New Zealand’s government sacked the entire board of Health New Zealand (Te Whatu Ora) last week, replacing it with a sole commissioner. The move marked more than just another shake-up in the country’s beleaguered health system. It signalled the spectacular failure of a grand experiment that has turned New Zealand into one of the most centralised countries in the developed world.
The appointment of Professor Lester Levy as Health Commissioner came on the back of reports that Health NZ has been overspending by a staggering NZ$130 million per month. If left unchecked, this financial haemorrhage threatens to create a NZ$1.4 billion deficit by mid-2025.
At the root of this crisis lies a pervasive myth that has long dominated New Zealand’s policy landscape, that bigger and more centralised is inherently better. That motif was behind the formation of Health New Zealand only a couple of years ago from the previous regional health authorities.
Proponents of centralisation have long argued that New Zealand is too small and has too sparse a population to be efficiently run by multiple regional or local agencies. They tout the benefits of economies of scale and standardisation, claiming that centralisation will lead to greater efficiency and equity in public services.
These arguments reached a fever pitch under the Ardern/Hipkins government, which embarked on a centralisation drive of unprecedented scale. Nothing in the realm of public policy would not have been a target.
Yet the reality of New Zealand’s centralisation fetish tells a different story. Far from creating efficiencies, the abolition of 20 District Health Boards in favour of a single national entity, Health NZ, has resulted in a bloated bureaucracy. It is both less responsive and more costly than its predecessors.
The centralised behemoth that emerged from these reforms is four times the size of dairy cooperative Fonterra, New Zealand’s largest company. Health NZ employs 80,000 staff across 14 layers of management between the chief executive and frontline workers. This structure has become a textbook example of how centralisation can stifle innovation, responsiveness and fiscal discipline – the opposite of the promised efficiencies.
Health Minister Dr Shane Reti’s revelation that back-office staff numbers grew by around 2,500 between 2018 and 2024 is a damning indictment of this approach. While more bureaucrats pushed paper in their offices, New Zealanders struggled to access basic health services. According to recent reports by Newshub, around 250,000 New Zealanders cannot find a GP who will accept them as patients. Meanwhile, there is an acute staffing crisis in New Zealand’s hospitals, with long waiting lists and queues in A&E departments. So much for improved access and equity.
The health fiasco is one example of the broader failings of New Zealand’s centralisation fetish. From the ill-fated amalgamation of polytechnics (technical colleges) to the attempted consolidation of water services (“Three Waters”), the previous government placed its faith in the notion that bigger is inherently better and that Wellington knows best.
While centralisation advocates often claim that New Zealand has too many councils, the country’s local governments are relatively large by international standards. The average population served by a New Zealand territorial authority is around 75,000, more significant than the OECD average for local government units. Yet their powers and responsibilities have been progressively hollowed out, leaving New Zealand one of the OECD’s most fiscally centralised nations.
Moreover, the argument that New Zealand is too small for decentralised governance does not hold water. Countries with similarly small populations, such as Denmark (5.8 million) and Finland (5.5 million), have successfully implemented decentralised governance models with strong local autonomy. These countries consistently rank highly in measures of government effectiveness and citizen satisfaction.
The centralisation drive extended beyond healthcare, with equally disastrous results in other sectors. The Te Pūkenga debacle offers another stark illustration of centralisation’s pitfalls. In 2020, the government embarked on an ambitious merger of 16 polytechnics and institutes of technology, creating a single national entity.
The rationale for the merger invoked familiar centralisation arguments: addressing financial challenges, streamlining operations and, of course, achieving those fabled economies of scale.
However, the reality is far from what was promised. Like Health NZ, Te Pūkenga has not delivered any efficiencies. It has lurched from crisis to crisis, with financial mismanagement the only constant. In 2022, it reported a deficit of NZ$110 million, NZ$53.5 million worse than budgeted. By 2023, it faced a further NZ$93 million loss. This financial haemorrhage dwarfs the sector’s pre-merger struggles, making a mockery of claims that centralisation would improve financial sustainability.
Leadership instability has also plagued Te Pūkenga, with a string of high-profile resignations undermining confidence in the organisation.
Perhaps most alarmingly, enrolments have plummeted, with provider-based enrolments falling by 10% in 2022 alone. The centralised behemoth has struggled to develop a transparent operating model, creating confusion among staff and stakeholders about how the system would function.
The Te Pūkenga fiasco vividly demonstrates how centralisation can sever the vital connection between educational institutions and local communities. Some of the best-performing polytechnics, such as Otago Polytechnic, pushed back against the merger, rightly concerned that it would undermine their ability to serve their regions effectively. Their fears have been vindicated as the centralised system struggles to respond to diverse regional needs and economies.
As New Zealand grapples with these government-inflicted crises in health and education, policymakers should take heed. The allure of centralisation – with its promises of economies of scale and standardised services – can be seductive.
But as the Kiwi experience starkly demonstrates, it often leads to bloated bureaucracies, disconnected decision-making, and poorer outcomes for citizens.
The way forward for New Zealand must involve a fundamental rethink of its governance approach. This will require more than just tweaking the current system. It demands a shift in how New Zealand approaches public services, creating structures that are responsive to local needs, accountable to local communities, and adaptable to changing circumstances.
The alternative – continuing down the path of ever-greater centralisation – has been tested to destruction, almost literally.
To read the full article on The Australian website, click here.