Treasury head signals ongoing austerity

State Sector faces long diet, says Treasury

New Treasury Secretary Gabriel Makhlouf delivered a tough message to public servants today in Wellington.

The current bout of fiscal austerity is not a short-term measure, he told a conference on public sector management in Wellington.

“The days of everyone getting a pay rise every year simply for time served are over,” he said.

“This is not just about tightening our belts. This is not a fad diet. This is about a shift to a healthier lifestyle.”

That means getting more public service out of current operating spending and more out of the assets the government currently owns.

There is also a strong hint that the welfare changes announced this week are only the beginning and that some form of income or asset testing is on the way.

“One approach may be to better direct expenditure to those who need it most. For example, the Treasury’s fiscal incidence work shows that, over the last 12 years, households in the top half of the income distribution enjoyed increases in social spending of almost 20% more than households in the bottom half.”

He also – by implication – slammed the massive growth in public spending over recent years and said the surge in spending did not deliver results.

In the largest area, health – where spending has risen faster than GDP or other areas of public spending every year since 1994 – the results of that surge in outlays is not clear.

“We spend more of our GDP on health than most OECD countries, but
our health outcomes haven’t improved as rapidly as our spending has grown. And some groups of New Zealanders have much worse health outcomes than others – such as the high rates of rheumatic fever and skin infections amongst Maori and Pacific children.

“Our education system also underperforms – three in ten of all students leave school without having gained the skills they need to succeed in a modern economy. Maori, Pasifika and students from poorer homes are overrepresented in this group.”

That means the government –and in particular, agencies such as the Treasury - need to better measure the result of government spending.

“State sector agencies need to get better at collecting information that will support strategic and operational decisions, making that information available to decision-makers in a way they can use it, and then measuring the impact of change.

“It’s the old adage that all accountants know: ‘you can’t manage what you can’t measure’.”

As part of that, the Treasury and other central agencies are moving to a “shared service delivery model” which will support all agencies through a single corporate services operation run in the Treasury.

Other ideas are being developed, he said.

“And I should add that this is not just about using traditional economic frameworks but about tapping into the emerging research from other disciplines to better understand peoples’ behaviour.

“It is also about drawing on wider expertise. The Treasury has asked both the public and private sector for innovative ideas on how we can improve effectiveness and efficiency across the state sector.”