Thomas Coughlan, Political Editor at the New Zealand Herald, loves applying a political lens to people's stories and explaining the way things like transport and finance touch our lives.
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Theatre nurses and doctors outside Auckland City Hospital during nationwide “Fightback for Health” protests on May Day. Photo / NZME
Theatre nurses and doctors outside Auckland City Hospital during nationwide “Fightback for Health” protests on May Day. Photo / NZME
Three facts:
The publicly funded part of the health system is currently funded through a multi-year package.
Health funding has increased in both nominal and real terms in recent years.
Health NZ is currently bargaining with several of the largest health workforces.
There are few questions of public and fiscal policy quite as vexed as health spending.
In the year to June 2018, the last fiscal year funded by the last National Government, core health spending - money for hospitals and other services, but not ACC - wasabout $15.4b.
If you adjust that sum to today’s money, it would be $19.8b.
In fact, the current Government will be spending about 25% more than that in the current budget, with core health spending coming in at $26.2b.
You may be tempted to cry — why aren’t we getting 25% better healthcare for that money.
Well, there are several very good reasons. New Zealand’s population growth.
Adjusting the sum for inflation simply asks how much it would cost to buy the same amount of healthcare this year as in 2018 — we’ve got 400,000 more New Zealanders to buy healthcare for now than we did then.
Our population is ageing, and ageing faster than we thought. There have been several recent revisions of NZ’s population statistics recently. These have increased the number of people over 65 and over 80, thanks, in part to the success of the health system.
That, however, comes at a cost. Health NZ research reckons “older people” - those over 65 - use 42% of health services. The more older people there are, the more spending there will need to be.
More than half of the nearly billion dollars that the former DHBs spent on support services for older people went to payments for aged residential care.
The big “why does this matter?” is obvious. One of the central questions of the current political debate is what is wrong with the health system?
That question, in large part, boils down to whether the health system is funded adequately or not. If not, then the question is who has the guts to fund it better and find some way of paying for it?
If yes, then who has the chops to find a way of managing the health system better?
The problem with the funding question is that there is no easy answer.
There were once widely accepted published government forecasts of health demand costs. These would plug in variables like population growth, and demographic factors like age and ethnicity, plus the forecast inflation rate to give the minister and the public some idea of how much money the health system would need to stand still.
These are no longer published, having stopped in 2015 — but the Government still produces figures for what the health system requires.
The current health funding approach resulted from the merger devised by Health Minister Andrew Little. Photo / Mark Mitchell
Confusingly, there are now two numbers, and only one is public. Treasury and the Ministry of Health in 2022-23 developed a “top-down” model for what funding was required and “included assumptions around demographic change, inflation (price and wage), other health cost drivers and efficiency/productivity”.
Meanwhile, Health NZ created a “bottom-up” model “intended to be more granular to understand volume, price and other cost pressures in different parts of the health system”.
In reality, these two numbers look like a more complex way of having the argument every public sector department has come Budget time: departments think they want more, and Treasury thinks they can make do with the same or less. Treasury’s number is included in published OIAs, Health NZ’s calculation remains a state secret.
What makes things slightly more interesting in the case of healthcare is that the health system, following Labour’s 2022 reforms, is funded on a multi-year basis.
Most other Government departments (there are exceptions for things like superannuation and benefits) have assumed baseline funding that basically stays the same year to year. Every single year, if they want more money to pay for inflation adjustments to staff pay, for example, they need to twist the Finance Minister’s arm for it.
This type of budgeting has its merits.
Despite handwringing over debt and deficits being something of a national obsession, NZ governments have a good record in reining in spending, partly because the budget process has a bias towards not spending money and fiscally dragging the country back to surplus.
When ratings agencies say NZ has good fiscal institutions, this is what they mean.
But the last Labour Government also observed that style of budgeting’s flaws.
A sign on Health Minister Simeon Brown's electorate office said the union's strike was disrupting more than 13,000 surgeries and appointments. Photo / RNZ, Felix Walton
Health NZ employs 90,000 staff, while the broader publicly-funded health sector employed about 103,000 people as of last June.
It makes little sense for workforce planning reasons, to force these organisations to come cap in hand each year for money.
If you’re employing such a large workforce, you probably need to have some idea of your funding trajectory. Not having some sense of future funding may make a large organisation less inclined to hire crucial roles, as it has no guarantee it could continue to fund those roles into the future.
The current predicament shows that this solution has flaws of its own.
The health system is quite clearly under strain, and may indeed need more money. Labour, attacking the Government’s decision to rein in Health NZ’s deficit, rather than accepting and funding it, is implicitly admitting that the funding plans its ministers agreed with Health NZ, and which it took to the election, are insufficient.
The irony is that while the coalition is enforcing the current spending plan on Health NZ, the actual figure was set by Labour.
Health NZ, meanwhile, has fallen into the inflationary trap of long-term funding: there’s always a risk that organisations with long-term funding guarantees will lift their spending expectations to meet those guarantees — and then some, rather than ensuring that they live within the limits that have been set.
Treasury, for its part, advised the Government to force Health NZ to live within its means. Its advice to ministers on the last Budget was not to give out more funding, but to stick to the multi-year funding track that was agreed, however painful that may be.
And painful it is.
Healthcare will always be expensive in NZ. We have what is effectively a common labour market with Australia. Most people working in the health system can board a flight tomorrow and immediately start working in a far better job for far more money.
This is a challenge faced by very few advanced economies.
The United Kingdom and Ireland share workers and EU countries have a common labour market, but most do not share a common language.
It’s a particular challenge for NZ given the vastly different economic and fiscal states of the two countries. The NZ Government is stuck in the middle of a great fiscal dilemma; it must find a way to pay Australian-competitive incomes to health workers from taxes levied on NZ incomes and business profits.
The two poles of that dilemma force governments to either accept some form of underfunding of the health system, accepting poorer outcomes from lower funding, or to accept NZ workers and businesses must pay higher relative taxes to afford Australian-quality care.
The former UK High Commissioner to NZ Laura Clark got into trouble when she said NZ had “Scandinavian ambitions in terms of quality of life and public services, but a US attitude to tax”.
It hit the nail on the head, nearly - sadly, the diminished state of the NZ economy means a Scandinavian attitude to tax might only buy NZ US-quality public services.
This is particularly the case for core, labour-intensive services like healthcare, education, policing, and corrections, where the Australian labour market exerts strong pressure on the Government’s ability to control costs.
They also found that while the health system probably had been underfunded for about a decade under the last National government, it was difficult to see whether it was still underfunded relative to other countries because Covid spending was still washing through the system in the last year for which we have comparable figures.
Huge challenges are coming. A recent Infometrics report for the NZNO, the nurse’s union, analysed 1.6 million health system shifts last year and found Health NZ was short 587 nurses every shift last year.
That same report crunched population forecasts to come up with some demand forecasts for the nursing workforce.
It estimated NZ will be 3000 FTE nurses short by 2034 - about 20% of the current workforce.
The aged residential care force is a particular concern. It is expected to contract by 9% while demand was projected to grow 47%.
The fiscal cost of ageing, already hitting the health system, will only get worse.
You’ll feel that pressure one way or another.
Either, in a lighter wallet, or a heavier heart whenever you enter a hospital.
