A Budget for the status quo

Lyndon Keene | Health Policy Analyst

Before this year’s Budget was announced, ASMS estimated that well over $2 billion of additional health funding would be needed for the coming year just to maintain current service levels and pay for new initiatives.

The additional funding is needed to cover costs such as inflation, wage growth, pay equity agreements, demographic changes, lockdown service backlogs, new initiatives and addressing base funding shortfalls indicated by a decade of DHB deficits.

In addition, there are long-standing issues to be addressed, including:

• an estimated 450,000 people with unmet need for hospital treatment

• a further lockdown backlog of patients needing treatment

• an estimated 1.2 million adults with one or more types of unmet need for primary care

• health inequity, with significant gaps in life expectancy and other key health status indicators, by ethnicity and deprivation level

• overwhelmed specialist mental health and addiction services • across-the-board staff shortages

• lack of general hospital beds

• more than 40% of adults have an unmet need for dental care due to cost

• poor access to publicly funded medicines when matched with comparable countries

• poor cancer survival rates when matched with comparable countries

• high levels of potentially avoidable hospitalisation rates

• dilapidated hospital buildings and equipment.

New funding

On Budget Day, Vote Health received $1.8 billion of additional funding for 2022/23, but more is to be added to cover the costs of pay equity agreements as they were approved by Cabinet during the course of the year. Broadly speaking, aside from a few areas targeted for new funding, this looks like a status quo budget.

The specific areas that received additional funding should see at least some first steps to improvement, but in many cases, they may be barely discernible.

Broadly speaking, aside from a few areas targeted for new funding, this looks like a status quo budget.

Māori health services, including funding to support the development of the new Māori Health Authority, received $168 million for 2022/23, although only $57 million of that is genuinely new funding – $7 million is an adjustment for inflation and population change. In real terms, then, it is a $50 million increase, amounting to about 0.2% of the total operational budget, excluding Covid-related funding.

Additional funding for Pharmac, which was wrongly reported in the media as a “massive” 20% increase, included $71 million for this financial year (6.4% increase) and a further $49 million added to that in 2023/24 (a 4.1% increase on 2022/23 funding). Given domestic inflation is forecast for the next two years at 5.2% and 3.6% respectively, and pharmaceutical cost increases are generally higher, this looks like mostly an adjustment for inflation. Pharmac’s budget bid in 2020/21 suggested an additional $200 million a year was needed to cover cost increases. Addressing the shortcomings identified in the recent Pharmac review will require a greater funding boost.

Intensive care units are budgeted with an additional $83 million this year in a curiously termed “proposal” to resource additional critical care beds, rising to $140 million next year. Assuming the proposal becomes reality, this should at least lift New Zealand off the bottom rungs of the OECD rankings for ICU beds per capita, but bear in mind New Zealand has a long way to go to reach even an average OECD ranking.

Specialist mental health and addiction (MHA) services get an extra $9.4 million this year (0.5% of the $1.8 billion currently spent on MHA services annually), rising incrementally to $50 million of additional funding in 2025/26 (3% increase). A further $14.3 million of extra funding will go to expanding support for children, rising to $29 million by 2025/26. The Mental Health Commission welcomed the increases but warned that “[with] the system still under extreme pressure, more is needed”.

‘Health workforce development’ (not necessarily new staff) gets $11 million this year, rising to $22 million in four years’ time, targeted to community-based services and mostly for Māori services. There is no recognition of the substantial hospital workforce shortages. Stretched air and road ambulances receive injections this year of $23 million and $32 million respectively, but this still falls well short of the fully funded model that has been called for in a public campaign.

Big ticket items

Years of under-investment in health infrastructure led to a $14 billion fix-it bill in 2018. Budget 2022 provides $1.3 billion over four years in capital funding for health infrastructure, which will support both the delivery of new infrastructure projects and preparatory work on other projects. Regardless of what happens in the health system, the growing rates of health service need above population growth rates are likely to continue while many New Zealanders remain living in poverty. Suffice to say the Salvation Army was “underwhelmed” by this Budget, giving it a six out of ten. So, while the additional $1.8 billion in this year’s health budget (with more to come) is a hefty sum, it needed to be to cover some particularly big-ticket items, including high inflation, large pay equity settlements and neutralising historical debts. Despite the funding boost, it will not on its own provide much relief from the main long-standing pressures on the system and those being experienced by frontline staff. Several very substantial health budgets will be needed to do that in the coming years.

Despite the funding boost, it will not on its own provide much relief from the main long-standing pressures on the system and those being experienced by frontline staff.