Finance Minister Bill English has diagnosed the problem:
The 2000s were characterised by the idea that big increases in government spending, dispensed across a whole range of areas and in a relatively untargeted way, could transform society.
According to this view the sheer weight of spending would eventually prevail.
However, that particular experiment ran out of money in 2008 and has nothing genuinely transformational to show for it.
He’s also worked out the treatment which is needed to solve it:
Public management in the foreseeable future will have more prosaic goals – sorting out which public services and income support measures are the most effective and working out how to provide those within a tightly-constrained budget.
Together we will be under constant pressure to deliver better services for little or no extra money.
This won’t be popular in the public service but continuing emphasis on backroom efficiency and accountability without reducing necessary front-line services is an essential if we’re to return to surpluses.
Getting on top of our fiscal position, and rebalancing the economy, necessarily means the Government being a smaller part of the economy than it is now.
The previous Government’s decision to massively ramp up spending in the 2000s left behind a large, structural budget deficit, and a bloated public sector that by 2008 was crowding out the competitive sectors of the economy.
Despite the best efforts of the Government and the public service since then, the deficit may reach 8 per cent of GDP this year, which is uncomfortably high. But we believe if we make careful decisions about government spending we can still get back to a meaningful surplus in 2015/16.
After that, the Government is committed to resuming payments to the New Zealand Superannuation fund and generating large enough surpluses to pay back most of the debt we are currently accumulating.
That means public spending restraint is no temporary aberration. It is effectively permanent.
The process of rebalancing started under Labour in the 1980s and continued with National through the 90s. But the hard work was reversed by Labour from 1999 when the public service grew unsustainably again.
If you read the speech carefully though, this is not an attack on the public service. The good work that is being done is acknowledged and the need for public servants to be part of the solution is clear.
It is apparent to us after two years in Government that there is more scope than we expected for improvement in the focus and efficiency of public services.
We are confident that over time we can continue to get better value for money in the public sector. Indeed we are obliged to.
We will continue to be guided by three principles, and I want to talk about each of these in turn.
Our first principle is having clear priorities.
We will focus our efforts, and government funding, on the things that matter most to New Zealanders.
New Zealanders as a whole have an obligation of care to vulnerable people who depend on public services – children, for example, the aged, and struggling families.
And we have an obligation to maintain and strengthen the core functions of government, such as law and order, public infrastructure, and the ability to respond effectively to disasters like the two Canterbury earthquakes and the Pike River Mine disaster.
At the same time, as I said earlier, the Government has to reduce its overall size as a proportion of New Zealand’s economy.
Something has to give, and that has to be lower-value activities the government is currently funding.
This is not a time we can afford to indulge in a whole lot of “nice-to-haves”, even though, for sections of the population, they feel the loss of those services or funding streams.
The alternative is that “nice to haves” come at the expense of necessities and at the expense of fairness to people with more need.
Individuals, households and businesses reassess what’s necessary and what’s nice to have when their budgets get tight, the government has to do the same thing. The challenge of course will be deciding and getting acceptance of what’s necessary and what’s not.
Our second principle is achieving high-quality services.
We will ensure that public services are modern, responsive and provide good value for money. . .
Our third principle is reducing waste.
We will ensure that government administration is as efficient and well-organised as it can be.
The longer we are in office the more it is clear that the costs of running government are too high, there is too much duplication and the organisation is too cluttered.
For a country of just 4.4 million people, we have 38 government departments, over 150 crown entities and more than 200 other organisations for which the government has some responsibility.
Too many agencies in the wrong place risks diseconomies of scale, transaction costs, duplication of roles and back-office functions, and in some cases reduces the cohesion and quality of frontline services. . .
The deadweight of all that bureaucracy isn’t sustainable. But it’s not just too many agencies, it’s also too little productivity within some of them.
We’ve come a long way since the public service which Roger Hall parodied so well in Glide Time but there is still a lot of room for improvement.
I’d like to see a New Zealand where the Government is consistently running surpluses, delivering the public services New Zealanders really want and need, and where the public sector operates as an efficient and world-class organisation.
In that future, government agencies will be increasingly organised around meeting the needs of households and businesses rather than expecting New Zealanders to navigate through a maze of specialised agencies to get the services they require. . .
. . .While many services will continue to be delivered through government agencies, they will increasingly also be provided by non-government organisations, iwi and private sector providers.
Social housing is an example where greater steps are being taken in this direction.
In addition, all agencies will need to change the way they operate so they can cope with a period of ongoing financial constraint, while also strengthening frontline services.
This direction is likely to lead to fewer government agencies over time, to stronger governance across agencies where it is needed and for agencies to be more frequently based around common services and processes.
The Public Service Association and some of its members will see this prescription as a threat.
But it is also an pportunity to contribute to changes which will make a positive difference to the economy and services.