4 – A formula failure

June 28, 2019

State Services Commissioner Peter Hughes announced the findings of an investigation into  Gabriel Makhlouf and the Budget debacle:

. . . • Mr Makhlouf acted in good faith, reasonably and without political bias in relation to the advice he gave the Minister of Finance

• Mr Makhlouf’s decision to refer the matter to Police was made in good faith, was reasonable and showed no evidence of political influence

• Mr Makhlouf did not act reasonably in relation to:

o his use of the phrase “deliberate and systematically hacked” in his media statement issued at 8:02pm on Tuesday 28 May

o his use of the bolt analogy in media interviews on the morning of Wednesday, 29 May

o in his media statement on the morning of Thursday, 30 May, continuing to focus on the conduct of those searching the Treasury website rather than the Treasury failure to keep Budget material confidential.

• In relation to Mr Makhlouf’s other written and oral media statements, Mr Ombler found Mr Makhlouf acted in good faith, reasonably and in a politically neutral manner.

The Commissioner said he accepts Mr Ombler’s investigation report and all his findings, which were reviewed by former Solicitor-General Mr Michael Heron QC.

Mr Hughes said his expectations of chief executives when things go wrong is very clear: they need to own it, fix it and learn from it. And stand up and be accountable. He was disappointed Mr Makhlouf’s actions on this occasion fell short of those expectations given the fact there was a breach of the Treasury’s information security, which was his responsibility.

“The breach of security around the Budget documents should never have happened, under any circumstances,” said Mr Hughes.

“The right thing to do here was to take personal responsibility for the failure irrespective of the actions of others and to do so publicly. He did not do that.

“As the investigation found, Mr Makhlouf focused more on the actions of the searchers of the Treasury website rather than his own personal responsibility as Chief Executive for the failure of the Treasury systems.”

The investigation found Mr Makhlouf’s decision to refer the matter to the Police was in good faith, reasonable and was not politically influenced. But Mr Hughes said Mr Makhlouf should have sought more advice before issuing a media statement about the referral.

“In my view it was not managed well by Mr Makhlouf,” said Mr Hughes. “It was a clumsy response to a serious issue and is not what I expect of an experienced chief executive.

“I have concluded that Mr Makhlouf failed to take personal responsibility for the Treasury security failure and his subsequent handling of the situation fell well short of my expectations. Mr Makhlouf is accountable for that and I’m calling it out.”

The Commissioner said the investigation report is very clear that there are no grounds to support allegations that Mr Makhlouf’s public statements or actions were politically biased. . . 

The correct response to mismanagement of this magnitude is the 4-A formula: Admit the mistake, Accept responsibility, Apologise and if appropriate and possible, make Amends, none of which was evident in  Makhlouf’s reply:

Mr Ombler’s investigation was conducted thoroughly and fairly. I have read the report carefully and encourage others to do so. I apologise that Budget information was not kept secure. The inquiry that I asked the SSC Commissioner to undertake will help us understand exactly how that happened and how to stop it happening again.

The report confirms I acted at all times in good faith and with political neutrality. It also confirms that I acted reasonably, other than in my descriptions of the incident. I am pleased that my honesty and integrity are not in question.

It has been my privilege to have had the opportunity to serve New Zealanders and I’m very proud of what my Treasury team has achieved over the last 8 years.

This is a 4-A formula failure and theTaxpayers’ Union is understandably unimpressed:

Responding to the release of the State Services Commission’s findings into Treasury Secretary Gabriel Makhlouf, New Zealand Taxpayers’ Union spokesman Louis Houlbrooke says:

“The State Services Commissioner deserves credit for an investigation that made clear and damning findings. The report finds that the ‘deliberately and systematically hacked’ statement, plus the bolt analogy, were not accurate, and that Mr Makhlouf failed to take personal responsibility for the security failure. In other words, Mr Makhlouf has failed in his first responsibility: to the taxpayers who fund his salary, and who deserve accuracy in the public statements of one of the country’s most highly-paid bureaucrats.”

“Mr Makhlouf’s complete lack of repentance in the face of these findings insults the public, and it is a stunning failure of process that his departure from the job today is allowing him to escape the full wrath of accountability. The Government must order him to face up to the media and public in the next few hours. If he doesn’t have to do this, he’ll be laughing all the way to Dublin.”

