Cutting waste more complicated than it sounds
Yesterday’s Budget Policy Statement (BPS) continued to build the slightly frenetic feeling around the Government’s first Budget, as if to suggest all of Wellington is pulling an extended long, dark all-nighter of the soul to meet the late May deadline against a deteriorating economic backdrop.
Delivered within days of its statutory deadline of the end of March, rather than in December as has been tradition, after the protracted post-election negotiations, yesterday’s statement was missing the key number Budget anoraks look for in the release: the size of the new operational spending allowance for the coming year, suggesting that horse-trading over policies, bargaining for cash, and looking under departmental sofa cushions for spare change continue apace in the halls of power.
The task of delivering on the priorities outlined repeatedly and confirmed yesterday – delivering income tax relief, keeping tight controls on public finances and establishing an infrastructure project pipeline among them – has become more difficult with each passing month.
It should be noted that what the International Monetary Fund has identified as now being a structural deficit moving forward, and independent of Covid borrowing, was established by the previous Labour government and former Finance Minister Grant Robertson. The risk is that the present Government starts to see these projections of deficits like Robertson did, as more like allowances or targets than an already worst-case scenario, like the feeling of temporary wealth that comes from receiving a new credit card in the mail.
If delivering income tax cuts, childcare subsidies and an at least somewhat plausible path towards surplus at the end of May is this Government’s Hero’s Journey, then finding the concomitant spending cuts in each department and ministry represents a number of what video game enthusiasts would call “side quests”. Some of the ministers despatched to find these savings are experiencing it less as an adventure and more like being lost in a maze.
In opposition politicians will often talk about “line by line” reviews to identify cuts. In reality, this doesn’t happen. Ministers deal at the level of appropriations, of programmes and total spending authority.
Trading in stories of government incompetence and spending overruns, opposition MPs can easily believe 6.5% of all state expenditure consists of lavish intra-departmental pōwhiri and expensive dinners for senior management. Government waste, like representations of toxic waste in popular culture, would be obvious: lying on the ground, oozing and glowing, in storage barrels with hazard markings ready to be taken away.
Instead, much of it is hidden. It might be a team of 10 senior people doing routine work that could be performed by half a dozen juniors. It could be a programme that was once highly valuable but has achieved its purpose, but runs on with full funding. This is waste, but it doesn’t show up in the lines of any accounts. It needs to be identified by people who are familiar with the work of that agency and the public service.
This leaves ministers hostage to fortune or, more acutely, to the public service bosses. That’s bad news too, because after six years of pushing on an open door for funding increases, a door which led to a room full of money, and lack of clear direction from inexperienced Labour ministers, it is not clear the public service has the capability, let alone the will, to deliver surgical savings at the micro level or bold changes at the programme level.
Ministers can identify programme-level cuts: that is, drawing a red line through an initiative or service. But, as evidenced by the political optics disaster of disability carer allowance restrictions, ministers are not in the weeds of the detail of most operational matters.
Setting concrete performance targets, as in health, can help. So will the KPIs Luxon intends to release for his executive.
The previous National-led government in 2008 successfully squared this circle by using “purchase advisers”. Ministers engaged experienced former public servants and experts who reported to them to really get under the hood of departments and investigate how they were spending their money.
While the new Government considered reviving purchase advisers, the idea was discarded. There are a number of possible reasons. Possibly it was because of the prime minister’s background as a successful chief executive in the private sector, involving a more basic chain of command: as chief executive of NZ Inc, Luxon makes an instruction for costs to be cut to his executives, the ministers, who relay the order to managers in their divisions to execute.
Perhaps engaging experts on contract to improve the public service could cut across the optics of a new Government that had campaigned on slashing consultancy costs, even if the overall spend was derisory.
As Willis noted after the BPS release, the track back to surplus will not be immediate. The Government must plan on at least six years in office. If some ministers haven’t emerged from the maze by May, there’s still time to send someone in after them.