Where to wield the knife for spending cuts

Roger Partridge
NZ Herald
29 September, 2023

Retirement spending and the size of the public service as two obvious areas for expenditure cuts. Significant savings are available from the reform of retirement income policy.

Reforms should include: (a) Abolishing subsidies to KiwiSaver; (b) Amending indexation of NZ Superannuation and raising the age of eligibility by two years, linking further changes to health-adjusted life expectancy; (c) Suspending NZ Super Fund contributions (and ideally winding up the fund and using the proceeds to repay government debt).

The core public service has increased from 47,000 fulltime equivalents (FTEs) in 2017 to over 62,000. Meanwhile, public service outcomes have declined (just think education, health and law and order).

The bulk of the growth in headcount has been in administration and management — not frontline staff. Take the Ministry of Business Innovation and Employment (MBIE) as an example. From 3336 FTEs in 2017, it grew to 5832 in 2022.

Over that time, the number of its managers grew by 44 per cent, and it now also employs more than twice the number of clerical and administrative workers. It is the same story across practically every other government department.

Employment at the Ministry of Transport is up 102 per cent at the Ministry of Education 55 per cent, and at the Ministry for the Environment, 137 per cent. The size of the core public service should be returned to 2017, at the very least. Numerous other opportunities exist for reducing public spending by identifying and reducing low-quality expenditure.

The incoming government should thoroughly investigate other public sector programmes and initiatives that fail to meet their objectives or provide poor value for money. KiwiBuild,

Fees Free tertiary education, and the Provincial Growth Fund (PGF) are strong contenders for removing such wasteful expenditure. Identifying ineffective programmes and initiatives is not easy. And rigorous evaluation of policy programmes and investment projects is relatively rare in New Zealand. However, without proper cost-benefit tests, projects that are of poor quality and offer little value could burden future generations with massive debt and taxation.

Following the global financial crisis, many countries, particularly in Europe, undertook comprehensive expenditure reviews to reduce low-quality expenditure. A similar exercise should be undertaken in New Zealand to identify and eliminate wasteful expenditures in addition to those identified above.

For example, the Initiative’s report, Decade of Debt: The cost of interest free student loans (2016), showed that the interest-free student loan scheme is not fit for purpose. No compelling public policy case for universal subsidised student loans exists.

The policy hardly moved tertiary participation rates. Nor did it lead to any improvement in tertiary equity.

Yet, by 2016, the scheme had resulted in almost $6 billion of taxpayers’ money being written off. Our research showed it is a costly, ill-targeted scheme and should be abolished in favour of means-tested scholarships and stronger preparation for post-secondary study.

To view this article on the NZ Herald website, click here.

Stay in the loop: Subscribe to updates