“The timing of the announcement of these findings looks cynical; it’s the same day and Makhlouf leaves his job and the Government announces a high profile reshuffle. If he plans on going into hiding for his final few hours, it is the job this Government and the media to flush him out of the woodwork, lest we see a bitter failure in accountability. The public are entitled to expect more accountability than Mr Makhlouf reading the report as he jets off to Ireland.”

The damage done by the initial unreasonable response has been compounded by the lack of repentance by Mackhlouf and the inability for Hughes to do anything about it.


Govt knew there was no hack

June 7, 2019

The government knew there was no hack  before Gabriel Makhlouf made his public statements last week:

. . . The Government’s spy agency made urgent calls to the Beehive before Makhlouf’s public statement – we reveal today what they told at least one senior Government Minister. The new details come as Makhlouf faces a State Services Commission investigation over the way he handled claims the website had been hacked. It later transpired that Budget details could be uncovered using the Treasury’s search engine.

The Government Communications Security Bureau phoned the Beehive last week in a desperate 11th-hour bid to stop Treasury Secretary Gabriel Makhlouf from saying publicly that his department had been hacked, the Herald understands.

But it was too late.

The GCSB had already told the Treasury that it did not believe its computer system had been compromised.

The GCSB was sent a copy of Makhlouf’s statement just before it was due to be released on Tuesday night last week. . . 

This just gets messier and messier and needs a wider inquiry than just the States Services Commissioner’s one which won’t ask questions of Ministers.


Budget inquiry must be widened

June 4, 2019

The National Party is calling for the Budget inquiry to be widened:

The Prime Minister must be open and transparent about what questions she has asked her Finance Minister since spurious allegations were made that National acquired Budget documents through criminal activity, Deputy Leader of the Opposition Paula Bennett says.

National has written to State Services Commissioner Peter Hughes requesting the SSC widen its Budget investigation into Treasury and its Secretary to address a number of serious questions about the behaviour of both the department and the Finance Minister.

“The GCSB’s National Cyber Security Centre has said publically that it told Treasury its computer system was not compromised, yet both Gabriel Makhlouf and Grant Robertson chose to issue statements implying National carried out a ‘systematic hack’,” Ms Bennett says.

“Among the many questions that still need answering is what information Treasury and the Finance Minister had at their disposal before they issued those statements.

“The SSC inquiry should also include a complete review of all communications between the Finance Minister’s office and the Prime Minister’s office under the ‘no surprises’ approach.

“It took 36 hours for Treasury to come clean that it was sitting on a lie, and the Prime Minister needs to explain why she allowed her Government to mislead the public for so long.

“Did she and Grant Robertson ask the right questions of Gabriel Makhlouf, or did they take a ‘see no evil, speak no evil’ approach to all of this?

“It is concerning that even after Treasury admitted the Budget information was obtained without any hacking, its statement failed to offer an apology or take responsibility, and continued to disparage the Opposition in an entirely inappropriate way. . . 

John Armstrong isn’t waiting for an investigation he’s calling for resignations:

The chief executive of the Treasury, Gabriel Makhlouf, must resign.

It might have been Budget Day, thereby making his departure hugely inopportune for the Labour-led Government. That’s just tough. Makhlouf has to go. And forthwith. His exit on the most important date in the Treasury’s calendar may have piled humiliation on embarrassment.

It left Grant Robertson’s shiny new wellbeing budget feeling somewhat sick on its first public appearance. That’s just too bad. Makhlouf has to go. He has no choice in the matter. . .

He has to go — and for two simple reasons. Budget secrecy is sacrosanct; Budget secrecy is paramount. That is the bottom-line. It is non-negotiable. Any breach is sufficient grounds alone for heads to roll.

In Makhlouf’s case, there is another factor which should have sealed his fate — competence.

The ease with which National extracted Budget-connected information from the very heart of the (usually) most infallible branch of the Wellington bureaucracy demonstrated the shocking inadequacy of the Treasury’s cyber security.

It seems it is no exaggeration to say that the protections currently in place to guard that information have been at best lax and at worst non-existent. . . .

On top of that, the department’s handling of the aftermath of the breach of security raised further questions of competence.

