MPL Medibank Private Limited

CANBERRA, Australia—Australia's government is considering a multibillion-dollar privatization of public health and welfare payments, as conservatives look for new ways to refill budget coffers emptied by an economic slowdown and collapsing prices of the country's resource exports.

In a move that would be risky in a charged election year, due to the popularity among voters of the country's generous health and welfare system, Prime Minister Malcolm Turnbull said on Tuesday the conservatives were looking at outsourcing a range of government payments worth up to 50 billion Australian dollars (US$35.43 billion).

"The government is as always totally committed to Medicare," Mr. Turnbull told Parliament. "What we are looking at…is improving the delivery of government services, looking at ways to take the health and aged care payment systems into the 21st century."

Treasurer Scott Morrison may test market appetite for a deal soon after the next national budget statement in May, which could clarify the future of several privatization offers being looked at by the conservatives.

Australia is struggling to adjust to a fading resources boom that is shrinking government coffers. A sharp slowdown in mining investment has forced the government to look harder for ways to trim a budget deficit that grew markedly under the previous Labor administration.

A midyear budget update in December showed that the country's deficit was expected to widen to A$37.4 billion this fiscal year—amounting to 2.3% of gross domestic product—while net debt was forecast to reach A$278.8 billion, or 16.9% of GDP, in 2015-2016, peaking at 18.5% of GDP in 2017-2018.

Treasury Secretary John Fraser last month warned spending was too high and tough reductions would need to be made. Outlays in the fiscal year through June are forecast to be 25.9% of GDP, with spending for large taxpayer programs such as aged care, health and unemployment payments still rising. The government wants to limit spending below 25% of GDP.

But Finance Minister Mathias Cormann has so far shied away from aggressive privatization programs with national impact like the U.K. government's £ 1.7 billion (US$2.45 billion) sale of the Royal Mail, wary of a backlash in a country where voters in far-flung regional areas worry they will be left worse off.

Mr. Cormann successfully sold private health insurance provider Medibank Private for A$5.6 billion in 2014. He is also weighing a sale of the national rail network, which manages assets worth an estimated A$4.4 billion, stretching across five states. The future of that offer could also be clarified in the budget.

But conservative allies in Queensland state suffered a shock first-term election defeat last year after they pursued power privatizations, a move which a majority of voters had opposed.

The plan being considered by Mr. Turnbull could be even riskier, leading to criticisms that the conservatives may seek to take the country's cherished but costly Medicare public health system down a private health path like the U.S.

"If Malcolm Turnbull wants to make the 2016 federal election a fight about Medicare, Labor will stand up for Medicare for all Australians," Labor Opposition Leader Bill Shorten said Tuesday.

The privatization of Medicare, pharmaceutical and aged-care payments—allowing the government to save billions of dollars in operating expenses—would attract keen interest from Australian companies with large payment systems like communications giant Telstra and even the Australia Post, still owned by the government.

Foreign multinationals may also bid, including New Zealand services provider Serco, Fuji-Xerox and Accenture, the West Australian newspaper said.

Mr. Turnbull said the Medicare system in particular had lagged behind digital payment systems used by many private-sector companies.

To limit political fallout, a privatized payment system would likely have strict caveats, including no change in current fee payments and no reductions in public health spending. Mr. Turnbull has promised no radical reforms without public consultation ahead of elections which are expected sometime after August.

Write to Rob Taylor at rob.taylor@wsj.com

(END) Dow Jones Newswires

February 09, 2016 00:45 ET (05:45 GMT)

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