The $2.4 billion in estimated savings is particularly devious; we’re at the point in the political cycle in which voters, like consumers in any competitive market, are inclined to shop around, while parties, like any good retailer, will bend over backwards to match the best deal of their competitor.
In 2023, the then Finance Minister Grant Robertson and Prime Minister Chris Hipkins announced an almost identical 1-2% baseline cut, saving about $2b over the forecast period, plus $2b in other cuts, mainly to environmental and Covid-related programmes.
Minister of Finance Nicola Willis announcing public service reform plans. Photo / Dean Purcell
Hipkins didn’t like being reminded of these cuts on Tuesday, snapping at reporters to get a calculator to work out why Labour’s cuts were completely different to the coalition’s (said calculator reveals Labour’s cuts to be larger by $1.6b, a fact lost on the PSA union, which curiously urged public servants to get behind Labour’s cuts and “help identify savings” while bashing the coalition’s effort as a “wilful destruction of the public service”).
It was a clever tactic because Robertson and Hipkins probably knew National was planning to cut public service spending in order to make its tax plan add up. If Labour went ahead and did the cuts itself, National would have to cut extra deep, or sacrifice the prized “fiscal neutrality” of its tax plan.
The tactic worked; by the end of the week, National announced its tax plan, partly funded by cuts to baselines. Labour’s cuts gummed up the plan, forcing National to double down at great cost.
Willis is returning the favour, forcing Labour to oppose the cuts, without fully committing to reversing them – if Labour did that, it would have to find a further $2.4b to match Willis’ plan to redirect some of the spending at public services while reducing the deficit, money Labour doesn’t have while it struggles to find $12.8b to fund its pay equity promise.
The 8700 estimated job reductions is significant too, but analysis has suggested it will be very difficult to achieve if vital frontline roles are protected. Count me a sceptic.
Bigger than the numbers is the how. Much as her colleagues Chris Bishop and Simon Watts have done with councils, Willis, instead of ordering mergers and restructures herself, has asked departments to put up their own ideas.
She isn’t wrong that the organising principles of the public service feel a bit 1980s. We have a heavily devolved public sector with the “delivery” parts, like hospitals, schools, and the NZ Transport Agency gradually moving closer to the people they deliver for, while the policy agencies, the bits of the service advising ministers, are perhaps growing a little detached.
In the short term, the most significant changes will probably be the merger of functions like human resources, legal, and payroll. In the long term, it’s not unreasonable to expect something bigger.
Minister for Regulation David Seymour’s publication of a map of New Zealand regulators largely flew under the radar this week, but it hinted at what larger reform might look like.
David Seymour unveiled a map of New Zealand’s many regulators. Photo / Alyse Wright
It identified 267 different regulators (95 in central Government, 79 in local government, and 57 statutory bodies, committees, or tribunals). This Balkanised regulatory landscape means that who regulates what and who enforces those regulations is often unclear.
Seymour used the recent spike in stray dog attacks to illustrate his point: 11 statutes regulate dogs in New Zealand, stretching across five different regulators. In practice, this means regulators are often unclear about which part of the dog system they’re responsible for, which, in the worst case, can mean blame being shunted from one regulator to another to the point where the rules become meaningless.
The Government seems destined to streamline this system (and, given Act’s libertarian ideology, it’s likely to bin a few regulations wholesale along the way). If you’re a small independent regulator, or even a body with an obscure statutory function to regulate, expect to see some consolidation. You may even find yourself wrapped into one of the mega-ministries the Government has become so fond of.
Reform on its own is a good idea. Most of the problems the Government has identified with the public service really are problems. But announcing a headline reduction target and seeking to achieve it with such massive reforms without having a clear idea of what these reforms are to entail seems unnecessarily risky and careless.
The Government has made a virtue of its allergy to deliberation and working groups, but if it is as serious about fundamental public service reform as it claims to be, then a working group or even a Royal Commission (there have been two Royal Commissions on public service reform – the last was 70 years ago) is probably a better way to go about it.
There was one final reform to go: on Thursday morning, Housing Minister Bishop announced what could be the largest reform to social housing since the 1990s. The reforms, if the Government holds its nerve, would see state houses more directly targeted at those in the greatest need, with less worthy cases pushed into the private market.
That sanitised precis disguises the fact that for thousands of poor and vulnerable people, state housing is about to become more expensive, and some tenants may move to fixed-term tenancies, which may require them to vacate their homes.
Bishop is an apostle of the “abundance” movement, sweeping both the right and left sides of politics. Abundance types believe in liberalising reforms to incentivise the building of an abundance of rental accommodation, leading to renters having a choice of high-quality accommodation at low cost.
In this world, low-income households requiring affordable housing could find it on the private market because of an abundance of supply.
Minister Chris Bishop explaining reforms to public housing. Photo / Mark Mitchell
We’re probably closer to that world than at any time in the past decade or more. Rents are falling by some measures, and we’re beginning to see competition to attract good tenants. It suggests we’re heading in the right direction, but we are a long, long way from getting there. A report from consultant Property Knowledge in conjunction with property managers Property Brokers, published at the end of last year, reckoned that renters pay, on average, 40% of their income in rent.
For the reforms to succeed, New Zealand needs to fundamentally change, but perhaps not in the way people think. The Government and opposition are retreating to predictable ideological positions on state housing, with the opposition favouring stable tenancies, while neglecting cost, while the coalition argues the opposite. Those positions are so embedded in the ideologies of the respective sides that it’s unlikely either side will score a conclusive victory.
What will need to change is not attitudes to state housing, but the attitudes to private housing, in particular rentals. The only way the reforms will succeed is if there is actually a thriving, competitive and affordable private rental market for state housing tenants to go into. If that doesn’t exist, the reforms will be little more than what the opposition alleges them to be: a way of rinsing state house tenants for extra cash before turfing them out.
Neither side seems ready for this. Labour, desperate for cash to make its floundering fiscal plan stack up, is contemplating draconian tax changes for rental properties that officials argued would reduce supply and might put upward pressure on rents. The changes would mean even loss-making rentals would be liable for big tax bills, forcing landlords to hike rents or sell. That increases the supply of homes for purchase, good news for those in the market to buy, but bad news for an ex-state house tenant looking for a place to rent.
The coalition doesn’t have a good story to tell here either; it’s spent the entire term scrapping over how much it wants to reduce the availability of new planned housing supply in Auckland, the single biggest thing any Government could do to make housing more affordable.
Labour wants to use houses as a cash cow for itself and its supporters in the public service; the coalition wants to use houses as a cash cow for its supporters.
If successful, the reforms would change not simply the face of housing policy, but the whole gamut of policies designed to combat poverty.
But getting there will be a nightmare, and if the Government fails, the reforms will cause immense suffering to vulnerable people, trapped between state housing they cannot get and a private market they cannot afford. This is a case of the road to good intentions being paved with hell.
Bishop is well known for loathing the political cliche “explaining is losing”, believing it is politicians’ job to explain their reforms.
That’s a good thing. He’ll have a lot of explaining to do if these changes are to succeed.