Majority of business leaders support Nicola Willis’ public sector spending cuts - Mood of the Boardroom

Finance Minister Nicola Willis’ edict to public sector chiefs to cut spending by 6.5% has been well received by business leaders.

Some 83% of respondents to NZ Herald’s Mood of the Boardroom survey support the move; 13% don’t.

Economist Cameron Bagrie agrees with the move, but says: “The 6.5% number is incidental. We obviously need a stronger focus on the quality of spend. It will be a fine line between cutting the fat and potentially chopping into muscle.”

Several respondents commented that the Government’s approach was too much of a blunt instrument. There was a need for a more focused or nuanced approach with targeted cuts.

National went into the 2023 election campaigning on slashing back-office government spending. When it released its fiscal plan shortly before the election, it promised to lower taxes, reduce net debt and bring discipline to government spending.

to read the full Mood of the Boardroom report

The public service had expanded during the Labour Government’s six years in office from 2017-2023.

Meanwhile, there had been concern about inefficiencies, high administration costs and an over-reliance on expensive consultants.

The counter-argument is that the public service faced unprecedented demand during those years, not least as a result of the Covid-19 pandemic.

Party leaders Christopher Luxon and Nicola Willis said they would deliver a Budget surplus by 2027- 2028 and get there by cuts to Government spending and reducing bureaucratic costs.

In December, Willis, now Finance Minister, said she would write to public service leaders, asking for non-front-line departments to find between 6.5% and 7.5% in savings. The higher target was for departments where staff numbers climbed fastest during the two Labour governments. By the time the Budget rolled around in May 2024, she was able to announce that the public sector savings target of $1.5 billion had been met, although a few agencies did not reach their goals.

While the current Government insists its cuts are focused on backroom areas and will not affect front-line delivery, there are concerns that the depth and suddenness of the cuts will inevitably impact those at the sharp end. Some say the move has been poorly executed and while targets have been met, savings made this way are not necessarily fully sustainable.

For a significant number of respondents, the cuts did not go far enough.

A finance sector leader says: “It should have been more like 15-20% — about half the 6.5% were existing vacancies. Unambitious and tinkering ... we need structural reform.”

Many departments, most noticeably health and housing, continue to face significant challenges.

Economic growth priority

During the election, National Party leaders talked about the need for public service departments to have a greater focus on improving the economy, boosting productivity and more broadly supporting business.

There’s a clear preference among business leaders for business-focused government departments like Treasury to make economic growth their number one priority.

Two-thirds of respondents (66%) want to see growth become the priority, while 15% don’t and 19% are unsure. Survey respondents suggested productivity and sustainability should also be in the mix.

The National-led coalition Government has emphasised a need for greater fiscal responsibility in the public sector. Both Prime Minister Christopher Luxon and Finance Minister Nicola Willis have supported recruiting more private sector professionals into senior positions in the public service to inject greater efficiency, agility and adaptability into the government workforce. The idea is popular with the boardrooms.

A clear majority of respondents (81%) support more private-sector appointments to the public sector. Only 3% are against and 16% are unsure.

Grant Samuel director Michael Lorimer is unsure. He claims: “The Reserve Bank governors appointed from outside have all been failures to various extents.”

Accordant chair Simon Bennett also has reservations. “They are running terrible processes, it’s hardly attractive for private sector CEOs to come on board.”

A transport boss notes there is not a great deal of interest from private sector executives wanting to switch over.

“There’s little enthusiasm for market-based compensation in the public sector sector,” a power industry boss says.

Another leader would like to see the public sector offer secondments to private sector executives.