By Alex Tarrant
Finance Minister Bill English has cast another shot over the bow of New Zealand's public service, which he has accused in the past of creating too much 'waffle', saying changes to streamline public services were more important than ever in the wake of the February 22 Christchurch earthquake.
Government is staring down its biggest ever budget deficit, which could hit 8-9% of GDP this year as it borrows to pay for the immediate costs of the quake, books future quake costs, and has to deal with a slower-than-expected economy -- even before the earthquake struck.
The government is also wary of a credit rating downgrade as it ramps up its borrowing programme, and as international ratings agencies review the way they assess sovereign risks.
"Because most developed countries guaranteed their banks, financial markets increasingly add private and public debt together to assess credit risk. So even though our government debt is lower than some other countries, that alone does not provide an accurate picture of our position," English said in a speech to the Institute of Public Administration New Zealand.
"New Zealand's total debt to foreigners is among the highest in the world and over the next few years that will be pushed even higher by growing government debt," English said.
Getting on top of the country's fiscal position, and rebalancing the economy, necessarily meant the Government being a smaller part of the economy than it was now.
"The previous Government’s decision to massively ramp up spending in the 2000s left behind a large, structural budget deficit, and a bloated public sector that by 2008 was crowding out the competitive sectors of the economy," English said."
"Despite the best efforts of the Government and the public service since then, the deficit may reach 8% of GDP this year, which is uncomfortably high. But we believe if we make careful decisions about government spending we can still get back to a meaningful surplus in 2015/16," he said.
"After that, the Government is committed to resuming payments to the New Zealand Superannuation fund and generating large enough surpluses to pay back most of the debt we are currently accumulating. That means public spending restraint is no temporary aberration. It is effectively permanent."
Diseconomies of scale
Meanwhile, English outlined why the government thought the public sector was too bloated.
"The longer we are in office the more it is clear that the costs of running government are too high, there is too much duplication and the organisation is too cluttered," English said.
"For a country of just 4.4 million people, we have 38 government departments, over 150 crown entities and more than 200 other organisations for which the government has some responsibility. Too many agencies in the wrong place risks diseconomies of scale, transaction costs, duplication of roles and back-office functions, and in some cases reduces the cohesion and quality of frontline services," he said.
"New Zealand’s limited governance and management skills have to be spread over a large number of agencies, all of which are vying for ministers’ time and attention.
"As the Prime Minister indicated in his Statement to Parliament last month, you should expect to see more consolidation of agencies and functions over the next two or three years, where those changes have the potential to improve the direction, focus and results of the public service as a whole," English said.
Here is a video English saying many departments will not get enough money to cover inflation increases. On Monday, Prime Minister John Key said the three departments identified to get more nominal spending - health, education and justice - may get increases once inflation is adjusted for (real increases), although this was not definite. See Key's comments in the video in this article here.
(Updates with second video of English, link to Key's comments yesterday, on how these moves fit in with the credit rating debate)