2500-3000 more healthcare staff expected to be fired, as Shane Reti blames Labour for a budget deficit that happened on his watch

When will the old trick of blaming Labour end, against all odds and all facts?

Long Read

Key Summary:

Although National increased the health budget by $1.4 billion in May, they used an old funding model to project health system costs, and never bothered to update their pre-election numbers. They were told during the Health Select Committees earlier in the year their budget amount was deficient, but they ignored that. This is likely to have resulted in a significantly underfunded health budget. In this regard, they have form. Simeon Brown’s pre-election road budget is estimated to be out by 100% according to Waka Kotahi.

And it has been clear since at least April, that the Government has been telling Health NZ to cut costs dramatically - hospitals were asked to cut over a hundred million and to freeze hires, stop hiring local graduate nurses, cut staff, and cancel / defer technology, and investment projects.

Health NZ’s Board had already mostly resigned and left, leaving only two, as I started reporting on last week. It was embarrassing for the Government. Reti didn’t front questions about it, leaving Seymour to answer.

Yesterday’s latest move to remove the Board and put in a ‘Commissioner’ that wants to run health care “like a business” and has been called “top-down, controlling and destructive” is perhaps exactly what Luxon and Reti had in mind as they seek to strip out 2500 - 3000 more staff and budget from NZ Health.

Finally, despite Luxon and Reti’s rhetoric, analysis from healthcare specialists shows that National’s per capita spend on health in NZ, and projection over the next four years is, the lowest this century for NZ or comparable countries.

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Takeaways

Today, I watched the Luxon / Reti press conference on the extraordinary removal of Health NZ’s board, so you didn’t have to.

Here are a few key takeaways from the press conference.

1. Reti expects 2500-3000 more Health NZ staff to be fired. Shane Reti called them back office staff. That term is nebulous at best, but under this government, it’s become manipulative and harmful. Under National, Te Whatu Ora “back office” roles include policy, research, and suicide prevention. There is a place for efficiency anywhere, but this appears to be a cost cutting exercise from a government that has rapidly lost control of its department and budget.

2. The $1.4bn deficit that Stuff blared haplessly in its headline occurred on the National Government’s watch. Thomas Coughlin confirmed that in March/April of this year, MPs were reporting no deficit for Health NZ. Reti claims previously projected savings didn’t eventuate, and only came to $54mn. After the budget announcement, in the space of 3.5 - 4 months Reti is calling out a $1.4bn deficit, based on an operating difference of $130mn a month i.e. a difference between Health NZ spend and Health NZ’s allocated budget.

   That’s a -$2bn net difference from their April numbers and an extraordinary level of incompetence. Reporters asked if the National government was going to take responsibility for that. Credit to Coughlin for adding the nuance in his questions and article. Stuff driving right down to the bottom of the barrell in comparison for a copy and paste of the Government’s claims.

3. Reti kept hiding behind a few phrases, including “operating model,” and “Auditor General,” saying no-one knew what was happening until the deficit “miraculously” appeared. I find it very hard to believe that any large organisation with Te Whatu Ora’s history and operating systems was not accruing and reporting costs.

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   We know for a fact that the govt has been putting significant pressure on Health NZ over the last few months to cut staff, freeze hiring, ask for money, freeze nurses, turn patients away, cut millions of dollars across hospitals, as GPs reach boiling point and Reti ignored calls from doctors for additional funding and to continue hospital renovations he put on hold.

   We also know for a fact that they were told about the significant cost pressures related to salaries, staffing, elective surgeries, backpay owed etc. was significant and needed addressing.

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   It’s far more likely that they underfunded Health significantly, realised it, then tried to order cuts to stem the difference. But as health practitoners increasingly sounded the alarm, and most of the Health NZ Board members resigned and left, this is the ‘solution’ they came up with -

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   Invent a crisis, blame Labour, and buy themselves time by pretending they are helping to solve a problem they created in the first place. Meanwhile the real issues are ignored - chronic staff shortages, failing practice and funding models, GP wait times and capacity, doctor numbers and training, crumbling hospitals, nursing shortages, increased infrastructure deficit, mental health crisis, and falling patient care.

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   I also welcome any media outlet to ask the Government where the billions Labour committed to hospital builds has gone.

4. When asked what specifically caused the budget deficit, Shane Reti, claimed it was because of a disconnect between front line staff and decision makers, and something about an operating model. Unless he is saying that their systems are all broken, there is no way an organisation chart change causes a $1.4bn deficit in your books.

   Labour’s Chris Hipkins:

   "This year's Budget didn't contain enough funding for health. The consequences of that are now becoming evident. And I think New Zealanders can see that actually, the situation in health has all emerged under this government's watch. The current issues that they're talking about today, all happened during their time in government."

   He said it was just spin, and a desperate attempt to cover up the inadequate funding for health in this year's Budget.

5. Reti flatly denied there is a hiring freeze in Health NZ despite innumerable accounts of hiring freezes and critical staff shortages across the system. He doubled down on that lie and only one media representative politely mentioned the discrepancy.

