The Bitterest Pill

How Labour’s Fiscal Cliff Doomed New Cancer Drug Funding in Budget 2024

Imagine purchasing a boat with the express promise that it’s seaworthy. You inspect it thoroughly and you notice a few things are off. That’s normal, to an extent, because of course the vendor doesn’t want or have to draw attention to defects. Caveat emptor, as they say.

But based on the idea of some minimal competency or honesty on the vendor’s part, you buy the boat and set off on your voyage. Except very early into the journey you notice that the hull is full of holes have been patched up below the waterline and carefully disguised to avoid detection. If you continue, you’ll sink halfway across.

That’s the predicament faced by the National Party when it came to drug funding for the 2024 Budget.

Careening towards the fiscal cliff

It all stems from the previous government’s deceptive portrayal of Pharmac’s finances. While immediate funding gaps were known (and we all pointed them out at the time) the true scale of the problem was grossly underestimated. It turns out that Labour had only allocated two years of funding for Pharmac, creating a funding cliff that was masked by claims of "new and continuing funding" in their fiscal projections.

National, not fully aware of the scale of the cliff, worked off these misleading projections in good faith.

We now know that Labour’s projections were off by approximately $200 million per year. This discrepancy largely stemmed from how the previous government integrated Covid-related funding into Pharmac’s general budget. In short, instead of maintaining a separate Covid budget, Labour rolled these funds into Pharmac’s regular budget. The result was a deceptive appearance of sufficiency.

The problem with rolling Covid funding into Pharmac’s general budget is that it means the government can’t just withdraw "Covid" funding now. To do so, it would need to withdraw around $160 million per year and then watch as Pharmac decides which treatments to defund.

ince Pharmac operates independently, there’s a risk that crucial new treatments - such as breast cancer therapies - could be cancelled instead of Covid-related treatments. This lack of targeted financial planning has left the healthcare system vulnerable to arbitrary and potentially harmful funding cuts and that’s exactly what the coalition found itself facing.

A frustrating pattern of behaviour

I suppose it’s possible this was all a misunderstanding. The charitable interpretation is that Labour did not fully understand the ramifications of their budgeting decisions. And there is possibly some evidence of that.

But it’s really hard to believe that Labour was unaware of the risks inherent in their budget. By creating time-limited funding for critical services, they placed enormous pressure on Pharmac, which struggled with the uncertainty over negotiating new contracts. This mismanagement risked defunding essential treatments, including cancer therapies, which could have devastating consequences for patients.

Before Christmas last year, however, no less than 21 fiscal cliffs had been discovered. These were all programs funded for a limited period, despite public expectations for their continuation. From the school lunches to infrastructure projects to disability programmes, gaps in the accounts created a $7.2 billion funding gap.

And that’s only accounting for the cumulative effect of $50m or more.

Immediate priorities and hard choices

The incoming government really had no choice but to redirect funds urgently to stabilise key sectors. This led to the postponement of new initiatives including the promised cancer drug funding. We all know people who have had their lives ruined by cancer, so that the loss of that programme really has been the bitterest of those decisions.

For what it’s worth, the government has promised to fund those drugs as soon as it is able. That depends on it being able, of course, which is as good a reason as any for us to continue to pressure the government to identify and eliminate lower priority programmes for spending on the things everyone supports.

It’s worth noting here that the total amount of medicine funding agreed by the coalition actually exceeds the amount National promised in its own fiscal plan. That unplanned funding will support funding of high priority medicines, including new cancer medicines over time. NZ First won from National a promise to commit to more baseline funding for Pharmac (which has happened) and ACT won a promise for better assessments of funding and patient voice responsiveness.

Both of these are likely to support ongoing cancer treatment.

Tax cuts and economic relief

Now, the budget also included significant tax cuts, which the government defended as necessary economic relief for New Zealanders. It has been 14 years since the last time tax rates were adjusted for inflation. Over that time, we’ve all been paying a higher proportion of tax without seeing a commensurate improvement in services.

It's incorrect to claim that the tax cuts have caused the postponement of funding for new cancer drugs, as these cuts are not actual reductions in income tax but partial offsets against the bracket creep that New Zealanders have faced over the years. Bracket creep, where inflation pushes income into higher tax brackets without corresponding increases in tax thresholds, has effectively increased the tax burden on individuals over time. The recent tax adjustments are merely mitigating this effect, restoring a more equitable tax burden rather than reducing government revenue significantly.

But couldn’t we have spent more on drugs instead of adjusting taxes?

The logic that any decision not to maximise taxation means cancer patients will miss out leads to absurd conclusions. By this reasoning, you could argue that any failure to impose the highest possible tax rates will detract from funding vital services. But this doesn’t account for the balance needed between fair taxation and sustainable economic policies.

Remember that even if Labour had been re-elected, these drugs would not have been funded. Labour's fiscal plan did not include provisions to increase taxation to the extent necessary to ensure that all desirable drugs were fully funded. No government’s ever can do that.

The only valid criticism of National is that some people whose hopes were raised will be disappointed. There’s no getting around that. It sucks and National now bears the burden of explaining why.

Labour is the last party that should be playing up outrage here

National will have to bear the criticism for the disappointment of those people. That does not mean, however, that the leaky boat salespeople in the Labour Party should have free rein to make political hay out of the situation. This is what grates about finance spokesperson Barbara Edmond’s emotional appeal to the feelings of those poor people.

Had Labour not gone to such lengths to obscure and hide such significant gaps in drug funding budgets, those promises would probably not have been made in the first place. National would not have received the pre-election credit for them, but voters would have been able to make a more informed assessment about Labour’s financial management.