The rapidity with which Makhlouf referred matters to the police following the hacking which soon enough turned out not to be hacking conveyed the impression that he believed National was responsible.

Although he endeavoured to avoid making that insinuation, in process, he veered dangerously close to soiling the Treasury’s neutrality.
While he might well be as neutral as he ever was, he is no longer seen as neutral. That is unacceptable. . . .

But this isn’t the only resignation Armstrong thinks should happen:

Should Robertson also be tending his resignation as a Cabinet minister or be sacked by the Prime Minister? The answer is an emphatic “yes”.

A breach of Budget secrecy — especially one of this week’s magnitude — is something so serious that resignation is mandatory.The applicability of ministerial responsibility demands nothing less. But it ain’t going to happen.

Robertson is exempt from having to fall on his sword. That exemption is by Labour Party decree. He is just too darned valuable.

Both he and the Prime Minister have made it very clear that they will move mountains to ensure Robertson emerges from this episode as untarnished as possible by placing responsibility for the breach fairly and squarely in the Treasury’s lap. . .

It’s been fascinating following commentary from the left which is trying to paint Simon Bridges as the wrong-doer in the botched Budget saga.

While we are mentioning Bridges, let’s deal with the bogus claims of his critics that his accessing of Budget documents was unethical, even if it was not unlawful. That is nonsense. Since the dawn of time, it has been incumbent on Opposition parties that they expose faults and failings in the policies and procedures adopted by the government of the day.

In revealing that the Treasury’s notion of what passes for Budget secrecy is screamingly flawed, Bridges has acted in the public interest.

Can his critics in Labour’s ranks put their hands on their hearts and affirm they would do things differently if they faced the same circumstances in Opposition? Of course not.

Bridges has simply been doing his job. On this week’s form, it is conceivable that he is going to be doing it a lot longer than both friend and foe have been predicting.

The machinations may be of little interest to any but political tragics but the botched Budget provided the Leader of the Opposition with an opportunity to shine in a week when the spotlight ought to have been on the Finance Minister and his leader, and shine he did.


Money not all that matters

January 22, 2018

Treasury has made a coding error in its  modelling of projected changes in child poverty.

“The error in our microsimulation modelling affects our assessment of both the Families Package announced in December 2017 and comparisons with the previous Government’s Family Incomes Package announced in May 2017,“ says the Secretary to the Treasury, Gabriel Makhlouf.

“The error likely led to an overstatement of the projected impact both packages would have on the reduction of child poverty.

“It affects our projections of the number of children expected to be in low-income households, and the number to be lifted out of poverty*, by 2020/21,” Mr Makhlouf says. 

“The extent of any change in the projections on child poverty is still being determined.  Because the error applies equally to comparisons with the previous Government’s Family Incomes Package, the estimated relative impact of the two packages is essentially unchanged,” Mr Makhlouf says. . . 

The projections were that National’s package would lift around 50,000 children out of poverty and Labour’s would lift an additional 38,000.

The wording of that sentence is deliberate. There’s been a lot of congratulatory media releases from government supporters claiming it would lift 88,000 out of poverty when the truth is the lives of more than half of those would have been improved by National.

I’m not saying only another 38,000. Even one person having an improved life is good, and 38,000 – or whatever number Treasury’s new projection comes up with, is better – it’s just that the government can’t take all the credit.

Beside giving parents more won’t automatically make their children’s lives better.

As students in Wellington have found, being given $50 a week has led to rent increases which leave them with little or no extra money.

Even if parents don’t face rises in the cost of necessities and any other adverse eventualities which impact on their incomes or outgoings; even if they don’t waste a cent and even if they have superb budgeting skills,  money isn’t all that matters.

The causes of poverty are complex and no matter how good projections on numbers are, they are only projections that won’t and can’t take into account all the individual circumstances which leave families with too little for their needs.

 


HaSNO needs review

June 16, 2015

Treasury secretary Gabriel Makhlouf’s call for another look at New Zealand’s attitude to GMOs is being supported by NZBio.

In a speech at Fieldays last week on making informed decisions about natural resources, Makhlouf said when new technologies come along, both genetically modified and non-genetically modified, New Zealand’s current system denies choice over whether the country should have them. “Meanwhile, our international competitors do have this option,” he said.

