Fran O'Sullivan: Treasury's embarrassing credibility hit - what lies ahead for new boss

Gabriel Makhlouf is the Secretary to the Treasury. He is the Government's chief economic and financial adviser, and leads the Treasury's work to help raise living standards for New Zealanders through

COMMENT:

The furore over Gabriel Makhlouf's actions overshadows the reality that the Treasury should be preparing to welcome a new boss to run the elite Government department.

But the bureaucrat who steps into Makhlouf's shoes as Treasury Secretary will inherit a department which has taken a huge credibility hit.

The incoming Secretary will likely take up the reins at a time when the agency is still under an inquiry over the website breach that National Party researchers last week exploited to gain a backdoor and obtain confidential details ahead of the Budget.

It's inevitable that inquiry will raise steps to avoid any subsequent security breach. The sooner they get that person on board the better.

Yesterday the State Services Commission opened a separate investigation into Makhlouf's own actions and public statements about the causes of the unauthorised access to Budget material. At issue is his decision to refer what he wrongly labelled "systematic hacking" to the police.

State Services Commissioner Peter Hughes has pledged to get to the bottom of the matter and has appointed Deputy State Services Commissioner John Ombler to lead the investigation.

There are timing pressures.

Makhlouf believes he acted in good faith. But both he and Hughes agreed it was in everyone's interests that the facts were established before he leaves his role on June 27 to take up his new role as governor of the Central Bank of Ireland on September 1.

It is a political understatement to say the Treasury security breach was embarrassing to both Makhlouf and Finance Minister Grant Robertson during Budget week.

It would be a simple matter to personalise to Makhlouf all the abysmal circumstances surrounding last week's events. His own public comments initially obscured the fact that it was Treasury's ineptitude which allowed the National Party researchers in.

At the time this column was written, Makhlouf was still in charge at the Treasury. He had not been fired or tendered a resignation, let alone an apology.

He will not comment while the Ombler's investigation probes Makhlouf's public statements about the causes of the unauthorised access; the advice he provided to Robertson at the time; his basis for making those statements and providing that advice; and the decision to refer the matter to the police.

At her post-Cabinet press conference, Prime Minister Jacinda Ardern would not be drawn on whether Makhlouf should be sacked.

The Irish Times quoted a spokeswoman for Ireland's Minister for Finance, Paschal Donohoe, saying the controversy would not affect Makhlouf's appointment as governor of the Central Bank.

But Donohoe's position will come under pressure if the Ombler investigation finds major deficiencies on Makhlouf's part,thus putting a cloud over his Irish appointment.

It's worth underlining that the commission did call the initial inquiry into the data breach at Makhlouf's request. That inquiry will be focused on the adequacy of Treasury policies, systems and processes for managing Budget security.

Hughes said last week while there is no evidence of a system-wide security issue, he has asked Andrew Hampton, the Government Chief Information Security Officer, to work with the Government Chief Digital Officer, Paul James, to provide an assurance that information security across the public service is sound.

Six months ago, the commission advertised for a new Treasury Secretary saying it was "looking for a highly experienced executive leader" who will work collaboratively to build and maintain a partnership approach with public service CEO colleagues, agencies and the Reserve Bank in achieving the Government's goal of improved wellbeing for New Zealanders.

The appointee would be a trusted advisor to ministers and will also have executive experience at managing a complex operating environment which influences the New Zealand economy.

In particular, that person would be to the forefront of Treasury's new approach and direction to how the public sector will influence the macroeconomic and fiscal system.

Makhlouf played a major role in fleshing out the Living standards Framework which Treasury began under his predecessor, John Whitehead, and led to the formation of the Wellbeing Budget.

This is cutting edge and recognised as such by influential commentators like the Financial Times' Martin Woolf.

But this focus should not obscure the fact that there remains a large gap between current economic performance and what is needed to achieve the targets set by the previous Government to move export values from 30 per cent to 40 per cent of total gross domestic product (GDP) by 2025.

New Zealand's productivity performance also remains challenging. And the international economic environment likewise.

If there is one area which requires real focus by the incoming Secretary this is it.

Makhlouf is well known within the senior New Zealand business sector and has worked with other leaders to make headway on diversity and inclusion initiatives. But he may be a little too cosy.

It's notable that the Treasury board is chaired by Makhlouf. Treasury's chief operating officer Fiona Ross – who must also be in the mix for the top job – sits on the board. The other directors are lawyer Cathy Quinn, businessman Mark Verbiest; businesswoman Livia Esterhazy, Council of Trade Unions president Richard Wagstaff and Australian Treasury Secretary Philip Gaetjens.

This board is promoted as an innovation in the New Zealand public service that aims to replicate the discipline provided by a private-sector board. But it also appointed by Makhlouf.

Those quibbles aside there are major challenges in front of the next Treasury Secretary.

Irrespective of the outcome of the Ombler investigation it is sad way for Makhlouf to end a lengthy sojourn running the New Zealand Treasury.