“Our ageing society. Implications for the Tax Working Group”

Photo / Getty Images

A recent Herald editorial is headed “Pension not enough even for ‘no frills’ retirement” and concludes “The future of an ageing New Zealand needs a lot of close attention”. Could this be a topic to exercise the Tax Working Group (TWG)?

The background paper prepared for submissions to the TWG outlines a number of broad “challenges” to the future tax system. The first of these is “changing demographics, particularly the ageing population and the fiscal pressures that will bring”. To date this topic has been little canvassed in public debate on possible future tax changes. Perhaps the Herald editorial can start this.

The steady ageing of our society is putting pressure on our two most substantial taxpayer-funded programmes – superannuation and health. On top of this demographic pressure there is the stress we have put on ourselves by relying so substantially on personal taxes to fund these large items. New Zealand is heavily reliant on personal taxes in its revenue system; while the average in the OECD is less than a quarter, in New Zealand it is nearly 40 per cent.

With our “pay-as-you-go” (PAYG) superannuation system we have assumed that the payments of taxpayers and the receipts of beneficiaries will more or less balance out. With ageing this assumption becomes increasingly untenable as the ratio between contributors and beneficiaries increasingly gets out of balance. Indeed, the system looks increasingly like a Ponzi or pyramid scheme where current taxpayers are supporting a set of financial arrangements that they are unlikely to be able to benefit from when they come to retirement age.

With health, ageing is also placing pressures on current PAYG arrangements. Again we have a system of inter-generational transfer that is becoming less viable as the ratio between contributors and beneficiaries increasingly gets out of balance. In particular, the demands of long-term and social care, the multi-dimensional nature of health problems for older people, and the fact that a disproportionate amount of health expenditure is committed in the last year of a person’s life are all starting to weigh heavily on current provision.

In consequence we have massive unfunded future liabilities associated with our state superannuation scheme and an annual wrangling exercise with the health sector. Yet, at the same time, we also have the rudiments of pre-funding and tagged social insurance schemes for both sectors – KiwiSaver and ACC respectively – which we could be in a position to formalise and develop. And we also have the example over the Tasman, where the Australians have a levy-based superannuation scheme and a universal Medicare based on an income levy, together with their National Disability Insurance Scheme (NDIS). 

We could, building on Kiwisaver and ACC, establish twin social insurance schemes for future superannuation and health respectively. These would be based on actuarial estimates of the required rates on a regular basis, be set up at some arm’s length from short-term electoral politics, and underpinned with regulations and structures to ensure their durability, efficiency and flexibility for future generations. This would permit income and company tax rates to lower, but in part be replaced by actuarial levies on employees and employers.

Taking the pension first, KiwiSaver and the Superannuation (Cullen) fund should be considered together so that we can progressively transition our state pension scheme from a Defined Benefit to a contributory scheme with a guaranteed benefit (as currently offered). Individuals would be free to save more than required for the basic superannuation, but the role of KiwiSaver and the Superannuation fund would in the first instance be to ensure that no citizen of New Zealand with the requisite residential qualifications would fail to gain the current “National Superannuation” pay-out (although necessarily adjusted for future living costs).

As for health, ACC should be extended to cover illness and social care, but with the income support element taken out and placed in an entity equivalent to the Australian NDIS. ACC rates vary by industry risk for injury. This could be extended for illness to other harm-inducing industries such as alcohol, tobacco and sugar, which could be levied in proportion to their estimated impact on the health budget (this semi-actuarial work has already been done in the Ministry of Health’s “Health Loss” report of 2016). This change would be carried out progressively, and individuals could still, as they do now, take out private insurance cover over and above their social insurance. 

Pensions (superannuation) and health are two very large components of any developed country’s budget. Historically, these were introduced in response to clear “market failures” in a pragmatic fashion alongside other budgetary items and we can see in retrospect that they are a form of inter-generational risk pooling. As such, these can be characterised as inter-generational transfers that have a strong insurable element about them.

As pragmatic responses to social need of an earlier era, these arrangements are starting to look archaic and dangerously vulnerable financially. We should now build on two current New Zealand pre-funding schemes – KiwiSaver and ACC – that provide the rudiments of social insurance but that have to date not been allowed to meet their full potential, even while we have well-established models across the Tasman. These schemes would provide budgetary certainty for their respective sectors and communities, they would improve the national rate of saving, and they would allow income and company taxes to reduce accordingly.

