14 May 2018

Budget 2018: Can the govt deliver on its health promises?

5:23 pm on 14 May 2018

Analysis - Health is a portfolio that demands huge amounts of money, and it will be no different under this coalition government.

Labour Party MP David Clark

Health Minister David Clark said Treasury had estimated it would cost $14bn over 10 years to get health assets up to the standard they should be. Photo: RNZ / Rebekah Parsons-King

Labour campaigned hard on the underfunding of key portfolios, promising to pump billions of dollars into health and education in particular, sectors it said had been neglected under National.

Today, we start looking at how the health sector was funded under the previous government, and what we can expect next Thursday, as part of a special RNZ pre-Budget series.

Are the accusations National underfunded health true, as the coalition government commits an extra $8 billion to health over the next four years?

Part of that is more than $2bn Health Minister David Clark said was needed to get funding to where it should be.

"If you put in all of that historic underfunding on top of what's needed for the current year, that would be an enormous sum of money and we won't be doing that ... we will meet cost pressures next year and there'll be a little bit of that historic underfunding returned as well."

For capital spending alone, Dr Clark said Treasury has estimated it would cost $14bn over 10 years to get health assets up to the standard they should be, for which the previous government made no allowance.

In an interview before he left Parliament, the former minister Jonathan Coleman defended his record, saying there were always big demands to balance.

Money to keep District Health Boards operating, he said, was a major priority.

"The fact is though you have to make savings, you have to reprioritise savings ... but there are also other initiatives, I mean the $2 billion that went into the care and support workers' settlement last year, that was money really well spent."

In last year's Budget, National allocated almost $4bn in extra funding over four years, saying it was the biggest increase in 11 years.

DHBs received an extra $439 million a year over the four years.

However, just a few months ago health officials warned DHB deficits could hit $225m if nurses accept the pay deal currently on the table - even without that the deficit for this financial year was forecast at $189m.

Dr Coleman said the deficits under National as a proportion of the total budget were no higher than under the previous Labour government.

"This huge focus on deficits is in some ways construing the debate, I mean those deficits are a fraction of the total budget.

"Labour said they'd put $8 billion into health ... they've now got to stump up and do that."

National Party leader Simon Bridges said there was nothing wrong with financial discipline.

"More money doesn't equal better, always.

"I think it is important, call me old-fashioned, to have some tension in the system where you are holding DHBs accountable, you are pressing them to perform."

Simon Bridges.

Simon Bridges said there was nothing wrong with financial discipline. Photo: RNZ / Richard Tindiller

The impact of the 'capital charge'

The most recent Auditor General report on DHBs noted one of the "many costs contributing to financial pressure" on DHBs was the "capital charge" - a 6 percent levy on the cost of any new buildings.

And it said it was "not clear what the charge is actually achieving" and if anything, appeared to be giving DHBs an "incentive to use debt funding".

That was a major problem, former DHB chair and former head of DHB NZ Peter Glensor said.

"It begins to impact on your operating income because you have to pay interest on any money you borrow, plus this is a capital charge, so the minute you build anything new there's this whole series of charges [that] come in on your operating budget."

As an opposition MP David Clark was critical of the capital charge - what is his view now as minister?

"I think it needs a really good look, Treasury admit that it may cause delays in investment that has led to infrastructure getting to being past its used by date; it seems very sensible to me that we look at other ways of doing things."

Agencies including Treasury and the office of the Auditor General have taken the view DHBs have not been spending as much money as they should have on maintenance and upgrades, due to challenging financial circumstances.

In the year to February, DHB capital spending was $225m - $140m below budget.

Last month Treasury said that suggested [https://treasury.govt.nz/sites/default/files/2018-03/is18-hphp-wellbeing.pdf

some DHBs could be deferring repairs and maintenance] to meet operational demands.

It warned there was a risk of an "emerging health infrastructure deficit", which would need extra government funding.

The Auditor General report on DHBs said financial sustainability was an ongoing concern and DHBs were under pressure to deliver more during a period of constrained funding increases.

Peter Glensor said there was no question funding should be increased, as DHBs faced a number of pressures, including an ageing population.

"At the moment it's pretty dire ... there is none or very little fat in the system."

Has the coalition government over promised?

The government has already said it won't fully implement a $10 reduction for GP's visits by July, as promised on the campaign trail, due to funding shortfalls inherited from National.

Grant Robertson.

Grant Robertson Photo: RNZ / Richard Tindiller

Mr Bridges said it was cynically talking up hidden deficits.

"I certainly don't take this, whatever you want to call it, crisis, serious under-funding seriously, it is politicking to lower expectations around the Budget."

Finance Minister Grant Robertson rejected any suggestion the government's over-promised.

"Having come into office the extent of the issues becomes clear, it's all very well to have to have the pre-election update on a spreadsheet but the reality of getting into government and seeing the conditions of our hospitals, of our schools ... that means you have to have a look again at your priorities and your sequencing.

"But the plan that we've got, stands."

Whatever the politics, it is clear DHBs have struggled to operate under past funding levels.

While nominal health funding has been increasing, Statistics New Zealand figures (see graph) show the amount spent on health as a proportion of GDP, has declined since 2009.

The Auditor General concludes the rate of increased funding "levelled off" since 2010.

It said for example, from 2010 to 2015 there was a 9.5 percent increase, compared to a 37.5 percent increase between 2005 and 2010.

The government's already committed to the extra $8bn this term and will do more work before fully tackling the $14bn capital bill.

There are big expectations for next Thursday's Budget, but ministers are already laying the ground work for "phased" or delayed spending, to be able to meet all of the demands, and deliver on the promises made.

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