Doubts about public sector job cuts

By late yesterday, NZ First leader Winston Peters was already thumbing his nose at Nicola Willis’s hopes of slashing the public service.

Willis is asking the Public Service Commission to oversee the elimination of 8,500 jobs by 2029.

Peters has been a jealous guardian of both the budget and staff numbers at his own agency, the Ministry of Foreign Affairs and Trade. (MFAT)

Willis yesterday announced she was cutting “most” public services agencies’ budgets by two per cent this Budget and by five per cent next year and again the following year.

But Peters told POLITIK that MFAT was funded this Budget to preserve every existing High Commission and Embassy and their operations.

That is a contrast to the past when successive Governments closed posts as part of cost-cutting moves.

Most famously, Sir Robert Muldoon closed our High Commission in India in 1982.

In 2012, the Government closed the embassy in Stockholm, Sweden, and downsized several other European posts to save $10 million. 

Peters went on to scoff at the idea of future MFAT savings.

“Budgets don’t bind future Governments,” he said.

“Therefore, subsequent budgets do not concern me.”

Willis is up against not just the territorial protective instincts of the Foreign Minister but also nine years of public service expansion; most of it under the Ardern-Hipkins governments, although her own has only just managed to stabilise the numbers rather than cut them.

The expansion is more of an explosion; total public service jobs are up 32.6 per cent since National left office in 2017, even though the population has grown only 11 per cent over that time.

The big increases have come with information professionals, legal, human relations and finance professionals and managers more generally.

Numbers of the traditional public service pen pushers, clerical and administrative workers, are up, but by about only half of how much managers have risen.

What the figures clearly show is that the big boost in public servant numbers can after the 2017 election but had begun to taper off after Covid in 2022 and then there was another surge leading up to the 2023 election then a plateau before a very slight drop in 2024-25.

But Willis also wants to cut the number of Government departments and Ministries.

Speaking to the North Harbour Business Club, she said that over the next three to five years, the Government would significantly reduce the number of public service agencies. 

“Following today’s announcement, public service agencies will be asked to come up with proposals to logically merge their existing activities around citizen-facing functions, using common technology platforms,” she said.

“The creation of the new Ministry of Cities, Environment, Regions, and Transport is an example of what is possible.”

However, a New Zealand Initiative report from September last year suggested that the place to start the cuts might be in the Beehive itself.

It found that New Zealand had built one of the most complex executive governments in the developed world with 81 ministerial portfolios, 28 ministers and 43 departments.

“It has more portfolios than any other developed country of similar size – and far more portfolios and departments than peers like Ireland, Norway or Singapore,” the report authors Roger Partidge and Jemma Stevenson said.

“Ireland, with a similar population, has a Cabinet of 15 ministers and 18 departments.

Norway manages with 20 ministers and 17 ministries.

Singapore has 18 ministers and 16 ministries.

“In contrast, New Zealand operates with over three times as many portfolios per capita and more than one and a half times as many departments.”

The report argued that the size of the New Zealand executive was the product of politics.

“This scale is not the result of deliberate design. It is the byproduct of successive political decisions: portfolios created to appease coalition partners, signal priorities or reward party loyalty,” the report said.

Contrary to what Willis proposed yesterday, the New Zealand Initiative found that multi-Ministries were not the answer.

“Each area of government activity should have a clearly identified minister and department responsible to Parliament and the public,” the report said.

“The current situation – where departments like MBIE report to over a dozen ministers – undermines this principle.

“International models (Ireland, Norway, Australia) show that when one senior minister is responsible for a coherent policy domain, ministerial oversight, parliamentary scrutiny and public understanding improve.”

That is not to say the Initiative opposes reorganisation.

One example it gives is that the Treasury and David Seymour’s Ministry for Regulation could merge to form a Ministry of Finance.

A new Ministry of Justice and Law, integrating courts administration, justice policy, police, corrections and emergency management into a single structure, could improve coordination across the justice system, enabling more effective responses to public safety and legal system challenges, the report said.

Willis, however, said the aim would be to reduce the number of public servants.

“We will be tracking progress towards a numerical target of no more than 55,000 full-time equivalent public service employees by July 2029,” she said.

“That’s 8700 fewer than were employed in December last year.”

The target will not apply to every Crown agency.

“These targets apply to the core public service and do not include teachers, nurses, doctors, police or people employed by Crown entities,” Willis said.

“We fully expect that with good budgeting, we will be hiring more nurses, police officers and others in critical frontline roles. 

“How will we achieve this reduction in numbers?

“By doing the things your business considers routine: allowing for natural attrition, stopping duplication, streamlining back-office functions, accelerating uptake of digital tech and requiring government agencies to report every quarter on their progress towards the targets.”

Predictably, the Public Service Association reacted with outrage, calling Willis’s proposal “an act of wilful destruction of the public service”, which all New Zealanders would pay a price for.

A more sceptical critique came from the former Reserve Bank economist, economic commentator, and blogger, Michael Reddell.

“One might sympathise with the spirit of the Minister of Finance’s speech today (I do) but can’t help noticing that there are no specifics (at all) beyond the baseline cuts for 26/27 for some agencies in the Budget,” he said in a post on “X”.

“Beyond that is little more than handwaving. Talking up 20% real cuts (2+5+5 + 2% pa inflation) means almost nothing at this point (6 months from an election, with her party averaging say 28% or so in recent polls) without specifics.

“It has the feel of budget-accounting gimmickry: just enough to get Treasury to count the savings in the forward fiscal projections and thus avoiding any more slippage in the date for getting back to surplus.”

The cuts would particularly impact Wellington, where 41 per cent of the public service is employed.

That would suggest there could be around 3500 jobs lost in the capital by 2029.

But Peters won’t be the only Minister anxious to preserve his patch.

And the chances of the Government streamlining its Ministry are probably zero.

The Government made brave promises during the last election campaign to cut backroom bureaucracy.

Clearly, it has not managed to do so.

Therefore, it might pay Wellington’s public servants not to panic prematurely.

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