Labour health spokeswoman Annette King says Pharmac is chronically underfunded, and it was New Zealanders who would suffer.

The Government rejected Pharmac's bid for more money in this year's budget, despite the drug purchaser's concerns it could not invest in new medicine.

And while Pharmac's $5 million gain will allow it to tread water, officials advised the Health Minister he would need to revise his expectations if the agency did not get the modest $11m extra it was asking for.

Pharmac's budget has remained relatively stagnant over the past five years, increasing between 0 and 1.74 per cent, with the exception of 2011-12 where it was boosted about 10 per cent.

David Walker In his letter of expectation to Pharmac, Health Minister Dr Jonathan Coleman has made no mention of any relaxation to the levels of investment the Government required.

The operating budget for Pharmac last year was $795 million, with a total spend of about $150 million more than that. A confidential rebate system brings the agency back under budget.

At last year's budget, it received no extra money.

In May, it was announced the agency's combined pharmaceutical budget (CPB) would be bumped up $5m to $800m.

Pharmac chief executive Steffan Crausaz says the drug-purchasing agency would continue to fulfill expectations within its existing budget.

In a December letter to Health Minister Jonathan Coleman, the chairs of Pharmac and District Health Boards requested total funding of $806m.

They noted "an increase to the CPB in 2015-16 is required for Pharmac to meet previous ministerial expectations for new investments of $10m in each year".

District Health Boards however only supported a $5m increase to Pharmac's budget. Any larger boost could place additional financial strain on an already tight public health sector, partly through increased dispensing costs.

But this option would "significantly challenge Pharmac's ability to meet expectations of $10 million new investment in 2015-16".

A Government commitment to a $5m pilot-fund for rare disorders could be met with up to $5m in investment.

In his letter of expectation to Pharmac, Coleman made no mention of any relaxation to the levels of investment the Government was requiring.

Pharmac chief executive Steffan Crausaz said the agency would continue to invest in new medicines from within its available budget.

"The budget level is only one part of the equation. Every year Pharmac secures between $40 to $60 million of new price concessions and these savings can also be used to meet Pharmac's expectations."

Neither the Ministry or the Minister's office were able to offer separate responses. The minister was travelling, and unable to comment.

Pharmac is due to appear in front of the select committee this week, but the meeting was closed to the public.

Meanwhile, a spokeswoman from Coleman's office said a taskforce had begun looking into issues around pharmaceutical margins early this year.

King said the Governmnent's decision meant New Zealanders would miss out on potentially life-saving drugs.

"The money could have been used for cutting edge treatments for cancer and purchasing a wider variety of new medicines which can make a huge difference to people's lives," she said.

"In submissions to the Minister, DHBs pointed out that their current levels of funding are not keeping up with the demand for medicine.

"This comes at a time when Pharmac's future is under threat from the TPPA and New Zealanders around the country are worried about rising prices for medicines."