KEY POINTS:
An ever-increasing share of Government spending is going on back-office services like administration rather than front-line functions such as paying nurses and teachers, ANZ National Bank chief economist Cameron Bagrie says.
In a paper released yesterday Bagrie plots the changing - and by implication deteriorating - mix of Government spending over the past 10 years.
One measure distinguishes departments' front-line spending on things such as paying nurses, teachers and policemen from back-office functions such as administering, approving and monitoring things.
"Growth in total departmental outputs has averaged close to 7 per cent a year since 1997, while front-line spending has averaged 5 per cent a year," Bagrie said.
"If the ratio of back-office to front-line spending had remained constant there would have been close to $1 billion free for other initiatives in 2007."
For example, spending on welfare benefits had increased by an average of 3 per cent a year, but back-office departmental spending by 7.5 per cent.
Health, on the other hand, had seen an improvement.
Bagrie found spending on "non-productive" things like heritage, culture and recreation had far outstripped "productive" spending (on the likes of education, housing and law and order) especially since 2001.
But another indicator, which distinguishes "hand-out" spending such as welfare payments from "hand-up" spending like education and employment initiatives, showed relatively more money going to the latter.
"That's encouraging." he said. "However it is not so rosy if we exclude the unemployment benefit, which has fallen dramatically as a consequence of an extended period of economic expansion."
Bagrie stressed that the issue he was raising related to the mix of Government spending, not the level.
He is agonistic about what an optimal level of Government spending relative to the size of the economy would be. The international evidence was inconclusive on that, he said.
On the mix of Government spending, the Treasury had been "strangely silent" for years, he said. "They have a responsibility not just to their minister but to the wider taxpayer."
Bagrie acknowledged the rough-and-ready nature of the distinctions he draws, and that there might be catch-up or other special factors which justify a surge in spending on particular things. But the broad story over 10 years was telling.
"The money's just not going into areas New Zealanders think it is.
"Do we really need 41 Government departments and 65 Crown entities, not to mention the 21 district health boards and nine Crown research institutes, for a population of four million?"
Associate Finance Minister Trevor Mallard said: "We made a choice when we came into office to re-invest and rebuild public services after National ran them down during the 1990s - just as they are planning to do again."
Since 2002 the public sector had not grown faster than other sectors in the economy; in fact it was slightly behind growth in the overall labour market, Mallard said.
"As well as overstating the increases in departmental spending, this presentation on a percentage basis conveniently hides the fact that the absolute increases in these areas are simply dwarfed by the massive investments this Government has made in front-line services."