Peter Davis

Emeritus Professor in Population Health and Social Science, Department of Statistics University of Auckland

Published in The New Zealand Herald, 7th August 2018

ADHB Health and Social Care – “Closer to Home”

Photo: Warren Buckland

According to a recent news item, District Health Board (DHB) deficits are set to expand to around $500 million for the year, a substantial sum on a total annual health budget of about $20 billion. (https://www.tvnz.co.nz/one-news/new-zealand/health-boards-deficits-forecast-hit-508m)

Perhaps this is to be expected after a decade of a funding squeeze, and the current government is to be applauded for its larger Budget allocations to health. 

But is the money going to the right places in the health system? 

Hospital services seem to be the main beneficiaries, and yet there is a very substantial and important primary and community sector that has lagged well behind in funding and staffing. This points to a weakness in our funding system which the DHB model seems unable to overcome – the neglect of primary and community services.

This is not only an issue about the funding system. It also relates to a delivery model. We need to become less reliant on costly hospital structures, and move to a model that can provide the same services – but “closer to home”, at the level of family doctor, health centre, and other services that are intermediate between hospital and community.

This approach is already working overseas. For example, Denmark – a country of a similar population size – has reduced the number of hospitals over the last 20 years from 98 to 32. This involved moving to a greatly-expanded primary care system (https://www.afr.com/work-and-careers/management/why-denmark-is-reducing-hospitals-while-we-are-building-more-20190219-h1bg9d). Another example: the United Kingdom’s NHS uses over 3 times the number of acute hospital bed days for over 65s compared to the Kaiser Permanente in the US, a large non-profit, primary care-led organization that uses active clinical management by cooperating specialists and primary care doctors (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC286244/).

As it is, apart from emergency and acute admissions, most of our public hospitals have greatly reduced operational capacity at weekends, which suggests that some reallocation of services outside hospital walls is possible. So, how could this work in practice? I suggest that we can:

  1. Improve the capacity of the primary and community sector by grouping up, combining multidisciplinary teams, enhancing the deployment of upskilled practice nurses, and providing local diagnostic facilities together with intermediate-level services such as observation and social care respite beds, and care delivered in the home.
  2. Reduce hospital admissions by targeting disorders that can be treated in the community and by providing a comprehensive, affordable “after-hours” care service.
  3. Move those in-hospital procedures that can be so treated to a day-stay approach, and, where possible, shift outpatient visits either to family doctors or to mobile and “virtual” specialist and nursing services.
  4. Develop common contract terms and shared clinical pathways across the sector, and reduce inter-sector competition and boundaries to increase the availability of flexible solutions.
  5. Ensure IT services that can work across sectors and systems, telephone triage services, along with IT innovations such as shared electronic records (with patients too), and comprehensive practice enrolment systems that facilitate prevention, screening, and health maintenance. 

There are elements of all of these operating at present, but we need to bring it all together. 

A major part of that would mean committing to a more functional alliance framework between the hospital sector and Auckland the Primary Health Organisations, putting them at the front of health service delivery – a requirement that should be written into DHB CEOs’ performance expectations. 

Also, Central government needs to look again at the primary care funding formula in order to facilitate new and more efficient models of care while retaining continuity of care.

And if we are looking for an area where this reinvigorated alliance framework might start its work, “after hours” care is an obvious field of common interest between the primary/community and hospital sectors. Auckland consumers should not have to resort “after hours” to expensive commercial facilities or inconvenient hospital Emergency Departments for conditions that they would normally take to their family doctor. 

This could be the testing ground for a new health and social care alliance in the region. Once proven, it could then be repeated for other services that can be brought “closer to home” and better tailored to Maori, Pasifika and other populations with inequitable outcomes.

Peter Davis, ADHB Candidate, City Vision Health

Published in The New Zealand Herald, 10th September 2019

DHBs are hospital boards in all but name – and they need a re-set

Impressions from a newly elected member of the Auckland District Health Board (ADHB).

ADHB is big “business”: turnover of $2.2 billion and 11,000 staff; the third largest enterprise in New Zealand (just under one per cent of GDP). Aside from serving the Auckland isthmus, it also provides specialist services to other DHBs for difficult and complex cases. 

