many other parts of the health care sector.
On this basis, the Catholic health care sector could be considered as a ‘third’ sector within the overall health and aged care system in Australia.
Applying tax equivalence measures for competitiveness and productivity benefits can only be practical and achievable when organisations are competing in the same markets with the same commercial purpose and intent. This is not the case with respect to the Catholic health care sector and other parts of the health care industry in Australia.
Catholic organisations do not provide health and aged care services from a purely commercial intent. Rather, they perceive their services as being more akin to an investment in human capital and community support and welfare.
The current taxation concessions and benefits conferred on the sector by the Government are crucial to sustaining the presence of the Catholic mission in health, aged care and disability services. In essence, there exists a mutual relationship between the tax exempt status of these services and the benefits delivered to the community.
The majority of private sector, for-profit, hospitals provide predominantly high level, technical and expensive medical and surgical procedures for which the profit margins are within commercial benchmarks. In contrast, Catholic public and private hospitals (all of which are not-for-profit) provide substantial acute and non-acute medical and surgical services, that because of lower (or negative) profit margins, would not be undertaken in the private for-profit sector. The same can be applied to organisations within the Catholic health and aged care sector providing non-acute health services to many disadvantaged sections of the wider community.
The proposed changes to the tax system will increase the inequities between the Catholic health and aged care sector and the profit-driven sectors of the industry, for example:
These fundamental distinctions demonstrate the difficulties for the sector with a policy position that seeks to ‘level’ the playing field between service providers with vastly different perceptions of their role, orientation of their services and contributions to the community within the health and aged care sector.
The purpose of tax reform was to achieve improved efficiency and equity in the tax system. As it stands, the proposed tax reform plan actually threatens the tax status of Catholic organisations, the sustainability of their mission in health, aged care and disability services and the contribution this significant third sector can make to the development of human capital.
Sections 2.29-2.31 of the discussion paper, ‘A Strong Foundation’, touches on the issue of taxation expenditure.
The paper notes that governments use taxation expenditures or ‘tax concessions’ as policy tools to correct market failures or to meet specific objectives.
The tax exempt status of Catholic health and aged care services is a direct consequence of these government initiatives. In effect, the ‘taxation expenditure’ purchases services otherwise foregone by government or private providers.
The range, type and nature of these services, the clientele targeted by the services and the locale of the services contributes to the general social safety net.
By their nature, non-profit tax exempt organisations conduct their services on behalf of the community. Tax concessions and exemptions are crucial to their viability, and, in turn, their reliability for the committees they serve.
Although guidelines for the use of tax concessions may become complex, this is not an argument for their abolition or for the loss of the concessions in general.
Rather, where concessions are to be granted, issues of accountability and transparency are paramount.
Tax exempt organisations should be required to participate in open and accountable practices in relation to ‘taxation expenditure’.
The community’s interest would warrant a proper auditing/reporting mechanism to account for the benefits of ‘taxation expenditures’.
Taken in the context of the Government’s tax reform agenda, the issue of ‘equivalence’ and the related concerns surrounding ‘taxation expenditures’ have significant ramifications for Catholic health and aged care services.
The capacity for Catholic services to continue will be markedly hampered if an insensitive adoption of a policy of ‘competitive neutrality’ were to occur.
Continuation of accountable taxation expenditures and concessions to Catholic health and aged care services is crucial in the longer term interests of the social safety net and the access to essential care for local communities.