The public sector has been hit with another blow, as the Ministry of Health and Ministry for Social Development are expected to cut hundreds of jobs. Up next week are the Department of Internal Affairs, followed by the Department of Conservation.
What isn’t clear is what will happen to the thousands of people who lose their jobs in this round of redundancies.
It’s not unusual for different governments to take different approaches to the public service.
As a (maybe overly simplistic) rule, Labour governments build up the core public sector workforce, and National governments cut it back. Right-wing governments favour the flexibility offered by a smaller public service, with the ability to bring in consultants and contractors when needed for specific policy design or projects.
But this time around Nicola Willis – the minister for both finance and the public service – has said there will be no revolving door.
The thousands who lose their jobs as the Government looks to find on average 6.5 percent savings, in part to fund National’s tax cuts, will not be hired back as consultants or contractors. Willis has said she expects government departments and Crown entities to reduce spending on consultants and contractors by $400 million.
This means the highly skilled, highly paid public servants will be looking for roles in the private sector, moving overseas, or retraining. But it won’t be straightforward, with both job ads and business confidence down, and consultancy firms around the world making cuts.
In March, Willis said she’d set a clear expectation that government agencies would cut back their spending on consultants and contractors.
Agencies should not be using consultants and contractors in place of full-time staff, she said, adding that she had asked the Public Service Commission to monitor the revolving door.
“I would be disappointed if I saw any of that behaviour,” she said at the time.
In December, the commission provided Willis with a report on monitoring the public sector workforce, which included expanding monitoring to Crown entities, and showed the amount spent on consultants and contractors as well as staff.
The commission told Willis there was no single reliable source of workforce data, including contractors and consultant expenditure, for Crown entities. But a one-off survey that included the public service, Crown entities and non-public service departments like NZ Defence Force and NZ Police, showed 84 percent of spending on consultants and contractors happened in just seven agencies: Health NZ, Waka Kotahi, NZ Police, Kāinga Ora, Defence, ACC, Fire and Emergency and NZQA.
It also showed a huge variation in size between Health NZ’s 77,000-plus full-time equivalent staff and just seven at the Broadcasting Standards Authority.
The commission is now gathering standardised data and is monitoring contractor and consultant spending and the size of the workforce.
A spokesperson for the commission said they were working with agencies to manage that.
The latest quarterly results show that by December 2023, the numbers of full-time equivalent staff in the core public service (which does not include non-departmental agency staff, like healthcare workers, defence personnel and police officers) had risen to 65,699 – up about 4.5 percent year-on-year.
Some of the biggest increases in terms of full-time employees over the year were at the Ministry for Business, Innovation and Employment, the Ministry of Justice, the Ministry of Social Development, the Department of Corrections and the Ministry for the Environment.
Decreases were recorded in the Customs Service and Ministry of Health, due to sector reforms.
But the data also showed spending on contractors and consultants across the Public Service was declining, and the Government expected this decrease to continue.
Outside of this, agencies were required to declare as part of the parliamentary annual review process whether they had hired back former permanent staff as contractors and consultants.
The commission said employment and contracting decisions were matters for individual agencies and their chief executives, but in line with guidance (issued by MBIE), agencies should not be engaging contractors and consultants for core functions, such as work that could be done by permanent staff.
“Long story short, there aren’t a huge number of opportunities out there at the scale we’re talking about,” says Infometrics principal economist Brad Olsen.
As well as fewer public service jobs, or opportunities for employment as a contractor, the unemployment rate was up and job ads were down.
Population growth – off the back of high immigration – meant there were more people competing for fewer jobs. Business confidence was down. And the number of jobs in the professional services sector was down.
The big four – KPMG, PwC, Deloitte and EY – are regularly contracted by government agencies to do a range of consulting work, but they’ve read the writing on the wall.
A PwC New Zealand spokesperson said the firm had cut 40 jobs in its government advisory team.
“This decision reflects an industry-wide reduction in demand for some areas of our government advisory business as well as our response to changing market conditions and evolving client needs.”
Meanwhile, KPMG New Zealand executive chair Matt Prichard said the well-documented general slow-down in the New Zealand economy had impacted demand in parts of the business.
However, the firm would not be cutting jobs.
“We’ve seen those cycles before, and, consistent with our behaviour through the GFC and through Covid, our partners’ instinctive response is to retain the talent that we have in order to continue serving our clients, rather than react to short-term cycles.”
Pichard said strong demand in some areas of the business balanced out the reduced government spending.
The other two firms did not respond to requests for comment.
This isn’t just a New Zealand issue. Last year, global management consulting firm McKinsey embarked on a rare round of job cuts, planning to eliminate about 1400 roles.
The cuts amounted to about 3 percent of the firm’s headcount, which had ballooned to almost 47,000 from 28,000 five years earlier.
McKinsey offered incentives, including nine months’ pay and career coaching services to people who would take voluntary redundancy.
Olsen said there were a few options for people coming from the public sector, including moving overseas.
The past week has seen renewed talk of a brain drain, with Employment Minister Louise Upston conceding it is an unfortunate reality of a recession.
While the so-called brain drain – especially to Australia – has been happening since the borders reopened in 2022, it’s so far been masked by strong inward migration.
Act Leader David Seymour – one of the strongest advocates for public sector cuts – says there is “no question” some of these public sector workers will be looking overseas for jobs.
“But it’s also true that over time, on average, New Zealand is exporting its people. And until we make it easier to build a house, easier to get an education, more productive to get a high-paying job, it’s going to keep happening.”
Olsen says there will always be merit in people getting overseas experience, as long as New Zealand had a way to attract them back.
There may also be opportunities in the much-talked-about frontline roles, such as in healthcare and teaching.
For those wanting to stay in New Zealand, and possibly make a lifestyle choice to stay close to parents or spend more time with their children, they could look to retrain as a teacher, he says, adding that he expects to see tertiary and trades training enrolments increase.
Public sector job cuts so far
On Thursday, the latest round of proposed cuts were announced by the Ministry of Health, which is looking to slash 134 of its 730 roles. And the Ministry for Social Development, is expected to lose hundreds of workers through redundancies and unfilled vacancies, according to the Public Service Association. That followed seven other departments that have put a target on their intended job cuts.
- Ministry for Primary industries – 384 roles
- Ministry for Pacific People – 63 roles
- Ministry for Ethnic Communities – nine roles
- Crown Law – 17 roles
- Ministry of Business, Innovation and Employment – 77 roles due to cancelled programmes, 111 roles in a first round of voluntary redundancies, more to come
- Customs – 34 roles in a first round of voluntary redundancies, second round of forced redundancies to come
- Productivity Commission – Disestablished entirely, 23 roles
Next week, the Department of Conservation and the Department of Internal Affairs are expected to reveal plans for cuts to staff. The week after, Oranga Tamariki will do so as well.
