The nearly unanimous verdict on Prime Minister John Key’s pre-budget speech last week is that it was completely underwhelming.
In fact, some commentators have taken the speech as further evidence the government is running dry on fresh ideas.
Key’s pre-budget announcement was indeed disappointing, and it did lack visionary zeal. But not because of its spending promises (or lack thereof). It was disappointing because of the reluctance to reform the way taxpayers’ money is allocated.
Everyone has been fixated on how much the government spends.
But when will governments be scrutinised for how much they save or what outcomes they achieve with the money spent? Why is it that, over and over again, the public uses government spending of taxpayers’ money as a proxy for its effectiveness? The Budget transparently shows the government’s accounts but lacks rolling reviews of how effective current government spending is from an outcomes-based perspective.
Minister Bill English has himself previously acknowledged the flaws in the tax-and-spend system. In an address to New Zealand Data Futures Forum, he admits “Too often government is flying blind. You let us get away with getting up and saying ‘we spent $20 million on a problem that shows we care’.”
With an election out of the way, now is the most opportune time for the government to rethink the way it spends taxpayers’ money. It seems to be a luxury only the public sector can afford, spending billions of dollars at a time, without demanding quantifiable results.
Perhaps the most reformatory budget announcements are yet to come.
In his speech to the Institute of Public Administration New Zealand (IPANZ) earlier this year, Bill English signposted several changes to the budget process.
These changes include the development and wider implementation of the ‘investment approach,’ currently associated with the Ministry of Social Development’s view of welfare liability. This includes incorporating innovations in measurement, evaluation and feedback into the budget process.
The investment approach could radically change the way budgets are delivered in the future and, indeed, the way the public views the role of government in delivering social services. These are not insignificant changes.
The new approach involves ministers having greater access to data on what works. This can inform where spending can make the most difference. Currently, the government has little clue of what works, so government spending to date is often poorly targeted to genuine need.
Surely this is an urgent priority. Why should taxpayers entrust government with even a cent more of their money, when it is unclear whether the current spending is effective and reaching the right people?
There will also be a greater shift to the government funding of outcomes, rather than just inputs. Bill English uses the example of purchasing reductions in recidivism, rather than rehabilitation programmes.
Greater freedom and flexibility
The difference is more than mere semantics. Purchasing inputs often constrain service providers, as the government has bought a certain service and it is expected the service will be delivered as contracted. Buying for outcomes, on the other hand, could give providers more freedom to adapt services according to feedback, and holds providers accountable to not just delivering a service but also delivering an effective service.
The shift from contracting for inputs to outcomes could give social service providers greater freedom and flexibility, allowing them to tailor their services at a local or individual level, rather than deliver a nationwide uniform programme.
Again, it is unclear why taxpayers should accept any new spending, when most government contracting is currently not contingent on achieving outcomes. Only in government would you continue to pay for a service without any evidence it is achieving what it is paid to achieve.
Finally, it is expected there will be greater exploration of testing government department bids against private providers. This will undoubtedly be twisted by cynics as privatisation by stealth. However, if private providers can achieve better outcomes at a lower cost, it is hard to conceive of this as bad.
From a taxpayers’ perspective, it is surely of great merit that the government is calling for more measurement, accountability and evidence of effectiveness for the billions spent on social services.
In fact, it is pretty concerning, if not infuriating, that many social programmes are currently operating without sufficient data about the populations they serve or evidence of their programme’s effectiveness. Without accountability measures, there is little opportunity to test the hypothesis that the public sector indeed produces superior results.
Transformative reform?
It is possible Key’s pre-budget announcement was suitably drab to give Bill English the spotlight on Budget day. It is also possible that these reforms are expected to fly under the public radar.
To a certain extent, many of the innovations in social service delivery are already taking place on a small scale. Programmes such as Whanau Ora, the Social Sector Trials, and social housing reform harness private sector capabilities, cross-government initiatives, and local community knowledge, in unique ways.
Outcomes-based contracting is also being trialled in the form of a social bonds pilot, led by the Ministry of Health. The social bonds model has the potential to incentivise achieving social outcomes, and shift financial risk from the taxpayer to the private sector. The New Zealand Initative will release a report on the potential for social bonds in the near future.
If a greater roll-out of the social investment approach is still on the cards, such a reform could be transformative. Surely it would be a refreshing change from the typical Budget attitude of ‘we’re spending your money, what more do you want from us?’
Hopefully in the future, Budget days will be less centred on how much the government has spent to prove it cares, and more on how much the government has saved while still producing superior outcomes.