Smoke and mirrors in Budget for public health system?

Is the New Zealand Government’s Budget for the 1 July 2020-30 June 2021 financial year smoke and mirrors for the funding of the public health system or is it just a misunderstanding?

First impressions were encouraging. Total funding for the 20 district health boards for community and hospital care increased to $15,274 million from $13,980 million in the 2019-20 financial year. In other, words a 9.2% increase. This is massive by any stretch of the imagination.

To put the size of the increase in further perspective, in the 2019-20 financial year funding DHBs made up 70.4% of total Vote Health. Much of the rest of Vote Health is spent on Ministry of Health funded national services. It also includes the costs of the Ministry itself. For this financial year the proportion of Vote Health spent on DHBs increases by 5% to 75.4%.

This looks great. To begin with a real 9.2% funding increase would have meant that DHBs would not have operating costs deficits by the end of the 2020-21 financial year. Operational deficits don’t carry over to the following year. These deficits are a crude measurement of underfunding.


But is it right to compare what is budgeted for in one year with what was budgeted for the previous year when there are deficits taking operational costs well above budget? The Vote Health Estimates are not helpful to compare one year’s budgetary allocation with the previous year’s actual costs.

To work actual costs out the best indication is operational deficits. Unfortunately, the final deficits for the last financial year have yet to be report. To get some understanding of this one can go to the final report of the Heather Simpson led Review of the Health & Disability System released earlier this month.

Sourcing the Ministry of Health the Review forecast the deficits to be an estimated $559 million.  When added to the budgeted funding of $13,980 million the actual costs increase to $14,539. Suddenly the 9.2% increase shrinks to 5.1%.

There is some suggestion informally from DHBs that the increase may end up being even lower to something between 4-5%. Whether or not this informal advice proves correct, former Health Minister David Clark was advised that some DHBs would continue to have deficits for this financial year albeit lower than last year’s. Dr Clark was reported to be both genuinely surprised and alarmed.

Funding as a kindness KPI

However, continuing deficits are unsurprising given the double-whammy of sustained underfunding of DHBs largely by the former National led government and continuing unstoppable cost drivers, specifically increasing acute and chronic illness admissions due to factors such as a growing population, an aging population (comorbidities and frailty), and the extent of poverty related illness. It is not for nothing that the rate of public hospital acute admissions is higher than the rate of population growth.

There is no excuse for the government of the day not funding DHBs to meet known operational cost (there is enough data on this) and unmet health need. The latter is not fully known but there is some information about its extent around.

Whether Vote Health in the Budget for 2020-21 is smoke and mirrors or a misunderstanding, how we fund our public health system is a key performance indicator of how genuine our claimed kindness is.

3 thoughts on “Smoke and mirrors in Budget for public health system?

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