Long-Term Fiscal External Panel

Transcription

1 Long-Term Fiscal External Panel Summary: Session Four Health Policy Analysis and Choices, Combined Scenarios and Features of Enduring Reform 29 November 2012 (9:30am-4:30pm), Victoria Business School, Level 12 Rutherford House The fourth External Panel session examined the health, justice, and natural resources sectors. This followed an examination of the long-term outlook for Crown revenues and state-funded education, retirement income and working-age welfare at the Panel s third session in October. Within each area, the Panel examined potential policy options or choices on how future governments might meet the long-term fiscal challenge in ways that enhance living standards. Copies of draft research papers presented at the third and four sessions accompany this summary. Please note that research papers presented to the External Panel are draft works-inprogress. The analysis of some issues addressed in these drafts may be refined, amended or strengthened in the 2013 Statement on the Long-Term Fiscal Position. Page 1

2 HIGHLIGHTS PANEL DISCUSSION Health is emerging as one of the areas likely to see the most spending pressure over the next years. But we should not think of state-funded health spending as something that just grows independently of our choices. The challenge for future governments (as for past governments, to different degrees) will be to align demand for state-funded health services within the constraint of available funding. In the Justice portfolio, due to population ageing, the crime rate might fall as a smaller proportion of the population will be in age groups most associated with offending. All else being equal, a falling crime rate should mean we need to spend less on the justice sector. But justice is an area of high public interest and how much we spend on it is not necessarily related simply to the crime rate. Good management of our natural resources is fundamental to New Zealand s economic future and therefore to the taxation revenue base. The Statement should make that point clear. Future Statements might incorporate even more about how natural resources, including biodiversity, could impact on fiscal sustainability. In thinking about the distributional effects of different policy options, the Treasury needs to assess how different ethnic groups might be affected, while being aware that the way we characterise ethnicity has changed over time and is likely to continue to change. The average lifespan of Māori is shorter than that of non-māori, so age-based entitlements (like the current NZ Superannuation regime) may be seen as unfair. Nevertheless, the Treasury should not treat Māori (or non-māori) as a homogeneous group. There is a range of different life paths across the population. The Treasury intends to present illustrative packages, or paths for adjustment, in its 2013 Statement. Those packages will have most impact if they avoid being too precise in terms of content (recognising that many things will happen that we can t accurately predict) but are clear in terms of their impact on different groups. The Treasury should think about how to make sure that different generations, particularly younger people, have a voice in the debate. That might mean rethinking or expanding communication methods. It is important to consider political risks in long-term planning. The ageing of the population means there is a risk that the opportunity to select some policy options may be lost by delaying change. This is because as the population ages, an increasing proportion of the population will have a vested interest in maintaining some policy settings. It was noted that by 2020 over half of New Zealand s voting-age population will be over 50. Page 2

3 KEY MESSAGES FROM THE PRESENTATIONS The following summaries represent what was presented to the External Panel, and do not reflect the Panel views. For a summary of points raised by Panel members, see Page 2. Māori in the Long-Term Fiscal Context (Chris Cunningham, External Panel) Māori are a youthful population with generally higher and earlier fertility, and shorter average life expectancies, relative to Pākehā. Currently, sixteen percent of New Zealanders identify as Māori. A lot of research points to disparate outcomes for Māori. Understanding Māori trajectories is critical to anticipating future trends and implications of any policy changes. We need to consider the implications of a shorter average life expectancy for Māori when looking at entitlement policies based on chronological age. The potential for any proposal to raise the age of eligibility of New Zealand Superannuation to exacerbate inequities between Māori and Pākehā should be considered. Whānau will continue to play a critical role in facilitating development for Māori individuals and communities, even as public policy settings struggle to leverage the full potential role that whānau have to offer. There is a growing Māori asset base as Treaty of Waitangi settlements are concluded. These settlements may help propel iwi-based development projects. Te Kohanga Reo and Kura Kaupapa Māori initiatives may increasingly serve as locations for development. The broadcasting, criminal justice, education, health and employment sectors will be impacted by, and be the facilitators of, language-driven cultural, social and economic development. Health Projections and Policy Options New Zealand s publicly funded health system is approximately 83% of total health care expenditure. This constitutes around a fifth of core Crown expenditure. Relative to other countries, the New Zealand system typically performs well in terms of containing overall spending and delivering effective outcomes. However, in line with trends across developed economies, health expenditure has been increasing at a faster pace than the rate of growth in national income for most of the last 50 years. This is partly driven by demographic changes, but unlike areas such as superannuation, it is also strongly driven by non-demographic factors. These include: - Productivity gains tend to be lower in health due to its labour intensity, pushing costs higher relative to the rate of cost increases in the rest of the economy; - Income growth and technological change tends to increase demand for health care as people's expectations for access to quality services, and the expanding range of potential treatment options, increases; - Unlike some other areas of government spending, health spending pressures are more difficult to control by public policy decisions. Whereas governments can, for example, reduce welfare spending by reducing statutory entitlements, reducing entitlements in one area of health spending may in practice be offset by a rise in demand for other (and sometimes more expensive) health services, such as acute hospital care. The Treasury s initial long-term projections indicate that there will be pressure on publiclyfinanced health spending to increase steadily from 6.9% of GDP in 2010 to 11.1% of GDP by However, these projections are very sensitive to critical assumptions and caveats: Page 3

