We probably need a name for the prolonged economic downturn we’ve been stuck in since the final quarter of 2022. The long Covid recession? The latest inflation statistics suggest we may finally be crawling free of it. The Consumer Price Index was down to 3.3% in the March quarter, prompting a flurry of interest rate reductions.
The government congratulated itself for its incredible efforts at turning the economy around and “winning the fight against rampant inflation” but neither this government nor its predecessor lifted a finger to reduce inflation.
Jacinda Ardern, Chris Hipkins and Christopher Luxon all loudly and repeatedly insisted that cost of living was their number one priority, but price stability has been achieved by the Reserve Bank raising the official cash rate and sucking money out of the economy to deepen and sustain the recession.
Ardern and former finance minister Grant Robertson almost certainly worsened our inflationary crisis with their multi-billion dollar cost-of-living payment funded through borrowing. Current Finance Minister Nicola Willis claims her combination of tax cuts, child-care subsidies and increases to the independent earner and in-work tax credits will be deflationary, on the grounds that some households might not spend the money: she hopes they might use it to pay down debt.
Back in reality, most of those cuts will be used to service the savage hikes in council rates and insurances coincidentally(?) imposed at the same time as Willis’s fiscal package.
One of the dark secrets of macroeconomics is that many finance ministers quietly relish a moderate level of inflation. It allows them to impose stealth tax increases on us every year via bracket creep, and Willis has confirmed she will return to this practice for her next two Budgets.
It erodes the real value of the crown’s debt – although it does so by simultaneously reducing the value of your retirement savings, so they really hope you don’t realise this – and it allows governments to limit spending in high-cost areas such as health while pretending to invest more simply by keeping the increases lower than the rate of inflation.
That’s the allegation health economists are levelling at the coalition, which has removed the board of Te Whatu Ora Health New Zealand – most of whom had already stood down – and appointed a single commissioner, Dr Lester Levy, to oversee the entire public health system, citing a financial crisis at the organisation.
New Zealand has a rapidly ageing population, we’ve just experienced a surge in migration and our inflation rate is still above the target band, so healthcare requires significant funding increases every year just to deliver the same level of care.
Keeping the lights on
This year, Willis allocated $16 billion additional spending to health, staggered over the next three Budgets. That’s real money considering her tax take of $104b a year and pre-existing annual health budget of $28b. But, astonishingly, it’s not enough to keep the lights on in the nation’s hospitals, where there’s an acute staffing crisis.
Emergency departments are housing spillover patients in waiting rooms and ambulance bays, and Dargaville and Porirua’s Kenepuru hospitals are citing staff shortages for having to rely on telehealth and nurses to deliver care. A Victoria University of Wellington report showed 80% of GPs stopped enrolling new patients between 2019 and 2022.
The government’s story is that health funding levels are fine. Luxon, Willis and Health Minister Dr Shane Reti attribute Te Whatu Ora’s $1.4b cost blowout that seems to have materialised out of nowhere to bureaucratic bloat caused by the previous government’s health reforms and the now- dissolved board’s financial mismanagement.
Luxon and Reti insist there are 14 layers of management at Te Whatu Ora, although the organisational chart released to media included the board chair, patients and their clinical staff. At his post-cabinet press conference, media asked Luxon if it made sense to count nurses and patients as levels of management, He stoically ignored the question, smiling brightly into the middle distance.
There’s some confusion about where this cost blowout came from: Te Whatu Ora reported a $196 million monthly surplus as recently as March; by April, this regressed into a monthly $130m deficit. The health minister blames the spend on consultants and back-office staff; the chief executive, Margie Apa, believes they have over-corrected on hiring new nurses.
Now, graduate nurses are being told there aren’t any jobs for them, despite persistent acute shortages in maternity and mental health. Doctors claim there’s a hiring freeze on front-line staff. The government denies this.
Messy problem
Everyone agrees the sector is a mess. What was once a distributed system of 20 district health boards is now a single, centralised entity, governed by a single person: Levy.
Labour’s health reform project was seen by some to be a disaster. No one knows why it had to happen in the midst of the Covid pandemic, why Labour ignored key recommendations from its own report, notably to keep the DHB model, slimming the number down to between 8-12 over five years.
It chose instead to compress such a vast and complex operation into a single year. Additionally, no one seems to know where the $11b invested in the merger went, what the hundreds of millions of dollars paid to business consultants accomplished, or what most of Te Whatu Ora’s many senior managers and their support staff do. After years of chaotic restructuring, clinical staff can anticipate more change as Levy performs radical surgery on his deteriorating patient.
Sacking some bureaucrats will not come close to meeting the rising cost of health, which Treasury forecasts will jump to $40b a year in the coming decades. Funding this would require substantial tax increases; failing to fund it will lead to drastic cuts in services that go far beyond closing a few regional hospitals overnight.
The public will never knowingly vote for either option, so future finance ministers will have to keep taxing and cutting by stealth to keep their books in order.
