The buck stops over there

Analysis: The revelation that New Zealand’s health system is bleeding $130 million a month – when it was planning to turn in a surplus – raises uncomfortable questions for Labour, senior public servants and new government ministers alike.
It was a bombshell announcement on Monday evening that put an end to months of speculation. Observers could tell that there were financial problems in Health New Zealand / Te Whatu Ora, as reports of hiring freezes on back office staff emerged as early as April and the Government commissioned a new board member with financial expertise.
The scale of the issue – a $500 million forecast surplus for the 2023/24 year dwindling to just $54 million, and a looming $1.4 billion deficit this year – was certainly a surprise.
Health Minister Shane Reti’s narrative is simple: Yes, Health NZ broke even in its first year of operation and ran a surplus under Labour, but the deficit that has arisen since the election is due to his predecessor’s failure to impose adequate performance monitoring and financial sustainability measures.
In other words, the deficit would have happened regardless of who won the election. Moreover, Reti says, he and the Government can’t be held accountable for failing to notice it because of the lack of transparent financial reporting. That’s an issue that’s also been identified by the Ministry of Health on a regular basis since the establishment of Health NZ, as well as the politically neutral Auditor-General earlier this year.
Labour’s health spokesperson – and former minister – Ayesha Verrall was quick to hit back. She argues the deficit only arose since the Government took office and represents the success of the health system in hiring more nurses and other frontline staff. The deficit forecast for this year, meanwhile, is due to the Government underfunding the system in its first Budget.
As evidence, she points to testimony from health officials at a select committee after the election, where they said pre-election forecasts of their Budget needs were underestimates. When the Budget was finally revealed, it only provided the health system with the money called for by those pre-election forecasts, rather than an updated figure that officials had presumably drawn up.
The reality is that there is likely plenty of blame to be shared around.
The absence of financial monitoring frameworks at Health NZ was a glaringly obvious problem, repeatedly raised to Labour by health officials and the then-opposition. It’s certainly possible that this made it more difficult for the new Government to get a clear picture of the health system’s financial situation.
At the same time, however, this is one of the first issues the Government has faced that has arisen entirely under its watch. Unlike, say, the financial issues at Kāinga Ora, which were long-running, Health NZ was running a surplus when Labour left office and continued to do so until February of this year.
When the deficit was noticed and reported to ministers in March, they made no public statements about it. In fact, it went unmentioned in April’s Budget Policy Statement, in the Budget itself in May and in scrutiny week hearings in June. As Reti received more and more briefings about the increasingly dire state of the health system’s books, he took small actions (the new board member, the hiring freeze) that flagged there was an issue but never disclosed the specifics.
Reti has finally opened the books up in July by announcing the whole board will be sacked and replaced with a single commissioner, when he has known about the issue for the majority of this Government’s time in office.
Then there’s the detail of what Health NZ has actually overspent its budget on. Contrary to Verrall’s speculation that the deficit is due to success in hiring new frontline workers, Reti said the health system had blown its budget on back-office staff and consultants and contractors since the election.
The Government, which was elected partially on the refrain of “medical doctors, not spin doctors”, is at risk of bankrupting the health system due to hiring too many back-office workers. Reti attacked his predecessors for their hiring of non-frontline workers but now claims he shoulders no responsibility for the hiring decisions made under his watch.
There was a joke around Parliament as the previous government entered its second term, that it was increasingly ridiculous for Labour MPs to blame problems on the “nine long years” of the prior National government, after having themselves been in power for three years already.
This Government is not at that stage yet. Just eight months in, many of the issues that arise will be fallout from Labour decisions. But we’re now getting to the stage where some are due, at least in part, to coalition mistakes and errors.
It is critical for the Government to begin to acknowledge when it has erred, rather than reflexively point the finger elsewhere, or it will rapidly lose the trust of the public that elected it.