As health looks like becoming a political battleground in the Budget, Treasury has released a series of documents which question the management competence of the Ministry of Health.

The documents come at the same time as the Combined Trade Unions (CTU), Labour and the Greens say health is seriously underfunded and according to Labour’s Finance spokesman needs at least another $600 million in the Budget simply to keep up with population pressures.

But Health Minister Jonathan Coleman is promising to increase expenditure.

“Much to the distress of the colleagues I have been competing with in the Budget meetings there is going to be even more in this Budget,” he told the recent National Party conference in Wanaka.

But a Treasury report sent to Finance Minister Bill English on February 29 found some problems within the Ministry. Some of these related to the Ministry’s decision in 2014 to spend to double the size of its Molesworth Street building. (The Wellington Property Consolidation.)

The Treasury report said the Ministry bid for $18 million of new funding in the 105 Budget  to cover the fit out costs for the building “despite having informed Ministers that this would be funded from its balance sheet when approval was sought.”

“The Director-General (of health)  initiated a PriceWaterhouseCoopers (PWC) review of the issues surrounding the property consolidation and a broader review of financial management systems within the Ministry.,” said Treasury.

“These reviews confirmed the lack of coherent financial controls within the Ministry and a need for substantial change.”

A consequence of this review was a restructuring of financial management within the Ministry which saw Treasury lend its own Chief Financial Officer, Fergus Welsh, to be acting CFO at the Ministry. 

“We think this provides a real opportunity to strengthen financial management across the health system,” said the report. 


On health spending overall, Treasury, in another report on March 8 noted that Core Crown expenditure on health increased to $15.6 billion for 2015/16.

“Growth in health spending has slowed over the past six years, but without any major structural  changes to the health system or the range of services provided.” 

Labour disputes that claim and Mr Robertson yesterday said that Infometrics had calculated that over the past six years, National had left the health service $1.7 billion short of what was needed just to stand still. 

“In this Budget the Government will need to commit at least $600 million to meet this year’s cost pressures, let alone make up for what has gone before,” he said.

“This will be a long road back, and we will need to be innovative and focused to get us back to the health system that we should be proud of.”

But while Treasury was ready to defend the funding it was not prepared to defend the way it had been managed.

“In the 2014/15 financial year, there was a decline in financial performance in spending through district health boards (DHBs), with larger than anticipated deficits,” the report said.

“Latest projections for 2015/16 indicate that the total deficit number should improve from last  year, but significant risks remain.

“There is little evidence that the Ministry has an overarching strategy at the centre for  managing financial sustainability over the medium-term.” 

And Treasury raised a question about Dr Coleman’s management of his Ministry. 

“We think the Minister/Ministry can do more to drive the sector’s direction. 

“It is still unclear at this time what the Ministry’s role will be in the new Health Strategy, which is yet to be finalised.” 

In fact, the Strategy was finalised a month later and included a proposal devised by former Treasury Secretary Murray Horn to radically overhaul the way funding is allocated to health.

He suggested that funding be allocated based on three main criteria: 

  • Focus on results or outcomes of value to consumers:
  • Take a longer-term and broader “investment approach” to defining value when that approach is likely to yield substantial benefits.
  • Encourage stronger performance from funders and providers:

But the strategy was published on April 18 — only a week before signed off the Budget – which would suggest that its recommendations were unlikely to feature in this year’s Budget. 

Health Minister Coleman is one of the emerging stars of the Key Cabinet.

There is a school of thought which says he could eventually replace Key as Leader. 

But this Budget looks like being a real test for him – both regarding delivering more health services but also whether he can get the management of the Ministry of health under control.