Jacinda Ardern has said the case of Middlemore Hospital buildings "rotting around the patients" showed the urgency of the work needed.
Prime Minister Jacinda Ardern has a gloomy warning that her Government's first Budget will not contain many treats.
The Labour-led Government says most of the money will have to fill larger-than expected funding gaps in health and education.
And it plans to drip feed details about the dire state of the nation's public services in the lead up to next month's Budget.
Labour will not be abandoning its election promises, Prime Minister Jacinda Ardern says, but could take longer to deliver on them.
"We won't be able to rebuild or deliver everything," Ardern said yesterday. "What we are articulating here is this Budget is a rebuilding Budget. This is a reinvesting in core services. That's what New Zealanders expect. That's what we need to do."
That could take some time, Ardern said, because her Government was discovering under-investment in a broad range of core services.
"I've always said from the beginning that it would be bad," Ardern said of the underinvestment in schools and hospitals. "We didn't know it would be this bad."
The dire state of South Auckland's Middlemore Hospital, which has been found to have mouldy walls, leaking sewer pipes and insecure power supply, was one of the most vivid examples of what Labour was facing, its minister said.
However underinvestment was not limited to infrastructure, but also basic public services and departments' ability to pay their staff.
Ardern stopped just short of declaring a full-blown crisis in the health sector.
"We have a health service under significant strain. Would I call it a crisis? When people hear stories like Middlemore, that's certainly the impression you're left with."
Grant Robertson and Jacinda Ardern plan to drip-feed details of the dire state of public services in the lead-up to next month's Budget. Photo / Mark Mitchell
The blame for the deficits was placed squarely on the previous National Government, who Ardern said had focused on "the books looking good" at the expense of public services.
But National finance spokeswoman Amy Adams said Labour had simply failed to grasp the constant and often unexpected demands on the public purse and as a result it had over-promised.
"The reality is sinking in. And they're looking to blame everyone except themselves.
"The economy they inherited is half a billion dollars stronger than expected. Instead they're simply finding they can't spend on everything they wanted to because they hadn't allowed for the normal cost pressures and unexpected calls that come up in Government."
Further examples of funding gaps will be revealed in the lead-up to the May 17 Budget, as Labour softens the public's expectations further.
Despite the funding deficits, Labour said it would not reconsider the strict fiscal rules it agreed to during the election campaign, which bound the Government to spending limits and debt reduction targets.
Labour agreed to the rules alongside the Greens to calm fears about their economic management, but unions and others have questioned the restrictions given the pressures on the public service and low lending rates.
Finance Minister Grant Robertson said the Government had already given itself some headroom by committing to paying down debt two years later than National, and it could make the investments it wanted to without scrapping these rules.
"We believe we can make these critical investments and still stick to the rules that we've got."
On top of rebuilding public services, he said the Budget would focus on child poverty, homelessness and supporting low income families.
There would also be some climate change initiatives and support for regions which were heavily dependent on fossil fuels.
