'State sector could cut $450m more'

Finance Minister Bill English. Photo / Ross Setford

A report yesterday turned the screws further on the state sector, saying as much as a quarter of administrative and support budgets - $450 million - could be lopped off if all departments performed as well as the most efficient ones.

But the Treasury's second Administrative and Support Services Benchmarking Report has been labelled "overambitious" by the Public Service Association (PSA), which said emerging pressure on front line services showed there was little fat left to cut.

The report found that administrative and support services spending across 31 agencies in the 2010/2011 financial year was $1722 million, an increase of $19 million or 1.1 per cent. However, Treasury said once adjusted for inflation, spending fell by 1.2 per cent.

Administrative and support services include information and communications technology - the biggest item, property management, corporate and executive services, human resources, finance and procurement.

The report estimated spending could be cut by more than $250 million a year if those agencies below the median level of efficiency across all 31, lifted their game to that level or above. Those potential savings rose to $400 to $450 million if all 31 departments performed as well as the top 25 per cent.

The report noted agencies "should set targets appropriate to their operational context".

"The targets in scenarios ... are for illustrative purposes only and may not feature appropriate targets for each agency.

It also noted the potential savings did not take into account the investment necessary to achieve them.

Finance Minister Bill English said the report was an important tool for state sector chief executives "to understand their organisations properly before they make change".

"It shows back-office costs have been fairly flat in the last year, but there is ample room for future savings. Over the next year, I'd expect agencies to make more back-office savings to free up money for priority frontline services."

But the PSA said the fact that costs had risen by $19 million was proof there was "little left to squeeze out of agencies that have already been cut back to their core".

"Government departments have already found considerable savings to meet targets, so it's no surprise that the anticipated gains from this exercise have not been realised", said national secretary Richard Wagstaff.

"There's little left to cut without hitting services directly and we are already seeing this with a reduction in frontline staff in Departments like IRD, DoC, ACC, MAF, Housing and Mfat.

"The report says there's still huge potential for savings in some departments but this is an overly ambitious claim."