NSW shadow treasurer Michael Daley called on the state government to make the upgrade of Shellharbour Hospital a priority during a visit this week.
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Mr Daley said the state budget had failed to deliver enough for the "much needed" upgrade, with just $3.2 million shared between Shellharbour and Shoalhaven hospitals for planning.
"The Shellharbour area is the fastest growing area on the eastern seaboard of NSW and health services need to keep up with this population growth," he said.
"The hospital was built in 1986 and the doctors and nurses there do a terrific job, but you don't even need to walk through the gates to see that it's suffering because its funding is slowly being withdrawn."
Mr Daley said if the Illawarra had received more funds from the sale of Port Kembla, urgent projects would have been possible.
"If they had promised the Illawarra more than $100 million from the sale of the port then the upgrade project - which has been estimated to cost around $250 million - would be more likely to proceed," he said.
"Such an upgrade is vital as it would upgrade the status of the hospital, which in turn would enable it to attract more medical specialists and offer more services."
Shellharbour MP Anna Watson said she had been campaigning for an upgrade to the hospital since coming to office.
"I've sent the Health Minister [Jillian Skinner] more than 600 letters from people in my electorate outlining why an upgrade is needed," she said.
"[Ms] Skinner must stop the talk and get on with providing funding for this much-needed investment in the health needs of the southern Illawarra region.
"This investment will mean more doctors and nurses, expanded health care, and other much-needed ancillary jobs, such as cleaners, cooks and security personnel."
However, Kiama MP Gareth Ward said the government had already provided funds to plan for the hospital's upgrade, while consultation with the community and hospital staff was well under way.
"Before you undertake major expenditure on hospitals, you need to make sure the types of upgrades you're doing are going to best meet the needs of the community," he said.
"... So I'm delivering on my election promise of a $10 million clinical services plan, which will indicate how medical services at this hospital will grow over the next 10 years.
"And we will soon be making an announcement on how best to utilise Shellharbour Hospital into the future.
"I can envisage major improvements to the hospital because the community is growing and its needs are diversifying."