The Government has effectively rejected a radical proposal from the Productivity Commission which could have opened up the Budget process to non-governmental organisations.

The previous National Government in 2017 asked the Commission to examine productivity in the state sector.

Predictably the Commission produced a report which drew heavily on private sector market-driven ways of improving performance.

It particularly suggested that the Minister of Finance should set aside money in the Budget dedicated to “high impact initiative” proposals that had a high probability of making a significant impact on social wellbeing.

These would need to be  evidenced through robust business cases, and returns on investment and then the Government would progressively increase the share of the budget allowance devoted to that portion.

“The Minister of Finance should restrict access to the “high-impact initiative” portion of future budget operating allowances to those departments that can credibly demonstrate productivity gains from existing baselines,” the report said.

But even more controversially it proposed that the process be opened up beyond the state sector.

“The Minister of Finance should allow non-government organisations to make budget bids directly to the Treasury for the “high- impact initiative” portion of the operating allowance,” the report said.

In other words, NGOs would be able to bid for Budget funding on the same basis as a Government Department like Social Development or Education.

In a way, this was where National’s Social Investment approach was headed.


But in a formal response to the Commission’s report issued last night, Finance Minister Grant Robertson and State Services Minister, Chris Hipkins, have rejected the proposal.

They said there had have been attempts in the past to allow non-government organisations (NGOs) direct access to the Budget process.

“Lessons were learnt from this experience including that more than a simple opening up of the process is required such as working with NGOs to ensure that they have the capability to engage with the process, the evidence of what works and what doesn’t work, and knowledge of what has been tried before and what is currently underway,” they said.

“Like any innovation system, more is required than simply providing access to funding.”

Behind the civil public service speak in both the report and the response is a fundamental philosophic difference.

On the one hand, was the Commission’s more or less neo-liberal approach to economic issues and, on the other, the Labour Government’s more traditional state-led approach to the economy.

In essence, the Commission proposed that competition be introduced into the delivery of essential Government services.

It was prompted to involve the NGOs as a market-type solution because of what is said was the risk-averse culture that it found was embedded within the New Zealand public service.

“ Risk aversion manifests itself in the state sector’s operation in multiple ways: including rigid and hierarchical management structures, prescriptive internal approval processes, inflexible procedures for sharing information, and restrictive funding contracts,” it said.

“Many of these procedures and processes are designed to manage perceived risks to the agency or “to ministers.”

It said risk aversion, to some extent, stemmed from the adversarial nature of the parliamentary system.

“All democracies must strike a balance between political accountability on the one hand and creating an environment conducive to innovation on the other.

“An unsophisticated approach, which seeks to minimise rather than manage risk, stifles innovation and limits the opportunity for productivity gains.”

 The report also found that the New Zealand public service, presumably because of the pre-occupation with limiting political risk to Ministers, was intolerant of failure which had the effect of stifling innovation.

The Ministers didn’t comment on this but said that the Commission’s report would be taken into account as new State Services legislation is drafted this year.

The report was originally commissioned by National to sit alongside its social investment approach to health, welfare, housing, education and corrections.

The involvement of NGOs was central to that approach.

And though the current government’s Wellbeing Budget will echo the outcomes focussed approach of social investment, what is now abundantly clear from last night’s statement, is that Labour sees the solutions to the problems defined under the Wellbeing Budget as coming largely from the state.