Government funding for public hospitals

IBISWorld forecasts that government funding for public hospitals will grow by 8.1% in 2025-26 to $93.2 billion. Federal and state governments are continuing to increase allocations to address the severe strain across Australia's public hospital network. The one-year extension to the National Health Reform Agreement (NHRA), supported by a one-off funding boost, has substantially increased the Commonwealth's contribution in 2025-26. Rising emergency presentations, a backlog in elective surgeries and sustained workforce shortages are also placing significant upwards pressure on operating expenditure, driving heightened funding requirements. Private health insurance coverage declines and rising out-of-pocket costs are also pushing more patients into the public system, lifting demand beyond demographic trends

This marks a shift in drivers compared with the previous 12 months. During 2024-25, governments primarily focused on stabilising staffing capacity and alleviating inflationary cost pressures. In 2025-26, funding growth has accelerated in response to heightened critical-care demand, increased rates of bed occupancy caused by delays in aged-care placement and widening wage pressures as governments respond to persistent workforce shortages across nursing and clinical care. New enterprise bargaining outcomes and entrenched overtime utilisation have elevated labour costs, making wages the fastest-rising component of hospital expenditure. Policy emphasis has also shifted towards system reform, with mental health services transitioning to activity-based funding and negotiations underway for longer-term NHRA arrangements. However, uncertainty over the Commonwealth–state funding split beyond 2025-26 has tempered the ability of health services to plan long-term capital and workforce investments.

Government funding for public hospitals has risen strongly over the past five years, reflecting pandemic-era pressures and structural demand growth. Funding grew sharply in the early part of the period as governments supported hospital surge capacity and absorbed higher labour and infection-control costs. Although growth moderated as COVID-19 disruptions eased, system-wide demand remains elevated across emergency departments and inpatient care. Population ageing, greater treatment complexity and the need for more specialised equipment have continued to push per-patient costs above inflation. IBISWorld forecasts that government funding for public hospitals will expand at a compound annual rate of 7.1% over the five years through 2025-26.