Minister of Health cannot have his cake and eat it 16.6.10

Minister of Health Tony Ryall’s statement in Parliament yesterday, which implied that the Health budget is both keeping up with inflation and demographic change and will deliver “massively improved front-line services”, does not withstand scrutiny, says the CTU.

A pre-Budget CTU analysis (available at http://union.org.nz/health-working-papers) showed that a $512 million increase in operational funding for Health was needed simply to keep up with an estimated 2.4 percent rate of inflation and an increased and ageing population. However, Treasury and Reserve Bank forecasts of inflation in 2011 now predict CPI is likely to rise by between 3.3 percent and 3.9 percent excluding the increase in GST, adding between $34 million and $58 million to the “stand still” requirement.

Cost shifting as a result of the cuts in ACC entitlements will also erode the Health budget. The Budget included new services and restructuring costs of $158 million which will add a further $118 million, even allowing for productivity gains, bringing the total shortfall to between $152 million and $176 million.

“There is no free lunch,” said CTU Economist and Policy Director Bill Rosenberg. “If your boss gives you a pay increase just big enough to cover the increased cost of living you can’t start doing things you couldn’t afford before. If you did, something else would have to give. The Health budget shortfall can only be met by some combination of cuts in services, deterioration in quality of services, increased user charges or increased District Health Board deficits.”

Notes

The Budget provided only a $508 million increase in operational funding (plus $4 million for more capital expenditure). Treasury and Reserve Bank forecasts of inflation in 2011 now show that instead of 2.4 percent, CPI is likely to rise by between 3.3 percent and 3.9 percent excluding the increase in GST. That would add costs of between $34 million and $58 million, bringing the “stand still” requirement for additional funding to between $546 million and $570 million. In addition there are expected to be added costs moved onto the Health budget as a result of the cuts in ACC entitlements currently being implemented. Wage costs may also increase.

The Budget also announced new services and restructuring costs of $158 million which, even allowing for productivity gains, would add a further $118 million to the costs of the Health system. The total shortfall after including the higher inflation costs is therefore between $152 million and $176 million.

In answer to questions in Parliament from Ruth Dyson on 15 June 2010, the Minister of Health Tony Ryall stated: “The advice that one has received from the Ministry of Health is that in order to keep up with inflation and a demographic change the health budget would have had to increase by $509 million. In fact, in this Budget the increase is $512 million. I advise the member opposite that this is the highest percentage of GDP ever invested in health by any Government in the history of this country. For that, we are getting massively improved front-line services.” The additional $512 million is made up of $508 million in operational expenditure and $4 million in capital.

For further information contact:
 
Bill Rosenberg, Economist and Policy Director, CTU
04 802 3815 / 021 637 991