Govt squeezes state sector harder than Treasury recommends

The government's goal of cutting spending on government administration by $330 million over the next three years went a lot further than Treasury recommendations, a report released today showed.

In the report, Treasury recommended the introduction of a savings target for core government administration expenditure of 2% a year for three years from Budget 2011.

That target would generate about $200 million in savings over three years, the report said.

“Treasury regards this approach as preferable to ad hoc consideration of policy options or savings proposals as it provides greater incentives for Ministers to identify savings and greater certainty for chief executives to plan effectively for reductions,” the report said.

“This will mean that cabinet will not be able to ask departments to absorb costs over and above the 2%.”

In the budget, Finance Minister Bill English put the state sector on notice that it would be expected to find an extra $130 million more in savings than Treasury recommended.

All the savings were expected to come from back office efficiencies, Mr English said.

The government based its figure on a report which concluded the state sector could eventually save between $230 million and $425 million a year through greater sharing, standardisation and automation of back office processes and systems.

Individual targets were being set.

Agencies could appeal their target and have it reduced if they can show it would have an unacceptable impact on frontline services, or it could be better used to fund projects necessary to deliver future savings, Mr English said.

Despite recommending a blanket target, Treasury acknowledged that such an approach, across all departments without reference to their individual circumstances, was a crude way of going about it.

However, a more sophisticated approach of setting individual departmental targets would not work, it said, because central agencies did not have the necessary information to set individual targets and individual targets risked shifting focus on to the re-litigation of the targets, rather than achieving efficiencies.