But ADHB has one big problem – it is operating at a substantial “loss”; in other words, it has many more expenditure commitments than revenue. This is a new phenomenon. Over the last decade ADHB has broken even practically every year. But these last two years are different.

Why? One important factor is that the arrival of a new government broke a “drought”: staff got pay raises, new staff were hired, staffing ratios have been eased, capital charges have been offset, properties and assets have been revalued (higher depreciation charges), the cost-price gap for services Auckland supplies to other DHBs is starkly apparent, migration-driven population growth continues, and public expectations have risen.

Auckland is by no means the worst affected. The initial deficit across all 20 DHBs is just over half a billion, 2.5% of the health budget. That may not sound a lot, but is the highest for nearly 20 years, and other public services are not allowed to run such deficits without central government intervention (look at the recent experience of the polytechnic sector).

One way in which DHBs have tried to deal with this deficit has been to raid the budgets of non-hospital services. This takes about $100 million off the initial deficit, but it is unjust, unsustainable, and terribly short-sighted. After all, who is going to prevent young children taking up valuable hospital dental services, who has a chance of limiting use of emergency departments and preventable hospitalisations, who could better manage sick and older people with multiple illnesses, disabilities, and medications over the long term? You guessed it – the services in the community that supply 90% of usual care under normal circumstances, much of it at the family doctor.

Apart from staring down the government of the day to come up with a lot new money, there are other options that are constructive, practical, and probably overdue. As Winston Churchill once said: “never let a good crisis go to waste”!  

The “sleeping giant” of primary, community and social care needs to be given a seat at the table and empowered to do its vital job properly. From my observation after just one meeting, the non-hospital sector is practically invisible; in essence, DHBs are hospital boards in all but name, and we need to draw on international best practice to empower and coordinate the non-hospital sector to do its cost-effective work, particularly with allied health professionals.

Secondly, with hospital productivity clearly on the decline, there is much more that could be done to reconfigure hospital services in a more cost-effective direction – such as moving much more elective surgery to day stay. A similar argument might be made for moving more outpatient visits to family doctors and skilling family doctors in areas where they can make a difference (for example, skin care). In the same vein, each hospital department should be asked to conduct efficiency and effectiveness audits, using international benchmarks where possible, and coming up with solutions, many of which will come from existing staff themselves who often know where the obstacles to efficient work practices lie.

Finally, the costs of outsourcing should be reduced, PHARMAC or some other central procurement agency could assist with getting better and more standard deals on equipment, time-consuming paper-based administrative systems are shockingly-overdue for replacement by modern IT-based systems, and there needs to be close attention to the roles of different staff to ensure that we are not applying personnel to jobs for which they may be “over-qualified” and not professionally challenged (the so-called Role Delineation Model has not been updated for practically a decade).

The sector’s half billion deficit might look like a “threat”, but actually it is an opportunity. Let’s do it!

Peter Davis

Elected member

Auckland District Health Board

Published in The New Zealand Herald, 8th January 2020

Creating “policy space” in the aftermath of the CGT debate

Finance Minister Grant Robertson talks CGT and the Budget.

For anybody with a belief in the public interest benefits of evidence-based policy, the shelving of a comprehensive capital gains tax (CGT) after a short debate is a setback. It suggests we do not have the “policy space” to take on big issues in New Zealand. If a leader with good will, vision and stature cannot advance an evidence-based policy in the public good, who can?

And it is not as if we are talking about policy made on the hoof. GST is a policy element that is embedded in the tax architecture of every advanced economy of consequence, including the heart of capitalism – the United States – and our cousins across the Tasman. This is a policy component that has been worked into tax systems in different forms around the world (including ours through the bright-line test), with various wrinkles ironed out, delivering fairer taxes and more even-handed investment incentives. This was not a proposal of whim or caprice, but one with substance, strong analytical foundations, and a proven track record in many countries we compare ourselves with.

What this case suggests is that we simply lack the “policy space” in New Zealand to take on big issues. From my observation, there simply was not the attention given to presenting and discussing the merits of the proposal in a balanced manner. The “debate”, such as it was, was dominated by commentary from individuals and agencies with a vested interest in defeating the proposal, greatly amplified by the media. This is what one might expect, but there was little push back: the universities were largely absent; the economic columnists hedged their bets, as did the consulting companies and bank economists; other commentators largely treated the issue as a political one. I am not sure I saw a single authoritative, independent source giving the proposal a fair hearing, although some media outlets provided useful summaries close to decision day.