4 - Consistent with historic trends, as our national income grows, it is likely that New Zealanders will want to spend a higher share of national income on health care. It is also likely that the lion s share will continue to be publicly funded. However, there is uncertainty about the actual size of the non-demographic effect, as growth to a level of 11.1% of GDP will require trade-offs in other areas, e.g. higher taxation and/or less spending on NZS or welfare benefits or other policy areas. - The Treasury s projections assume there will be a degree of healthy ageing, which means that people will not only live longer, but live longer in good health. This offsets some of the anticipated cost increases that might be brought about due to ageing. Estimates of how many of the extra years of life are likely to be healthy, on average, vary significantly. Long-Term Care and Fiscal Sustainability The long-term care sector is expected to face significant upward spending pressures over the coming decades due to lower productivity growth relative to the wider economy and demographic ageing particularly due to growth in the proportion of those aged over 80. Public expenditure on long-term care is projected to grow faster than health spending generally, and faster than spending on New Zealand Superannuation. The Treasury s initial projections show that spending on long-term care could increase from about 18% to 21% of Core Crown Health spending between 2010 and 2060 (11% to 15% for aged care), and from about 11% to 12% of combined expenditure on health and New Zealand Superannuation (7% to 9% for aged care), if governments respond to pressures with increased spending. There are wide margins of uncertainty around these projections. Long-term care covers a broad spectrum of areas: medical and social services, residential and home-based care, formal and informal care services. Given this diversity of coverage, the delivery and funding mechanisms of different services varies, but the majority of long-term care in New Zealand is publicly-funded. For example: - DHBs contract for beds for those aged over 65 requiring rest-home care, with fixed fees and contributions determined through income- and asset-testing subject to a cap (with the balance funded by DHBs). - Home-based services support older people at home where personal care is provided free regardless of income or assets, although with means-testing for household management support (e.g. cleaning). - Disability support services for those under 65 are centrally funded by the Ministry of Health and are not means-tested; - People with long-term care needs resulting from accidents receive support from ACC. Disabled people and their carers may also qualify for welfare support. Achieving significant efficiency improvements in the sector will be difficult due to the labour intensity of services. However, there are options. Greater use of assistive technologies and service coordination, and better targeting of resources through stronger needs assessment, would improve efficiency. It s also appropriate to consider how services are funded, for example through stricter income and asset testing, or increasing price caps to stimulate competition. Broader funding changes could include involving greater reliance on the private sector, compulsory social insurance, or other forms of hypothecated taxation. Page 4

