New Zealand’s tax-based health financing has remained stable but historically underfunded, with spending below OECD peers. OECD data is unreliable due to lack of updates and GST distortions. Adjusted 2023 figures show ~10.2–10.4% of GDP, close to averages; shifting to insurance offers no benefit.
Aotearoa New Zealand’s health system is predominantly financed through taxation, with around 80 percent of expenditure publicly funded and 20 percent privately financed since the 1990s. Tax-based financing accounts for about 70 percent of total financing, supplemented by the Accident Compensation Corporation (ACC), which contributes about 10 percent through mandatory insurance. This funding structure has remained stable over time and is considered efficient, as switching to other models such as mandatory insurance would result in high administrative costs without demonstrated improvements in equity, access, or health outcomes. While tax-based systems are prone to fiscal fluctuations, insurance-based systems face vulnerabilities from economic downturns and demographic changes, often resulting in higher costs of administration. Thus, there is no evidence that New Zealand would benefit from radically changing its financing model.
The report concludes, however, that New Zealand’s health system has been historically underfunded. Between 2000 and 2018, health spending per capita was consistently below the average of 16 comparable OECD countries, ranging between 76 and 86 percent of that benchmark. Publicly mandated health spending fell from 90 percent of the comparator average in 2009 to 85 percent in 2018. During the same period, health expenditure as a share of GDP also declined, diverging further from comparator averages after 2009. From 2019 onwards, available OECD data on New Zealand’s health expenditure became unreliable due to a lack of Ministry of Health submissions; New Zealand has not submitted consistent data since 2018, leaving the OECD to estimate figures. This has created distortions, especially as New Zealand uniquely includes Goods and Services Tax in its expenditure calculations, which likely inflates reported spending.
OECD figures during COVID-19 are particularly misleading as the expenditure bulge in New Zealand occurred later than in other countries, complicating year-to-year comparisons. Adjusted estimates suggest total health expenditure in 2023 was about 10.2 to 10.4 percent of GDP, lower than the OECD’s 11 percent estimate, with publicly mandated spending at 8.0 to 8.3 percent of GDP. Both remain close to comparator country averages, but parity may not have been achieved once GST distortions are considered. The report recommends that misleading information on spending levels be corrected, the Ministry of Health properly resource OECD reporting, and further analysis be conducted on GST-related overestimations, while affirming that a shift to mandatory insurance would not strengthen the system.
