Preparation of this report was commissioned by the Australian Institute of Health and Welfare (AIHW) and conducted under its guidance, as well as that of the 2nd Expenditure Report Steering Committee convened by the Office of Aboriginal and Torres Strait Islander Health (OATSIH) in the Department of Health and Ageing. Accordingly, considerable institutional input and assistance require acknowledgment. First of all, we are indebted to John Goss and Justine Boland of the AIHW for their interest and assistance in pursuing this analysis, and for perceptive comments on various drafts. Second, thanks are due to Helen Evans and Alison Killen of OATSIH for their sustained interest and for facilitating publication. Valuable comments on drafts from steering committee members were provided by the National Aboriginal Community Controlled Health Organisation, AIHW, and OATSIH. Others who provided helpful comment on the report included Beverly Sibthorpe and John Deeble from the National Centre for Epidemiology and Population Health, Steven Kennedy of the Australian Bureau of Statistics (ABS) and Roger Jones of the Centre for Aboriginal Economic Policy Research (CAEPR). Particular mention should also be made of the technical assistance provided by Stephen Carlton, Tenniel Guiver, Tony Lloyd, and Daniel Smith of the ABS in accessing unit record data from the 1995 National Health Survey. A draft of this paper was presented in the CAEPR seminar series, and again to the Economics and Indigenous Australian Health Workshop held at the University of Melbourne between 29 and 30 November 2001. Our sincere thanks to all the participants of those two forums. Any errors in the paper are the sole responsibility of the authors. Editorial assistance was kindly provided by Hilary Bek and Frances Morphy.