Will Barker, chief executive of the biotech industry organisation NZBio, said the Hazardous Substances and New Organisms Act needs to be urgently revised so new organisms are covered by better-conceived legislation.

“Attempts to interpret the current legislation have shown it to be highly restrictive, yet there are considerable benefits that new genetic technologies can offer New Zealanders,” Barker said in a statement today. . . .

Barker said decisions on biotechnology, including GM, should be subject to an appropriate risk-based assessment.

“Much of what is being said about GM here in New Zealand is simply inaccurate. Millions of people around the world have accepted GMOs into their environment and their food supply, because under appropriate legislation, they are recognised as having no substantial difference in risk profile to any other agriculture practice.”

Anti-GM rhetoric is largely based on fear and emotion.

HaSNO legislation should balance the opportunities and risks which come with any new technology and it must be based on science.

Makhlouf ‘s speech is here.

 


‘Choice’ between sustainability and prosperity false dichotomy

June 12, 2015

The ‘choice’ between sustainability and prosperity is a false dichotomy, Treasury secretary Gabriel Makhlouf said in a speech at the Fieldays.

There is a lot more in the speech, entitled Making Informed Decisions about our Natural Resources, which I am reproducing in full:

Hello, it’s a pleasure to be here with so many people who help our primary sector to thrive.

We live in a remarkable country, one that’s rich in natural beauty and wealthy in natural resources. New Zealand has plentiful, fresh water; clean air; fertile soil and a climate well-suited to growing things. We have long coastlines and significant aquaculture resources; sizeable mineral and petroleum reserves; and extraordinary bio-diversity.

 The World Bank estimates that New Zealand ranks eighth out of 120 countries and second out of the 34 OECD countries in natural capital per capita, which helps explain why three-quarters of our merchandise exports are from the primary sector. While primary sector exports may have dipped over the past year, steady growth is expected in the four years ahead.

Of course a big part of those exports come from the dairy industry, and I know there’s concern about the direction dairy prices have been heading recently. The Treasury’s base forecast in last month’s Budget is for dairy prices to recover towards the long-term levels forecast by the OECD-FAO of around US$3,900 per metric ton towards the end of 2016 as supply and demand become more balanced. But like dairy farmers everywhere in New Zealand the Treasury is closely watching the fortnightly auctions and monitoring developments.

We are fortunate to make our living off the land in a land worth living in. But we cannot be complacent if we want things to stay that way. We’re not pristine, and we can do better. New Zealanders have to make well-informed choices about how we conserve, use and manage our natural resources for the greatest overall benefit to society now and into the future.

Today I want to talk about choice.

I want to challenge some false ‘choices’; expose a few choices that we are denied by the systems we have created; and highlight the fact that more informed public debate can deliver us a system with more choice in it.

For a long time discussions over natural resources have been dominated by false dichotomies.

A key example is the supposed ‘choice’ between sustainability and prosperity. It’s nonsense to believe you have to pick one or the other and can’t achieve both.

A more prosperous economy creates higher incomes and jobs for New Zealanders. Higher incomes are linked to better outcomes across a range of economic, social, and indeed environmental measures that matter for living standards. And the Treasury knows that economic performance is not just about prosperity today; it’s also about prosperity tomorrow and the future prosperity of our children. Sustainable growth depends upon good management of our environment and natural resources, and the productivity with which we use these resources. 

Sustainability and prosperity are interconnected in the Treasury’s wider view of wellbeing and are encapsulated in our Living Standards Framework.

This identifies five ‘dimensions’ which we seek to advance when developing policy: sustainability; equity; social infrastructure; risk management; and of course economic growth. When wellbeing is understood in this broader sense, the assumption that there’s immutable conflict between prosperity and sustainability just doesn’t stack up.

Norway is a good example of a country that has grown wealthy from its natural resources – in its case oil and gas – while playing a pioneering role in environmental protection and sustainable development. As the OECD notes, the Norwegians have simplified their regulatory procedures related to environmental permits and reduced the administrative burdens people face.  Enforcement is risk based and better targeted.