6. Reti claims he was suspicious of Health NZ from the early days, and appointed a ‘Crown observer’ in December 2023. That’s a very interesting way of approaching working with your own government department.

7. Reti was asked how this would help the low morale and the critical nurse shortage e.g the current ~500 nurse shortage in mental health. He started blabbering randomly with technical terms including AI, telehealth, future models but didn’t answer that question. Once again, reporters let it slide.

8. Reti and Luxon both looked away when asked if they supported Te Whatu Ora’s CEO, before giving a non-response.

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Context

Here’s some other context that might be useful:

1. Nicola Willis borrowed $12bn more to pay for tax cuts, leaving New Zealand with one of the highest deficits on record, a peak 45-46% govt debt ratio, and a very thin razor edge. When they did the u-turn on funding cancer drugs, they borrowed another few hundred million on next year’s dime. Given their desire to be seen as the party of fiscal responsibility, I can imagine unexpected spend, per their spreadsheets, will make them very antsy. Reti’s incompetence in underfunding Health NZ and then blaming it on Labour is a master stroke of political manouvering, supported by news media like Stuff, but is poor form.

2. What Reti calls regionalisation was already happening. Ditto with standardisation and the like. Select committee meetings from earlier this year involved discussions around those efforts

3. Labour’s Chris Hipkins said these actions showed Luxon is “desperate”. The Health NZ Board had pretty much left of their own accord with one of them, a former National Party MP saying it was clear she would not be able to make the changes she felt were necessary. But maybe it’s a case of never let a good opportunity go to waste.

4. Interestingly, when Reti is unable to answer a question credibly, he tends to go into a swirl of technical terms as a defene mechanism. He did the same on Q&A with Jack Tame.

   Luxon’s tell is getting fired up about what’s “best” for New Zealanders. The best defence is offense. Watch for these patterns.

5. Labour’s Health spokesperson Dr Verrall confirmed suspicions about the level of funding. Costs have gone up significantly. Demographics have shifted. National underfunded their 2023 road budget by 100% blaming factors such as inflation. This level of financial competence is quite extraordinary.

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   To evaluate what we are at looking here - ACT promised GPs 14% funding last year. GP practice costs rose by 14%. Now the Govt is giving them 4%. That 10% needs to be accounted for. In the case of GPs, the Government is telling GPs to retrieve the difference from sick Kiwis.

   But in the case of Health NZ, that budget shortfall is publicly being blamed on Labour, and National will use this as pretext to slash further into our public health system and appoint a man who wants to run the health system as a business.

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   Verrall said the problem stemmed from the Government’s decision not to put enough money into health in the 2024 Budget. The Government topped up the Health budget by $1.4 billion at the Budget.

   The $1.4b figure was calculated as an appropriate funding increase before the election, but Verrall noted that it was rendered out of date earlier this year, when Health officials appeared before Parliament’s select committee.

   She said it should have been updated at the Budget to reflect the latest demographic trends. Instead, a lower figure was used.

   “The deficit Te Whatu Ora has is a result of them being underfunded. At Health Select Committee we heard the estimate for how much the health system needed was inadequate.

   “The Government is trying to pretend this is something to do with Health NZ governance. It is to do with their Budget,” Verrall said.

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6. Not to forget his marketing background, Luxon dropped hints about how he and his Government are putting a lot of money into our health system - record amounts - and expect results from it. He did that during yesterday’s press conference too.

   Yet analysis shows that while on a numerical level, there are increases, on a per capita basis it’s extraordinarily low. In reconciling the different statements “Health gets $16bn over six years - You're going to see a lot more money being spent on healthcare in general” from the Government, and doctors declaring the budget is “barely enough to keep the lights on”, Peter Huskinson wrote an excellent essay that was featured in NZ Doctors magazine and Pharmacy Today. Well worth a read.

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   The summary version of it is that while real dollar terms appears high, in fact, on a per capita level, this Government has reduced health spend to a level not seen “this century in New Zealand or comparable countries.” And that will continue into the next four years.

   For the avoidance of all doubt, that is shameful, and my piece Crashing New Zealand’s Health System is not the way to prosperity, Prime Minister outlined what some of those impacts mean.

   Huskinson elaborated:

   The data shows an 4.7% annual increase in the government health spending per person on average, after accounting for inflation up to 2007-8 under Helen Clark.  Growth reduced by two thirds to a more modest 1.3% over National’s last period in government under John Key and Bill English, but nonetheless growth continued.

   If we project using Stats NZ population figures and the reserve bank's May inflation forecast, the recent budget sees the amount of day to day spend per person on health next year at current prices reduce by 3% to $4,686 per person; $143 per person less in real terms. 

   The new government’s reduction in real terms spend per person in the next twelve months, and the treasury's current forecast to remain below 2023-24 levels in real terms per person for the next 4 years, is well below anything achieved this century in New Zealand or comparable countries. 

Graph credits: Peter Huskinson

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Conclusion:

Another step towards corporatisation.

Dr Lester Levy, ex Auckland Transport Chair and loyal National Party friend. Health NZ’s Commissioner.