Slimming down the up-sized public sector

The recession is going to change everything else in New Zealand. Why shouldn’t it change the shape and nature of our public sector too?

In case you’ve missed the main message: the tradable sector of our economy – the real driver of sustainable growth in New Zealand – has been in recession for the past five years. No wonder we’re in trouble.

The sector that produces the goods and services we export to the rest of the world and that competes with imports for your purchasing power at home actually shrunk around 10% over the last five years. If we want it to grow, something else has to make way – like central and local government spending.

John Key, Bill English, Treasury secretary John Whitehead and State Services Commissioner Ian Rennie have been trying to hammer the message home to public servants this month. This week, local government will get it one more time from the Minister for ratepayers, Rodney Hide. But as my grannie used to say: there’s none so deaf as those who do not want to hear.

Hide’s call for the councils to refocus on providing their "core" services has already produced a predictable response from Mike Reid of Local Government New Zealand. It starts with the words “why defining core services is a dumb idea”, then reminds us how much local government services have changed over the years [remember when councils ran abattoirs and fire brigades], and closes with the assertion “parliament does not know best in all circumstances.”

There was a similar response from the Public Service Association national secretary Brenda Pilott. She is rapidly wheeling out her organisation’s seven point plan for improving public sector performance. It starts with “taking privatization off the agenda”, moves through “a moratorium on restructurings”, and bluntly rejects the increasingly common practice of “performance-related pay”.

The PSA glides on through an apple pie agenda of “giving citizens a voice”, “listening to front line public sector workers”, and “respecting the professionalism of public sector workers”, before climaxing with a rallying cry for a return to “a single approach to [pay and conditions] bargaining” and “a simpler and common approach to pay across the public service agencies”.

Treasury secretary Whitehead has become the lightning rod for most of the opponents of further public sector reform. His critics question his right to speak publicly on the subject and accuse him of championing more privatization in the provision of public sector services. They are wrong on both counts.

First, he was assigned by the previous government to work with the State Services Commissioner and the Auditor-General on new performance reporting and monitoring processes for state agencies. Second, the Treasury is routinely tasked with assessing the merits of their funding cases.

Third, Whitehead did not say – as Radio New Zealand news reported – that “out-sourcing some state services would help boost the sector’s productivity”. His speech was far more circumspect.


“It may be about stopping some things – and this can be difficult, particularly when it means making tough calls about staff. It might be about starting others. But nothing should be off the table: for example, contracting out delivery as we do with some social services and others – like Australia – do with private prisons, may be more effective. It also means we can compare the price and results of different ways of doing things and choose the best mix options.”


The most interesting common ground to emerge in the debate inspired by Whitehead’s speech is on the inadequacy of existing public service productivity and performance measurement.

Pilott and the PSA say: “We don’t have an accurate picture of how the public sector is performing in the productivity stakes. Some things – for example, social work with families – cannot be easily measured…”

Rennie of the SSC says: “Currently, performance information and reporting is of variable qualify. This is of concern to central agencies and the OAG [Office of the Auditor General]…”

Whitehead at the Treasury says: “Currently, we don’t have good performance information. A weakness of our system is that we haven’t put the effort needed into linking the resources we receive to the goods and services we deliver and the results we are trying to achieve.”

Anyone who has read a state agency’s statement of intent or annual report in the past decade knows the weakness of the logic chains that are frequently used to link expenditure, activities and outputs to desired outcomes.

It is a flimsy basis on which the government will spend $62 billion of your money this year. This is poorly measured foundation on which they forecasting that our government will incur a deficit of perhaps $12 billion to see the country through the recession. And this is one of the major reasons why the non-tradable, purely domestic sector of our economy has grown by 15% over the past five years while the vital tradable sector shrank by 10%.

We are now the second most debt-burdened nations in the developed world. We are in this predicament because of our poor trading performance, our debt-fueled housing boom, and a decade of large increases in government spending.

The need for reform to produce a more focused, efficient and productive public sector is unarguable when you consider some of the other statistics that Whitehead produced to back his case for change.

Public sector spending – that's local and central government – amounts to 45% of our gross domestic product. Core Crown spending has increased by nearly $25 billion since 2002 and the number of core public sector employees has increased by 44% between 2000 and 2007.

We are plunging into a future where the government will follow the private sector into debt, and we still don’t have the performance measures to show if we are getting productivity improvements or real value gains from the growth of our public sector.

It is time for a serious reality check.