Closer to home, many Māori-led businesses are demonstrating how prosperity and sustainability work together by embracing the concept of kaitiakitanga. They take a very long-term view and manage their assets in a way that meets their aspirations for people, the land, rivers and the sea. Last year a group from the Treasury visited Parininihi ki Waitotara or PKW, a company based in Taranaki who run a number of businesses in the primary sector. PKW are combining successful dairy farming with sustainable practices: protecting waterways, carefully managing nutrients, and even using solar energy to power their cowsheds.   

The falseness of the ‘choice’ between prosperity and sustainability is being shown up not just by countries and companies, but by consumers too.

The premium on ethical, sustainably produced, healthy goods continues to rise. Interest in working practices and supply chains means that companies have to be able to clearly demonstrate their sustainability credentials.

It’s also clear that productivity and sustainability are converging in ways not seen before.

For example, in recent years we have seen irrigation infrastructure, originally installed to boost farming productivity, helping to alleviate further pressure on struggling river and stream ecosystems. 

Central Plains Water scheme in central Canterbury is currently under construction, and will from September this year relieve climatic and allocation pressures on groundwater and lowland streams around environmentally and culturally important Lake Ellesmere Te Waihora.

The Opuha dam was able to keep streams flowing in South Canterbury during this year’s drought, which would otherwise have stranded fish.

The small Eiffelton scheme in mid-Canterbury pumps groundwater into ecologically important streams that would also have stopped flowing last summer without it. This leads me to the second false ‘choice’ I want to shed light on – between high technology and our primary industries.

Through companies specialising in precision agriculture, such as Varigate, Agroptics and others, New Zealand’s world-leading tech is both increasing productivity and serving environmental outcomes.

By mapping soil characteristics, tailoring the use of irrigation, fertiliser and other inputs to match, and ensuring accurate spatial delivery, the use of inputs can be reduced. This results in savings of energy, time and inputs, while pasture and crop yields increase and less nutrients are lost to the environment, leading to better water quality in our rivers and groundwater.

Progress in GIS technology and nutrient management data is enabling farmers to understand their farms in new ways. This is delivering environmental improvements and driving the best increases in productivity in the whole economy.

Another false ‘choice’ is between protection and use of natural resources.

As a country, we protect around a third of our land area for conservation, but the mountains and forests making up most of this area are used as a playground by our people.  They’re also a workplace for some of the 166,000 people employed in tourism industry; an industry that relies on us continuing to protect our outstanding natural beauty.

Instead of accepting these false ‘choices’ we have an opportunity to focus on ensuring our system gives us the freedom to make the choices we actually want.

One example is in the space of bio-technology.

I am not going to get into the question of genetic modification specifically.

What I will say is that when new technologies come along – both GM and non-GM – our current system denies us the choice over whether we want them. Meanwhile, our international competitors do have this option.

There is, for example, a new variety of high-yielding eucalyptus tree which has just been approved for cultivation in Brazil.  Using this variety, growers can get a 15 percent increase in wood for the same area, processors can get a 20 percent reduction in the cost of wood production, and the environment benefits from a 12 percent increase in the amount of carbon dioxide stored per hectare.
High-yielding wood is at the core of our pulp and paper industry.

However our current regime for regulating new organisms is highly restrictive in practice, which means we do not have the flexibility to choose whether this is something we would want in New Zealand.

I’ve heard it said that our current regulatory regime would deny us the choice to adopt many new plants and species that today offer us huge advantages: kiwifruit, rye grass, and even the ubiquitous pinus radiata.

Another example of a choice we are currently denied is found in our approach to risk.

This is particularly important when we consider the potential to sustainably use the resources contained in our precious marine environments.

I am not going to stand here and tell you that New Zealand does not take enough risk. That is for the country, through elected representatives, to decide.

The point I want to make is that we often deny ourselves the choice over how much risk we want to take. When systems adopt rigid approaches to risk, for example, rather than genuinely enabling adaptive management approaches, we limit our ability to explore and assess the potential risks of our actions.

Another restriction on our choice comes when we have inefficient systems. In these instances we deny ourselves the chance to decide, clearly and efficiently, how we want to manage our resources.

From an economist’s point of view, a resource management system like ours is intended to reduce the costs of allocating resources, account for factors which market forces don’t value, and manage collective action problems – including intergenerational fairness.

Our current system could be better on all of these fronts.