With a three-yearly electoral cycle, an intense arena of political contest, a media consumed by sensation, and a diminished public service, we have a limited “policy space” in which issues of substance, contention, and long-term import can be developed and debated without the oxygen being sucked out of them in short order by the intensity of partisan contest, the short-term calculations of the political cycle, and the surge of vested interests.

With the growing pressure to publish, universities have largely absented themselves from too close an engagement with contentious policy questions, although some have developed policy institutes. The PHARMAC and State-Owned Enterprise models are other instances where long-term policies, often of a politically-sensitive nature, can be developed and implemented by experts and technocrats, to a large extent shielded from direct political intervention, although in the case of PHARMAC that space is also regularly contested. 

Appointing a Royal Commission is another device for developing policy. Without that, Auckland would not now be marking a decade as a single city (rather than an arena of fractious local authorities). That could never have been achieved under “normal politics”. Another approach is to establish independent commissions and commissioners that report to Parliament, thus retaining their independence and authority. There is also the Productivity Commission.

However, some countries have seen the opening up of space necessary for long-term policy development with the founding of think tanks, many of them independent and non-partisan. For example, senior public servants, academics, and corporate and NGO leaders in Australia lobbied for the establishment of a heavyweight independent think tank to support evidence-based policy. Thus was established the Grattan Institute in 2008 with an initial $34 million endowment and a stream of policy briefs since then around seven key policy areas under the overarching theme of “a liberal democracy in a globalised economy”.

Of course, in the end it is politics which decides policy issues of any kind, and in a democracy that is how it should be. But at present it is arguable that “the politics” – whether it be the mechanics of MMP or the actions of vociferous and powerful vested interests – is pre-empting the policy debate. It is conceivable that a well-stocked and flourishing policy space could actually influence the politics. Some minds might be changed. Public opinion might shift. 

Without sufficient policy space, however, there is the danger that New Zealand is destined to let the dynamics of the electoral cycle, the contest of party politics, the short-term focus of the media, and the thicket of veto groups pre-empt important policy developments and debates of long-term consequence. 

Peter Davis is Emeritus Professor in Population Health and Social Science, and founder of the COMPASS policy research centre, at the University of Auckland. 

Published on STUFF, 24th April 2019

The pandemic – a stimulus to healthcare innovation

If there is a silver lining to this grim COVID-19 pandemic it is that our health system has responded magnificently to the challenge and, in so doing, has had to adopt new ways of working, many of which have been long advocated and which we should now embed in our system.

Read the full article below.

Published on STUFF, 9th April 2020

Future lies in expanded primary and community care and fewer hospitals

Peter Davis: Enhanced primary care networks would nurture the health and social care needs of their designated practice populations and keep them out of hospital. (Stock photo)

I wrote this article in September 2019, below is the first paragraph and and link to the piece.

OPINION: The interim report of the health and disability review panel confirms much of what we already know: while the New Zealand system performs adequately by international comparison, it is overly complex and lacks national coherence, its performance is not well monitored and enhanced, primary care and population health lag, digital technologies are underdeveloped and at odds with each other and there is a lack of responsiveness to Māori and Pasifika. And, overall, the system needs “future proofing”.

Read the whole article on stuff.co.nz

What have we learned in Auckland healthcare from the level-4 lockdown?

Screenshot 2020-04-22 at 16.36.53
Photo / Michael Craig

Coming out of level-f lockdown, what have we learned in Auckland healthcare, and what can we carry forward from this experience?

We can work as a region. We always have, but the level of cooperation has been unprecedented, and good things have come out of this. This presages a future configuration in New Zealand of effective, integrated regional healthcare systems.

The hospital system can adapt quickly under pressure. The number of intensive care beds available in the region has been nearly doubled. Exceptional circumstances of course, but it would be nice to see this carried over to new and more flexible ways of working elsewhere in the hospital system.

Skill and role boundaries between staff can be blurred. Temporary exemptions have been sought under legislation to allow more role flexibility. Can we make this permanent?

The future is digital. We knew this, but “bricks and mortar” and staff and bed numbers have been privileged in the hospital system over enabling technologies that could greatly increase productivity. Major investments have gone begging.

