National’s strategy, of adopting the previous Labour Government’s policy and managing it better, is failing.
Replacing Rob Campbell as the health czar of a centralised, taxpayer-funded, health monopoly with a new czar, Dr Lester Levy, is like replacing the captain of the Titanic after the ship hit the ice.
They are both able, but the job is impossible. Just as the design faults of the Titanic meant once the ship hit the iceberg it was doomed, a tax-funded health scheme that has hit the iceberg of demographic change is also doomed.
Treasury noted last month ”population ageing is expected to substantially increase the fiscal cost of superannuation and healthcare”.
We can see it in the UK. The British National Health Service, the NHS, also a tax-funded monopoly, has all the problems we have. A shortage of GPs, waiting lists, hospital costs blowing out and healthcare taking an increasing share of GDP.
UK Labour and the Conservatives both promise to fix the NHS. Like New Zealand, British politicians promise and fail to build new hospitals. Waiting lists grow, health costs escalate and overwhelm the budget.
National’s managerialism cannot fix the crisis in health. A relative emailed me last weekend that no medical practice in Lower Hutt is taking new patients.
Labour, claiming health is just a funding issue, ignores that extra health spending has not fixed the problems.
I have lost count of how many times Chris Hipkins says an issue – the latest is the deficit – can be solved by taxing landlords.
Our Soviet-style health system is broken. Spending promises by politicians cannot cure the health system.
The answer to escalating health and super costs is well known. It is to switch from a tax-based scheme to a savings-based scheme. The challenge is how to transition from taxation to savings.
Singapore has a savings-based health scheme. Singapore’s health system was ranked number one in the world in CEOWorld Magazine’s Global Health Index for 2024. The index assesses countries on several health-related factors, including life expectancy, blood pressure, obesity, mental health and government healthcare spending.
New Zealand ranks 24th in this index. When additional criteria like “choice and quality” are considered, New Zealand’s rank falls to 34th.
Pre-Covid, in 2017, Singapore spent 4.8% of its GDP on health and long-term care. New Zealand spent twice as much on health – 9.5% of GDP. Based on this year’s Budget New Zealand’s health spend was 7.23% of GDP.
The OECD predicts health spending as a percentage of GDP will rise to 14% of GDP by 2060.
A former Labour Cabinet minister has solved how to switch to savings-based health. He has done the figures. A peer-reviewed overseas journal has published his paper. Peer review means the journal asked leading experts to verify the financial calculations.
The former minister is Sir Roger Douglas. His plan of how to transition is to take advantage of an oddity of our income tax scheme. Taxpayers in New Zealand, including beneficiaries, pay income tax from the first dollar they earn. Douglas proposes income tax paid on the first $50,000 of earnings be diverted into individual health savings accounts.
Like Singapore, he proposes the accounts of the poor and the chronically ill be topped up and used to cover catastrophic health.
Establishing health savings accounts brings immediate benefits.
- The miracle of compound interest. The value of the health accounts keeps increasing.
- The second benefit is greater. The demand for free health is infinite. Doctors complain Accident and Emergency is clogged with people who should not be there.
- Greater still, individual health accounts encourage taking personal responsibility. The Ministry of Health says the biggest improvement in our health would come from free preventive health, like exercise. One of the sights in Singapore is people exercising.
- The greatest benefit, economist William Haseltine believes, will come when people control their own health spending. When the taxpayer is paying, we demand the most expensive drug. When it is our health account, perhaps aspirin is fine.
Labour politicians point out that if the Norman Kirk Superannuation Scheme was in existence today the country could pay a generous super and fund the country’s infrastructure deficit. What Labour MPs never say is it was Douglas’ scheme. The Cullen KiwiSaver Scheme is a scaled-down copy.
If Douglas is the problem, call savings-based health the McCulloch Scheme. Robert MacCulloch is the Matthew S. Abel Professor of Economics at Auckland University. He co-wrote Welfare: Savings Not Taxation, published by the Cato Institute.
Labour has a choice. The party can compete with the Greens and Te Pāti Māori in the policies of tax and spend. It is a contest Labour cannot win.
Alternatively, Labour can advance a practical workable solution for the crisis in health. Douglas and McCulloch have the policy.
Labour could adopt “savings not taxation” and ride the policy back into Government.
