NZ’s Health Spending Isn’t Enough For Current, Let Alone Future Needs – We’ve Calculated The Shortfall

Tim Tenbensel, University of Auckland, Waipapa Taumata Rau; Bill Rosenberg, Te Herenga Waka — Victoria University of Wellington; Jacqueline Cumming, Te Herenga Waka — Victoria University of Wellington, and Paula Lorgelly, University of Auckland, Waipapa Taumata Rau

Health usually accounts for one of the largest expenditures in annual budgets, as it did in Budget 2026.

But the focus on year-on-year increases does not tell us how New Zealand’s health spending compares historically or with other countries – and most importantly, whether it is on track to meet future health needs.

We argue that without major changes to current policy settings and budgetary processes, there is no chance New Zealand can pay for the current and future health system it requires.

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We recently assessed the adequacy of government health spending by comparing it historically and with other countries and found expenditure fell well behind comparable countries during the 2010s and has not caught up since.

Recently, the Ministry of Health provided the latest required expenditure data to the OECD and the true level of government funding in the 2010s was even lower than we thought.

How New Zealand fell behind on health spending

In 2009, government expenditure on health, including for Accident Compensation Corporation (ACC) cover, was 7.4% of GDP. By 2018, it had fallen to 6.6%.

These figures are likely overestimated by at least 0.5% because New Zealand is the only country among those we compared it with where private health expenditure has a GST component and, to account for this, a “fictional” GST is added to tax-funded health expenditure.

Across 16 comparable countries, public health spending rose from 7.5% to 7.7% over the same period. No other country shrunk its health expenditure as a percentage of GDP to the extent New Zealand has.

Taking a compatible approach using a different dataset, we calculated the funding shortfall for 2009 to 2018 to be around NZ$33 billion, taking into account population growth and demographics. This is equivalent to a whole year of health spending.

This means New Zealand underinvested in the health system by about 10% a year for ten years. While there was an increase in health expenditure in the 2020s (even with COVID costs factored out), it has not filled this hole.

This underinvestment is why there are widespread staff shortages and patients find it difficult to access GP services and experience longer waiting times for specialist and hospital services.

Budgets don’t factor in future costs

The $5.5 billion of increased health funding announced in Budget 2026 (over four years) won’t do anything to mitigate the damage from the 2010s.

Over the next four years, this is around $420 million less than what’s required to deliver today’s range of services, once population growth, rising costs and levels of need are factored in.

Treasury has repeatedly advised that health costs will increase due to:

• A growing population
• ageing demographics, with older people needing more services and more people living longer with multiple chronic conditions
• technological developments, including new diagnostic tools and pharmaceuticals
• and health labour costs rising faster than general inflation because New Zealand is competing with other countries that pay more for skilled staff.

Currently, few of these future spending needs are effectively factored into budget processes.

New Zealand could fall even further behind

Given New Zealand’s ageing demographics, health costs associated with long-term conditions such as type 2 diabetes and dementia are projected to double or triple by 2050.

The demand for community-based and specialist mental health services continues to increase rapidly. There is no short, medium or long-term plan for meeting these costs, nor prevention approaches to mitigate them.

A recent Infrastructure Commission report shows New Zealand has fallen considerably behind and is playing catch-up.

The commission estimates New Zealand should be spending 0.4% of GDP a year, double the 2010-2022 historical average of 0.2% of GDP, for these needs at about $1.9 billion in the coming year.

Māori and Pacific communities are particularly affected by the current levels of health inequities. Both Māori and Pacific populations develop long-term conditions up to 15 years earlier than Europeans and often receive poorer quality care.

New Zealand must tackle these inequities more seriously if we are to improve productivity and quality of life.

Some future pressure could be relieved by longer-term investment in primary and preventive care and hauora Māori services. We estimate this to cost at least $6.6 billion in the short term, but argue it would save on high-cost hospital services in the medium term.

However, such savings alone wouldn’t be enough to achieve fiscal sustainability over the next 40 years.

The UK’s health system is facing similar pressures. Health economists advised publicly funded health expenditure needed to lift to 9.9% of GDP by 2033/34 to address future challenges and maintain current levels.

Government health expenditure in New Zealand is currently 8% of GDP (including ACC). It is plausible it could reach around 8.5% by 2034 if recent trends continue. The shortfall between 8.5% and 9.9% of GDP is more than $6 billion a year in today’s dollars.

However, we need to add a caveat. Spending significantly more on health will not guarantee better health outcomes or value for money.

Australia spends more on health than New Zealand, but some of that extra spending is of questionable value for money. An example is the public funding of the private insurance rebate.

However, when the UK lifted spending to the European Union average in early 2000s, after falling behind in 1990s, health outcomes improved.

If we want a health system comparable to what New Zealand (imperfectly) delivered historically and what similar countries provide, we need health spending to reach 9.9% of GDP within the next decade.

But that will require tough decisions as it can only be paid for through significant increases in government revenue or spending cuts in other areas.

Tim Tenbensel, Professor of Health Policy, University of Auckland, Waipapa Taumata Rau; Bill Rosenberg, Visiting Scholar in Economics, Te Herenga Waka — Victoria University of Wellington; Jacqueline Cumming, Professor of Health Policy and Management, Te Herenga Waka — Victoria University of Wellington, and Paula Lorgelly, Professor of Health Economics, University of Auckland, Waipapa Taumata Rau

This article is republished from The Conversation under a Creative Commons license. Read the original article.