First cut is deepest, but the rest will hurt, too

Friday saw the return of the analogy of the money tree at the back of the garden. It is the go-to explanation for Prime Ministers and Finance Ministers trying to explain why they cannot splash the cash or have to make cuts: “There is no money tree at the bottom of the garden.”

Back in the last National Government, the non-existent money tree made a lot of appearances, as did then-Prime Minister John Key’s preferred variant that there were no little pixies at the bottom of the garden making cash.

So it was that on Friday, Finance Minister Nicola Willis reached for the money tree when she was being asked about job cuts in the public sector and the Government’s response to the latest GDP figures confirming recession.

Stories about funding cuts will become a staple in the coming weeks and months, as Willis tries to shake enough coin from the money tree at her disposal (the revenue the Government gets) to pay for National’s tax cuts and coalition promises, while trying to keep enough foliage on the tree to be able to claim the Government is being fiscally responsible.

The trouble for the Government is this could lead to a perception it is sacrificing everything else at the altar of its tax cuts.

Trimming down the public sector has become almost a rite of passage for National governments: public servants will recall the nips and tucks from 2008 to 2017 under attempts to impose a cap on numbers. It also took the pruning saw to a range of other allowances and schemes and cut way back on government advertising.

Offering tax cuts in times of economic stress is also a rite of passage: the last National Government did it in the immediate aftermath of the Global Financial Crisis.

That 2008 Government didn’t use its cuts to pay for income tax reductions: those tax changes were paid for by raising GST, under what it called a “tax switch”.

The inability of the current Government to put up a convincing case as to how it will pay for its upcoming tax cuts allows the Opposition to paint everything as being for the sake of tax cuts.

This week, Willis gave them a helping hand when she said the staff cuts in government departments were both to free money for the frontline services and to help pay for “income relief ” — in short, National’s tax cuts programme.

The campaign chickens have come home to roost in that money tree at the bottom of the garden.

Willis is currently at the stage of harvesting the low-hanging fruit: the cuts to the public sector.

Government department heads had been ordered to cut spending by either 6.5 per cent or 7.5 per cent without touching their frontline workers. They’ve been plugging away at it, consulting staff, changing to instant coffee and scrapping perks while coming up with “transformation plans” — presumably deemed a more optimistic way of framing a restructure.

But the rubber is hitting the road now that the job cuts are starting — this week, more than 700 roles going from three ministries alone: the Ministry for Primary Industries, the Ministry of Health (shrinking its workforce by 25 per cent) and a second round of redundancies at the Ministry of Business, Innovation and Employment (MBIE) after an earlier round delivered 110.

Other departments are following the same path. That will see hundreds of public servants out of work by mid-year.

There has been a blunt response from some politicians: Act deputy leader Brooke van Velden’s comment that workers at private sector businesses also had to stomach redundancies was cold comfort. So was Willis’ assurance that the public servants were competent, skilled people and she was sure they’d find employment elsewhere. At the same time, Prime Minister Christopher Luxon was saying it had been a “tough time” for businesses who were also having to lay off staff.

However, politically at least, the pruning of the public sector is the easy sell for the Government.

None of it should come as a surprise: National campaigned on it, very loudly.

Nobody can say there was no warning.

The political sales job for what Luxon describes as a move to “right-size” the public service is a basic one.

National is still in the grace period of being able to blame the former Labour government for everything and is trying to make the most of it (not always convincingly, but fair’s fair: Labour did the same thing).

Asked about the job cuts on Thursday, Luxon put the blame at Labour’s feet, saying “economic mismanagement” meant “too much bureaucracy was created”.

In short, those bureaucrats should be blaming Labour for giving them jobs in the first place, not National for taking them away.

It is hard to argue against the numbers National is using. It is pointing to the large increase in the core bureaucracy since 2017 and asking voters if they think they received commensurate value in service.

It’s a fair bet National is right in thinking the rest of New Zealand won’t be shedding tears about some bureaucrats losing jobs in Wellington — Luxon’s dismissive attitude about the “bubble” of Wellington compared to the “real world” has shown he knows that.

National has tried not to make it look like it is gutting the public service, especially when it comes to distinguishing between frontline workers and the back-office ones.

It is arguing that back-room people must go to free up money for the frontliners. It knows that trimming the front line — the nurses, the police, anyone with a uniform who cares for the public — would hurt the party politically.

Trimming invisible bureaucrats is a far less politically fraught exercise and National knows it, despite department heads warning that cutting too far into back-office roles will affect the front line as well.

The Government will be happy with where this has landed so far: the left’s argument that all those extra numbers in the public service are critical is not believable, while those further to the right say the cuts have not gone deep enough.

The harder sell than cuts to the public sector headcount will be cuts that affect voters, or groups of voters, the extent of which we will not see until the Budget.

There will inevitably be cuts that get kickbacks as ministers run the rule over the various programmes and government assistance packages to decide which to cull, trim or keep.

An early taste of that was in the tightening of criteria for a disability allowance: a move the Government didn’t even know it was making. It caught Willis on the hop and it transpired that it was because the ministry was about to go over its budget. Willis used it to highlight her wider point, that the backoffice savings would push more money to the front line, saying disability services would benefit.

It nonetheless served as an early warning to voters that any government assistance they currently get is not necessarily stable income.

It was also an early warning to the Government about how to handle cuts. If there is a compelling reason for pruning, the public accepts restraint. In some cases, the cuts will also be trade-ins: taking away something Labour was paying for to pay for something National wants to pay for instead.

However, when it starts to look petty and affects the most vulnerable, it can come back to bite.

Willis’ reaction showed she knew that, and even Act leader David Seymour, the most ardent fan of taking the weed-whacker to government spending, said it would be going too far.

Things will also get fraught if there are cuts to payments that benefit a lot of people: that is why Working for Families is rarely touched and things like NZ Super payments are a no-go area.

It is one thing not to offer a new financial benefit to voters. It is another altogether to take money away from people who are already getting it — especially if it amounts to less than they might get back in tax cuts.