Departments have embarked on cost-cutting measures in anticipation of a hard line being handed down by Minister of Finance Nicola Willis, to save $1.5b.
In particular, 39 chief executives have been told to make annual savings or either 6.5%, or 7.5% if their staffing has increased more than 50 percent in the six-year term of the Labour-led Government.
Internal Affairs says it’s already cutting back spending on property insurance, security, cleaning and building maintenance. And the Ministry of Education is warning of cuts to core services like school building projects.
Last night, Security Association head Gary Morrison and Insurance Council chief executive Tim Grafton both said the pursuit of short-term savings comes at far greater longterm risk to the public purse and personnel.
“The risks are getting greater,” says Grafton.
In a briefing to its new minister Brooke van Velden, the Department of Internal Affairs says it’s stress-tested possible cuts of 3 percent, 5 percent and 10 percent.
It’s already facing “significant cost pressures” driven by demand for third party services like passports, time-limited funding coming to an end, and ongoing inflationary pressures.
“Given the current fiscal environment, we are putting in place measures to manage and reduce our costs. We already operate in a fiscally constrained environment and will continue to operate with restraint,” the minister is told.
Internal Affairs executives say they’re considering what can be scaled back, deferred or stopped.
They’ve already implemented “targeted reductions” on security, cleaning and maintenance of buildings.
And the department has assumed additional risk by reducing the insurance cover for its property portfolio to keep premiums affordable, they say, and commenced work on the development of a medium to long-term risk financing strategy.
The Ministry of Education, too, has briefed its new minister Erica Stanford on its saving programme. It’s already required to find $70 million in permanent baseline savings each year from 2024/25 – that’s equivalent to 15-17 percent cuts to core spending.
National’s further cuts of 6.5 percent need to be discussed in that light. The briefing says further savings will require delaying or stopping school building projects.
MBIE says it’s already identified $126m of operating funding, $150m of economic development contingency funding and $67m of unspent budget from prior years to return to Crown across the next four forecast periods. Those savings are to spending on tourism, science and research.
It’s embarked on a Financial Sustainability and Efficiency Programme to save another $110m.
Other government agencies, though, are pushing back against spending cuts. Both the Police and the Defence Force warns they’re already cut to the bone, and need more investment – not less.
The Public Service Commission, which has oversight of all government departments, warns that careful management will be needed to cut spending without “compromising high quality services to the public”.
Steps such as salary caps or hiring freezes are “blunt instruments” that create perverse incentives or force departments to turn to contractors and consultants instead.
Instead, it suggests more specific options for improving workforce efficiency or more strategic workforce planning. For instance, deployable pools of mobile staff or “in-sourced” consultancy models.
Public servants with skills like policy development should be used across more than one department. And pay and conditions should be aligned across the public service, which would reduce poaching and competition for staff between government departments, driving up salaries.
Duane Leo, the national secretary of the PSA union for civil servants, says Willis should take on board the commission’s warning about blunt instruments. “The minister seems hell bent on ignoring it in this reckless cost cutting drive.
“We need to invest in the public service, not run it down,” Leo adds, “if we are to keep supporting an increasing and ageing population, and deal with our big challenges like climate change and the infrastructure deficit.”
Gary Morrison says the security industry would expect a discussion with departments like Internal Affairs about security cuts and managing risks.
The country has about 30,000 licensed security officers, who provide most of the security to public sector agencies. “When we talk about security, it’s not just guards, we’re talking about electronic security measures, alarms, and more. So there’s a fairly broad coverage area that they may be looking at.”
He says some government departments, like hospitals and the Ministry of Social Development, face unprecedented physical threats. “What we’re hearing from customers, including government agencies, is that staff are facing increased risks. Every MSD office has three security staff on site, and the risk to the workers on those sites is only going up, not going down.
“It will be very difficult to justify removing that security.”
Tim Grafton says cutting back insurance means that costs previously covered by insurance payouts will to have to be covered by the taxpayer.
He was chief adviser to a previous National leader and finance minister Bill English, and says he would have questioned any department wanting to cut back insurance.
After the Canterbury earthquakes, the Office of the Auditor-General had found 50 percent of Crown assets weren’t insured.
There are ongoing earthquake and tsunami threats, and the risks of severe weather events are getting greater, he notes. “When risks increase, that means that losses that people can experience also increase, and that’s the time perhaps when you ought to be concerned,” Grafton says.
“They’re looking to save costs, but if something significant happens, it’s down to the taxpayer to bail them out.
“Insurance is a prudent way of trying to manage risks where you might face significant losses. So cutting back on insurance is certainly not something to be recommended. So the Department of Internal Affairs deciding to cut back on insurance means that the taxpayer faces the losses.”
The Finance Minister, blinded by ideology and hubris, is seeking answers to the wrong question(s).
Start by asking what public services should be provided, from there work out the resources necessary to provide those services, and do it.
A one-size-fits-all approach of budget cuts everywhere, based on the dubious proposition that because overall government expenditure was (relatively?) smaller at some arbitrary date it should be reduced back to those levels, and ignoring the implications of the fact that Aotearoa New Zealand is a sovereign currency-issuing nation, is not the path to follow.