As we saw with the establishment of the Kaikoura marine protected areas, the transaction costs of making decisions on how to manage our resources can be extremely high.

Many of our resource management systems come in for regular criticism, although it’s often directed at how the decisions are made rather than the decisions themselves.

And our limited framework for valuing natural capital and ecosystem services often prevents us from understanding how much they are really worth to us. It also means weighing public benefits against the gains to be made from resource use is hard for decision makers.

But it’s not all doom and gloom.

We are starting to reclaim some of these choices.

A number of Government departments are working together to assess the feasibility and benefits of more systemically gathering natural capital information to feed into decision-making.  Appropriately considering the impacts on natural capital, such as clean water, soil or habitat for threatened species, will allow us to make better, more balanced decisions.

The Government’s resource management reforms aim to provide greater certainty for communities to plan for, and meet, their area’s needs in a way that reduces costs and delays, while maintaining the environmental standards that are important to them. 

Freshwater policy is another area where we are reclaiming choice.

Here, communities are able to debate the value of public goods; public discussion is exposing and trading-off risks; and collaboration through the Land and Water Forum continues to help create a management system which is responsive to the goals of users.

But there is a price for moves to systems such as this, which give us the choices we really want.

The quality of information and the level of public debate must be raised. This is something for which all parties must share responsibility.

Government doubtless has a role here. The work to develop a Māori Land service is one example.

Here the Crown is providing the information and support that Māori landowners need to assess the different choices available to them from their land. This in turn exposes the true value to Māori of systems which allow us to choose how our resources are managed. 

However, businesses and industry sectors must play also play a part in setting the conditions for a more informed debate.

On the issue of climate change, for example, the agriculture sector has the opportunity to contribute to the public debate about New Zealand’s future emissions targets, and options for meeting these targets. 

It is important that we focus on what the science tells us.  

As the IPCC told us last year, carbon dioxide emissions fundamentally drive long-term global warming.  Methane has a larger impact initially, but its effect is only short lived. This clearly has little impact on most other developed countries whose emissions consist mainly of carbon dioxide, but it makes a huge difference for New Zealand because of our high agricultural emissions.

New Zealand has invested heavily in finding ways to mitigate the effects of biological emissions, though commercialisation is still some way away.

So science clearly plays an important role in helping us work out how we can have the greatest impact in reducing emissions.  And it has an important part to play in informing the public, in helping us avoid false dichotomies and giving us greater choices to enable living standards to continue to rise for generations to come.  And as part of this, the business community has the opportunity to explain how its actions contribute to increases in all areas of wellbeing.

I, for one, look forward to working together to make these challenging, but ultimately vital, choices about the future of our natural resources, the prosperity of our country and the living standards of New Zealanders.

Sustainability and prosperity aren’t mutually exclusive.

Furthermore,unless we want to return to subsistence living, which may or may not be environmentally sustainable but certainly isn’t socially and economically sustainable, prosperity is essential for sustainability.

That doesn’t mean that prosperity should be at the cost of the environment or people.

The challenge is to balance economic, environmental and social considerations.

 


Sticking to plan

August 20, 2014

The Pre-election Economic and Fiscal update (Prefu) shows that National has the government’s books back on track to surplus.

 
Under National we’re on track to surplus, more jobs and higher incomes. ntnl.org.nz/1w34xEk #Working4NZ

 

But it’s wafer thin and Treasury Secretary Gabriel Makhlouf was blunt about the need for continued discipline:

. . . Forecast to grow at an average of 2.8 per cent over the next four years, Makhlouf said this was “above its sustainable long-term capacity to grow”, meaning inflationary pressure on the economy was building with a strong residential housing market in Auckland and Christchurch.

“It underlines, among other things, the importance of fiscal restraint in a growing economy,” Makhlouf said. . .

New Zealand has had an unfortunate history of going from bust to short-lived boom.

Only by continuing to keep a tight rein on spending will growth be sustainable.

Labour and the Green Party are already pledging to spend $28 billion. If they’re in government there will be expensive policies from New Zealand First, Internet Mana and which ever other party or parties they need to cobble together to get a majority.

Only a National-led government will keep on track to deliver sustainable growth and provide the social and environmental dividends that will enable.

 

On track for surplus. Keep National working for New Zealand. #3moreyears


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