Family doctors can work well in networks. While there are some larger practices, many are small and could be unviable on their own in circumstances out of the routine (e.g. specialized equipment, after-hours care, staff sickness, support staff). Let’s hope these practice networks can be formalized.

Fee-for-service and patient co-payments in primary care are problematic. Family doctors are losing income because they rely on patient fees, and patients are not attending. Patients can be put off by fees. A simple extension of ACC cover to illness in family practice along the Australian lines, plus an emphasis on capitation, would fix this.

Planned, ambulatory, out-patient, and elective care needs to be clearly separated out. Both Waitemata and Counties Manukau DHBs have separate facilities. Auckland DHB needs to develop its Green Lane site to institute this and free this work from the imperatives of acute work. Also we should revisit low-value elective care and cut in-person out-patient visits.

The demand for acute hospital care is surprisingly “elastic”. Inpatient bed occupancy is half what it is usually, as is use of the ED, and intensive care has been stepped down substantially. Of course, regrettably, in many instances this may be people not coming for needed care, but it also suggests that there might be more flexibility in the system, as also evidenced by the stand-down of acute facilities over week-ends. Why not more hospital care in the home?

The National Health Index (NHI) number can be used more. Northland DBH is using the NHI to target vulnerable populations for flu vaccination. We need more of this. At present privacy considerations are blocking useful initiatives of this kind on screening and outreach programmes. 

Ethnic inequalities not evident. Disadvantaged ethnic minority groups are not being disproportionately affected by COVID-19 at present in New Zealand (unlike the United States, for example). And testing rates in Auckland broadly reflect the ethnic profile of the region. This is also the case for the two Maori providers of testing: ten per cent Maori, 50 per cent Pakeha, with other ethnic groups proportionate.

The aged care sector needs a thorough review. The DHBs have very limited powers to check the quality of care and supervision in this sector. Furthermore, families have very little objective quality of care information to go on in deciding where to place an elderly relative. Two reviews have been announced.

You don’t miss public health – until you miss it! The country is very fortunate that it has a stellar public health professional leading the Ministry of Health. This in part makes up for the erosion of key infrastructure. This is quite aside from dealing with the epidemics of diabetes and obesity which are gathering pace and where evidence-supported interventions are waiting to be implemented.   

You need a strong centre. The country has benefited greatly from the strength and expertise that the Auckland regional grouping – including Northland – has provided to decision-making and mobilisation. There have also been strong independent voices in the academic sector. Without these two, it is questionable whether the guidance and steering from the centre could have got up to speed so well given the steady erosion of key public service resources over the last decade.


We have ramped up services across the region – and across the country – to handle an expected peak of disease rates and a surge of patient need. These never came, but this has demonstrated the marvellous professionalism and commitment of staff and management. Let’s learn from this, blow out some of the cobwebs of inertia, and build back better.

Peter Davis

Elected member

Auckland District Health Board

 Published in The New Zealand Herald, 20th April 2020

‘Bill English has slammed the big pay rise for the Super Fund boss. Here’s why he’s wrong’

The Spinoff, 24 February 2017

Adrian Orr’s 23% salary increase has been decried by everyone from the PM down. But Orr is no ordinary public service boss: he’s a savvy corporate investor, responsible for truly remarkable returns. His salary should match that reality, argues Peter Davis.

Through the early 2000s both Australia and New Zealand enjoyed good times, thanks to iron ore and dairy – black and white gold – respectively. While the former rewarded its populace with tax cuts and now faces a $40 billion annual deficit, the latter conserved its surpluses, allowing the government of the day to hand a tidy set of books to its successor. After buying back the national airline and railway, creating an indigenous bank, splitting Telecom and establishing Fonterra, it invested those surpluses in, among other things, comprehensive early childhood education, a family support package – and a sovereign wealth fund (otherwise known as the Cullen or Super Fund), an entity already present in other small economies like Norway and Singapore.

The Super Fund is an embarrassment to the present government. It is everything that the current government is not: imaginative and far-sighted. It involves investing surpluses rather than handing them back as tax cuts, it represents asset building rather than debt accumulation, it does not require cuts to public services, and it tackles a big future policy question (how to fund Superannuation). More than that, it represents successful public enterprise of a kind we rarely see in New Zealand. And it has received no assistance from the current government, such as investment of surpluses. Read more

Peter Davis

Chair of The Helen Clark Foundation, an independent public policy think tank.

Published in The Spinoff, 24 February 2017