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Paul Keating, many years ago, gave Australia compulsory superannuation as a trade-off for wage increases and tax cuts. One side effect was that the nation began to save rather than spend; another was that we received a wage increase without inflationary pressure. As a nation we are now gaining the benefits of this initiative.

Kevin Rudd has the chance to do something as economically sensible and still keep his promise to deliver tax cuts. Here is what he could do - and he may have already thought of it.

He could deliver the tax cuts as promised but at the same time he could ensure that the money is spent in a way that delivers long term benefits to each individual tax payer. For example, give the tax cuts back to taxpayers, but as money in a special healthcare bank account owned by the taxpayer. Money from such bank accounts could ONLY be spent on approved healthcare - for example, anything that is currently partially covered by Medicare. The money would remain in the account accruing interest until such time as it was required by the taxpayer (or his or her immediate family) for approved healthcare expenditure. A high percentage of people will not need to access the funds immediately and so spending will be delayed until later in life. Such a scheme would reduce the need for the safety net provision on health costs and it will satisfy the promise to deliver tax cuts now.

Of course this solution is unfair on those who do not get tax cuts. An equity-conscious Rudd government could then choose to divert savings from the reduction in the cost of the gap safety net (arising as a result of the health bank accounts) to those who do not receive tax cuts.

The system is easily extended and could be an alternative to health insurance for those who wished to take it. The tax rebate from health insurance could be immediately changed to go into the health account - again increasing savings for later health care.

The system has the potential to resolve the Commonwealth/State funding problem. Rather than give money to the states or to hospitals, the federal government could provide money directly to the people who would then pay for their own health care from the fund. The states would see that this is actually a simpler and more efficient way of distributing their funds and they could do the same. The states still keep control of the health system; plus the health system can reform itself by offering different services and alternatives to customers.

Governments will retain control of expenditure - much as they do now - by monitoring health providers and the money they receive from health accounts. Health providers will still be free to obtain money from other sources so the system is not socialised medicine.

Individual consumers will be encouraged to save money in their health fund accounts for emergencies as the money will not go away. Control over excessive fees and charges can be managed because all the health expenditures to particular organisations and service providers can be tracked and group fee charges can still be obtained.

The system also removes the need for the introduction of the proposed Access Card because access to a Health Bank Account would mean that you can prove who you are.

In this modern day and age, a system like this is administratively simple, inexpensive to implement and certainly a lot less work than the current system. In effect it will give society a true marketplace in health provision.

Of course safety nets, natural or unplanned disasters, and chronic illnesses would all need special allocations of funds but these could be monitored and funds allocated to those who need it.

There is already a similar system in operation in Singapore and it delivers excellent health outcomes for a much lower proportion of GDP than Australia. The reasonable expectation is that we could get a much better return on our health dollar than if we continue with the current way of funding health.

The Australian people are looking for a breakthrough from Rudd on health. The promised tax cuts delivered through the health accounts can provide innovative change in a fiscally conservative (but operationally radical) way. Best of all it should appeal to Rudd because he likes results to be measured. This will be easy because all expenditure information and resulting health outcomes can be delivered in a privacy-friendly way to the Federal Controllers over the new nationwide broadband.

Dr Kevin Cox is an entrepreneur. Previously he has taught Information Systems in Canberra and Hong Kong and worked with computers for various multinationals in Australia, the USA and Indonesia.