Health Minister Dr Shane Reti. Photo / Michael Cunningham
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
OPINION
Thursday marked the end of Parliament’s first scrutiny week.
You might think this would draw the curtain on the political fallout from Budget 2024. Published on May 30, taking effect on July 1, with the tax cuts kicking in on July 31, there wouldn’t ordinarily be much more to say about the Budget at this stage in the cycle, particularly once MPs have had the chance to sink their teeth into it at select committees.
Not so this year.
In fact, we’re yet to see details of one of the biggest single spends in Budget 2024 – or any Budget for that matter: health.
This is a function of Labour’s centralising health reforms, which changed the way most of the health system is funded. Previously, Vote Health in each Budget would include a funding line for each of the country’s DHBs, parcelling out hundreds of millions, or in the case of the larger DHBs, billions, of dollars in funding each year. The funding was allocated by something called a population-based funding formula, which was designed to fairly fund each DHB based on the size of its population and that population’s needs.
Under the new system, the funding will look a bit more like how we budget in the transport system. The Health Minister and the Ministry of Health will draw up a three-year Government Policy Statement on Health, setting out the Government’s priorities in the health system.
The minister will then hand this over to the delivery agency, Health NZ-Te Whatu Ora, along with the funding to make it possible. Health NZ, as an independent Crown entity, then responds to the statement with its own “Health Plan”, setting out how the agency plans to deliver on the priorities and expectations set out in the GPS. Over the next three years, Health NZ will try to deliver on the plan, and publish reports measuring itself against the Government’s GPS priorities.
A new GPS is due by 1 July, meaning it is a fairly sure bet to be announced next week.
It is somewhat frustrating the Government has opted not to publish the statement after scrutiny week. A fairly crude tally of the amount of money spent in the health and disability system each year (by adding the health and disability services lines in the Budget) reveals the GPS will cover about $27 billion to $29.5b a year in funding, or about $85b in spending over the three-year course of the plan.
That’s a whole lot of money – and given it is all funded via the Government’s Budget (unlike transport, which is mainly funded through hypothecated fuel taxes) it probably should have been subject to scrutiny at select committee.
The GPS, if this new system actually works, should provide a greater level of transparency than existed under the old system. New Zealanders should be able to see what the Government is trying to do with its health system, and, in the eventual response from Health NZ, whether the delivery arm can actually back this up.
But in lieu of a GPS, we actually have far less transparency. Vote Health in Budget 2019, the last pre-Covid Budget, ran to 122 pages, much of it spent detailing how much money went to each DHB and the various individual programmes the then-Labour Government was funding.
Vote Health in Budget 2024 is fairly opaque by contrast. It runs to just 64 pages and is centred on two massive funding lines (two of the biggest single lines in the Budget): $14.6b going to hospitals (replacing the 20 lines of funding that went to the various DHBs) and $9b for community, public and population health.
In lieu of any other document, this is a significant reduction in detail. Previously, you could see the distribution of health funding across each DBH. These have been reduced to two massive funding lines with no regional breakdown.
This slight loss of transparency is a small price to pay for what the new health system promises, which is an end to the postcode lottery of the DHB system where access to some health services depended on where one lived, but it is nevertheless a price that has to be paid.
The GPS will hopefully make up for the lack of clarity in Budget documents. The GPS itself is likely to be organised around five key priorities, including boosting the health workforce, health infrastructure and bringing decision-making closer to communities.
Those are all fairly uncontentious objectives – it’s difficult to see the Opposition attacking them beyond probing whether the Government has funded them adequately.
A bigger challenge will be how the Government plans to address population health disparities among Māori and Pacific New Zealanders.
Despite the end of the Māori Health Authority, the Government still has a legislative obligation to publish Māori, Pacific, women, disabled and women’s health strategies. This could be a challenge for a Government that is ideologically opposed to placing a racial lens on service provision (it is slightly more comfortable talking about barriers faced by the disabled and women).
The Government is likely to have some cover here. While devolving service commissioning will no longer be done by the Māori Health Authority, Health Minister Shane Reti hinted at a speech earlier this year that he was open to giving Iwi-Māori Partnership Boards (IMBPs) – representative groups of local Māori that once liaised with DHBs - the ability to commission some health services.
“I want to see IMPBs with the ability to have commissioning authority. I will empower local health decisions and Māori health providers with more autonomy than they have had for some years,” Reti told a gathering of the boards in March this year.
This might not assuage the pain felt by many Māori after the decision to disestablish the Māori Health Authority, but it does provide the opportunity for highly localised funding decisions to be made.
The obvious attack for Labour is the level of funding directed at health. The Government has tried to cauterise this attack by wedding itself to Labour’s pre-election health spending commitments, and even extending them in some areas. Currently, National is spending more on health than Labour had planned to prior to the election.
It’s not enough (in health, it’s never enough).
Labour and the Greens’ strongest attack comes from remarks made by Health NZ during its annual review that its forecast funding increases were insufficient to meet demand, and had been calculated during a period of lower inflation.
There is another problem, too. New Zealand’s population is growing. This is bringing economic growth on a national scale (barely), but on a per person basis, New Zealand is going backwards.
Treasury’s 2023 population estimates, on which the first cost-pressure adjustment was based, were revised upwards by 90,000-120,000 by Budget 2024. That means the cost-pressure adjustments first calculated back in 2023 will now be shared among far more people.
Per person, this works out as about $100 less spent on health and disability services each year of the GPS relative to the 2023 forecast - $343 in total. Of course, health spending still goes up each year in nominal terms - just not by as much as it did under the old population forecasts.
That doesn’t include the fact that inflation is set to be higher for longer, further eroding the power of that spending.
This is fertile ground for Labour, particularly because it will be very difficult for the Government to move from. The spending track is integral to its fiscal strategy.
One of the most interesting nuggets dropped during scrutiny week was hiding in plain sight and somehow missed during the heat of the Budget. Between March’s Budget Policy Statement and the Budget in May, the Government has updated its fiscal strategy to explicitly target an Obegal (operating balance before gains and losses) surplus by 2027/28 – the first time a government has set a “point in time” surplus target since the Key-English Government.
This requires some serious fiscal consolidation to achieve. The health example suggests the Government might be content to chase that surplus by chasing population-driven economic growth while decoupling social service spending from population-driven cost pressures.
That fiscal and economic model came under attack the last time National was in power - eventually the attack was successful.
Expectations tempered around return to surplus in 2027/28.