CTU Media Release

16 May 2010

An analysis of health expenditure released today estimates the Health vote in the Budget will need to be increased by at least $555 million just to keep pace with population growth, ageing, new treatments, new technology, and increases in general costs, pharmaceuticals, and salaries.

The analysis, undertaken by the New Zealand Council of Trade Unions, shows the $555 million estimate is over half (50.4 percent) of the severely reduced $1.1 billion that the Government has said it will allocate to new spending in the 2010 Budget. It is well above the 40 percent of the operating allowance (equivalent to $440 million) which is the assumed allocation for Health in Treasury forecasts such as the December Half-Yearly Economic and Fiscal Update.

“This is only what is needed to stand still,” said CTU Policy Director and Economist Bill Rosenberg. “If we want improvements in the health system or to address existing problems such as persistent deficits in district health boards and loss of services, further increases in funding are required over and above this.”

The Government has indicated it will fund some health and education funding from ‘savings’ across the public sector.

“The CTU and its affiliated health sector unions have made this estimate so that we and the public can judge whether the Health vote announced in the Budget on 20 May provides for improved health services, or is really a cut in those services, or a stand still,” said Rosenberg.

ENDS

Notes to Editors

A brief Q&A follows and a working paper (Working Paper on Health No2) is attached which provides details of the analysis. This paper and two other related documents are available on the CTU web site www.union.org.nz/budget2010

At least $555m more needed for Health to just stand still: Q & A

How much was allocated to Health last year and how much will be needed to maintain the current level of funding?

In the 2009 Health vote, $12,623 million was allocated for operational expenses, plus $355 million for capital expenditure, a total of $12,978 million. Operational expenses will need to rise by 4.4 percent or $555 million (from $12,623 million to $13,178 million) to maintain the current levels of services.

Estimating capital needs is more difficult as the drivers for it are less direct. Increasing the $355 million capital funded in the 2009 Budget by the estimated rise in capital goods costs would add a further $4 million to requirements. That would take capital funding to $358 million (after rounding) and the total Health vote from $12,978 million to $13,536 million ­– a total increase of $559 million.

There was other funding as part of the “Health package” in the 2009 Budget that went to other votes. This was relatively minor and is not part of this analysis.

How much of the Health vote goes to district health boards and how much goes to other services?

In 2009 the main part of the Health vote was $9,699 million to fund district health boards (DHBs) and $2,683 million to fund other health programmes such as provision of clinical training, vaccine programmes, public health and other national health services. It is estimated that DHB funding will need to rise by 4.7 percent, or $454 million, and funding for the other health programmes by 3.6 percent, or $96 million, to maintain service levels.

What about administration costs and any other spending?

The operation of the Ministry of Health, and “other” expenses such as New Zealand’s membership of the World Health Organisation and legal expenses require an estimated further $4 million, taking them to $245 million.

What were the NZCTU’s estimates based on?

The estimates are based on a population increase, including an allowance for the ageing population of 1.8 percent, wage and salary increases (based on most recent settlements) of 4.25 percent for medical staff and 2 percent for other staff, and other cost increases at the forecast level of inflation of 2.4 percent. A 0.8 percent allowance is made for new treatments. The working paper shows how the estimates would change with a variation in any of these values.

Has allowance been made for productivity improvements?

Yes, offsetting these increases in costs we use Treasury’s assumption of a 0.3 percent productivity increase which reduces costs in all areas except international health organisations. Productivity is notoriously difficult to measure in the health sector. We have included the Treasury estimates of productivity in our figures for the purposes of consistency but it is possible that they may either under estimate or overestimate real productivity. The CTU health sector unions are committed to improving what we do in the health sector. We are involved in a number of projects under the auspices of the Health Sector Relationship Agreement (between unions, DHBs and government) which tap into the expertise and experience of our health care members in order to improve the delivery and quality of health care. It is our expectation that productivity will improve, although its results may often be measured in better patient outcomes rather than cost savings.

What about the restructuring of Health as a result of the Horn Report?

We assume that the restructuring will produce no net savings or costs in the 2010/11 financial year. There will be added costs which the government assumes will be absorbed into existing baselines. Cabinet papers on the changes imply that any savings will not appear until the implementation phase is complete. It is not clear how long this implementation phase will take. We assume that savings will not significantly impact the 2010/11 financial year.