5 Reorienting the Health Care System to Meet the Long-Term Fiscal Challenge (Nick Mays, External Panel) The public health care system needs to continue to reorient itself towards supporting a growing number of people with more than one chronic (long-term) health condition. While there are no easy solutions, there are priority areas of focus and promising approaches that deserve attention. There are a few key areas to focus on: - Limiting and redefining the scope of the public system. New Zealand tried in the early 1990s but could not develop a method that clearly defined what the public should pay for and what should be left to the private market, via user or patient fees. - Containing budget increases. In principle, budgeting at all levels should be easier in tax-financed systems like New Zealand s, but in recent years NHS-style systems have been growing faster than the economy. Controlling this will be especially important in the future given projected spending pressures. - Increasing effectiveness and efficiency. This is a critical and continuing task, particularly with regard to acute hospital care and preventative programmes. Adapting the current system could involve reducing the reliance on hospitals and doctors, increasing numbers of specialist nurses working outside hospitals, allowing for more flexible working arrangements, and increasing the integration of decision making and care across primary, community, and hospital settings, as well as across health and long-term care providers. The centre of gravity of the health care system needs to shift to multidisciplinary teams outside hospitals, which include both health care workers and social care providers. Unlike other areas such as elective surgery where competition between suppliers can improve quality and efficiency of care, services for people with long-term conditions need to be coordinated across a range of different providers and types of professionals. The demographic changes also mean that we need to move away from narrow vertical models of care towards care that can deal with people with a number of concurrent conditions and that can tackle lifestyle factors, such as smoking, alongside secondary prevention and treatment. Natural Resources Policy Analysis and Choices Our cultural, social, and economic prospects are tied to the quality of the country s natural capital. The New Zealand economy has grown on the basis of its natural capital stock and flows, and its ongoing ability to generate wealth is heavily reliant on this stock for the foreseeable future. Strong income growth in emerging markets will support demand for natural resources in the short and the medium term, underpinning New Zealand s terms of trade and the heavy reliance on the biological-based productive sectors for growth and wealth. The sustainability of New Zealand s resource base is of critical importance to our future. If the country does not adequately plan to manage within its biophysical resource limits, it will impact on the productivity of primary sectors over the longer term. This would further increase the fiscal challenges being faced over the coming decades by reducing Crown revenue. The goal of natural resource management and environmental policy is to put in place appropriate incentives for effective and efficient resource use by communicating the true value of those resources. A large range of regulatory, non-regulatory, market-based, and non-market-based policies and measures can be utilised to deliver stronger and betterfocused incentives for efficient use and future planning. Page 5

6 Justice Sector Policy Analysis and Choices Governments over the last decade have significantly increased spending on criminal justice, despite steady declines in crime rates across the developed world since the 1990s. Generally, this investment has been driven by an increase in volumes entering the court system and growing prisoner numbers due to policy decisions such as the Parole Act While the 2009 Statement projected a slight increase in prisoner numbers over the medium term, recent changes in how the sector responds to crime and falling crime rates has meant that current projections show numbers entering the justice system easing by 16.7% and prisoner numbers falling by 6.9% to 2020/21. Beyond this, population ageing could further result in a small demographic dividend as a smaller proportion of the population will be in age groups most associated with offending. While other factors might counter this demographic dividend, justice is unlikely to experience the upward cost pressures expected in areas such as health or New Zealand Superannuation. This demographic dividend presents opportunities. Savings from freed-up resources could be reinvested into activities that further reduce crime. Or, where savings are cashable, they could be reallocated to help alleviate long-term public spending pressures in other areas. Combined Policy Packages The 2013 Statement will contain a number of stylised reform packages to illustrate the types of policy choices and trade-offs that could be involved in managing long-term fiscal pressures. Four illustrative packages were discussed covering changes to taxes, health and New Zealand Superannuation policy settings. It is likely that the packages in the 2013 Statement will be different to those discussed. The packages in the Statement will be illustrative only and will not represent Treasury recommendations. A wide range of choices are available to future governments and the ones selected would be purely to help demonstrate the diversity of choices and the implications of enacting groups of policies together. Making Big Decisions for the Future (Colin James, External Panel) Any 40-year period contains both disjunctive events (e.g. World War One, the Global Financial Crisis) and transformative events (e.g. penicillin, the internet) that deeply change the way things are done. Such events and their outcomes cannot be predicted. Nevertheless, planning to accommodate them helps build the capacity to resist, absorb and survive them. Also, some trends may endure through these events, such as climate and demographic change. It makes sense to take these trends into account in any long-term plan, and to get better at planning under uncertainty. An important component of major policy change is that there must be wide public buy-in (based on good understanding of the issues). Strong political leadership is important but not sufficient. There is a range of mechanisms for involving the wider public in major policy changes and getting wide public buy-in. These include working groups, referendums, national conventions, opinion polls, and citizens assemblies and juries. Getting public engagement is particularly important in the long-term fiscal context given the intergenerational issues involved, and thus it is especially important to engage with younger generations. The Generation-Y cohort perceives the next 40 years very differently from those in power. For example, they don t remember a country with full employment, and don t remember a welfare state. They don t remember a time without a student loan, nor do they have any connection to the idea of a quarter acre section. And they don t feel Page 6

7 confident that they will receive superannuation that resembles today s system when they turn 65. As they will be the ones inheriting and implementing policies, it is important to engage these generations 1. It is important to consider political risks in long-term planning. The ageing of the population means there is a risk that the opportunity to select some policy change options may be lost by delaying change. This is because as the population ages, an increasing proportion of the population will have a vested interest in maintaining some policy settings. It was noted that by 2020 over half of New Zealand s voting-age population will be over These points were made in a section of the paper entitled A Generation Y Perspective, written by Jess Booker. Page 7