Steven Joyce: Election 2023 - Time to cut back the public service bureaucratic blob

Finance Minister Grant Robertson has a track record of always talking a good game about cost control next year, while spending up large this year, writes Steven Joyce. Photo / Mark Mitchell

OPINION

The election campaign is heading towards the pointy end, with the release of the bureaucratic-sounding Pre-election Economic and Fiscal Update, or Prefu, on Tuesday.

The Prefu is Treasury’s most independent view of the state of the Government’s books through the three-year cycle. Ministers have a lot of say over Treasury’s other reports, but that is clearly inappropriate heading into an election.

In the Prefu, Treasury takes the Government’s existing policy settings, its own projections for the future of the economy, actual numbers like the direction of travel on the tax take, and runs them through the model to give everyone a readout on where our collective bank balance is at, and likely to be.

That doesn’t make it correct, of course. Treasury is crystal ball gazing as much as the next economist, and in recent times has been prone to be too optimistic.

Given our level of trade with China, much depends on the state of the Chinese economy over the next couple of years, and who knows what will happen there. There is plenty of downside risk for all of us.

The Prefu is fertile political debating ground and the pre-positioning of it has already started. It will obviously look a bit rough given the current very high levels of Government expenditure, the recent decline in economic activity and the accompanying fall in the tax take.

The Government is clearly worried. It has attempted to influence the numbers with its pantomime announcement of some expenditure cuts just 12 days ago, right before the Prefu numbers were finalised. Those were timed to be included in the report so as to improve the outlook, but they are about as real as any other attempt by Grant Robertson to curtail government expenditure. This Finance Minister has a track record of always talking a good game about cost control next year, while spending up large this year.

The main Prefu battleground will be familiar territory for those who have been around for a while. Labour governments and their union affiliates spend their time defending their huge increases in spending as what was needed to rebuild the severely under-nourished public sector they inherited, while deriding any attempts to reduce the core public sector as cuts to “core services”. Already, the Prime Minister has become fond of calling the alternative Government a “coalition of cuts”.

The centre-right parties, meanwhile, will focus on what they see as a blowout in public service costs putting the squeeze on middle-income Kiwis whose taxes keep going up.

They will make the distinction between the “core” public service (largely policy advisers and the like in Wellington, which they will want reduced in number) and “frontline” teachers, nurses, doctors and police officers who aren’t included in that definition, and which no side will cut.

The current Government has several problems with making their rather hackneyed narrative stick this time. There was no public clamouring for growth in the core public service in the 2017 election, yet the headcount has blown out hugely since then, from 47,000 to 62,000, a 32 per cent increase over six years.

Their second problem is that the public believes, and the evidence suggests, that the quality of public services has declined rather than improved over the intervening six years despite the huge increase in bureaucratic oversight suggested by that 32 per cent increase in numbers.

The core public service has grown 32 per cent over six years. Photo / Mark Mitchell

This paradox of poor performance is stark. Everywhere you look, be it in education, health, justice, or the economy, the country is clearly going backwards. The public are entitled to ask just what have all these people been doing?

One issue is that an increase in bureaucracy creates its own non-productive work. More people means more meetings, more follow-ups, more co-ordination and more heading down rabbit holes that don’t lead anywhere.

Nobody can tell me that a doubling in the size of MBIE, for example, has doubled the agency’s actual performance. Indeed, all the talk is that the immigration division is sadly back to being the cot case it was 15 years ago.

But the big problem is political leadership.

The public service didn’t ask to create a big new bureaucracy between the already existing bureaucracy that is the Ministry of Health, and our hospitals and other health providers. That was a ministerial decision.

Similarly, the polytech sector didn’t ask for a whole new and expensive “head office” between the polytechs and the Tertiary Education Commission, which was already performing many of those functions much more economically. That came about because of another ministerial (now prime ministerial) flight of fancy.

Similarly again, the bureaucrats didn’t ask to stand up a third duplicative health bureaucracy based on ethnicity. That too was a ministerial decision.

They didn’t ask to be sent to design transport projects without any business case, or junk all the existing transport projects. Ministers told them to.

Constantly shifting around the goalposts and changing who people report to stops them from doing a good job and demoralises them, and that damages performance on the front line.

We used to have some great polytechs in this country for example, Wintec in Hamilton, EIT in Hawke’s Bay, and the big three in the South Island, Ara, Otago and SIT. The Te Pūkenga reforms have decimated the management ranks of those organisations and are set to do more. With all the centralisation across the public sector, it’s no wonder performance is declining.

There is plenty of capacity to shrink the blob, as the Brits call it, rather than the front line, and focus on improving services rather than growing the empire. That will involve stopping doing a bunch of things in Wellington that we weren’t doing, and weren’t missing, before 2017.

It will also involve breaking the habit of providing more resources for every new policy request the Government makes. We used to have a rule in government that if you needed extra work done in a department, you had to find the capacity for that work already in the department, if necessary by stopping other work. That discipline is needed again.

I hope a new government, if one is elected, is up to it. They will need to be. If they want to improve frontline services, provide tax relief and give the productive economy room to grow, they will have to shrink the Government’s head office.

They could do a lot worse than targeting a headcount in the core public service that is a similar size to the one Labour inherited back in 2017.

As we all now know, the public service was seen as doing a much better job of actually serving the public back then.

Steven Joyce is a former National Party Minister of Finance and Minister of Transport. He is director at Joyce Advisory and author of On the Record.