“This set in motion a self-reinforcing dynamic in which ministers became less confident in the Treasury’s advice, the department’s influence across the system reduced, and the Treasury lost talented people, and collective confidence, becoming more risk-averse and less ambitious,” the report said.
The report calls for Treasury to “work at pace to regain its reputation as ambitious and to act with urgency and clarity to provide the strategic leadership and trusted advice that supports New Zealand to navigate fiscal and economic uncertainty, realise opportunities, and lift living standards for all New Zealanders”.
Specifically, Treasury needs to start “bending two curves” – the growth curve needs to curve up, while the debt curve needs to bend down.
Economic policy advice ‘weak’
The report gives a “weak” rating to Treasury’s ability to effectively deliver economic policy advice. It gave a “developing” rating to Treasury’s ability to deliver budget and fiscal management and system and sector performance.
Missed issues at ACC, Health NZ, and the Interislander ferries
Recently, public finances were hit by large deficits at ACC and Health NZ, creating a massive political headache for the Government. The Interislander ferry replacements have also caused problems.
The report said Treasury missed aspects of these organisations’ problems, while they were growing.
“Core function – Economic policy advice monitoring of ACC was seen as having failed to identify and escalate emerging performance issues, contributing to multiple independent reviews,” the review said.
The report said there was some confusion about Treasury’s role in monitoring the spending of some agencies. The Ministry of Health, for example, is the monitoring department of Health NZ, the Government agency with the largest operating budget. Treasury’s role in this arrangement is unclear – despite Treasury having overall responsibility for the spending of government money.
“[A]n area of concern raised by interviewees was the apparent lack of clarity about the Treasury’s role in relation to the fiscal and value for money performance of some of these large entities for which the Treasury is not the monitor, particularly Health New Zealand (Health NZ) and to a lesser extent Kāinga Ora and the New Zealand Transport Agency (NZTA),” the report said.
The report said “unanticipated and material cost overruns” at Health NZ “affected Ministers’ trust and confidence in the advice they were receiving from Health NZ, the Ministry of Health and the Treasury”.
The report noted that ministers “did not regard the Treasury’s commercial advice on replacement Interislander ferries as robust, which reduced their confidence in the Treasury’s capability in commercial transactions more generally”.
“Some interviewees questioned whether the Treasury has enough senior leaders with deep commercial expertise,” the report said.
The report also criticised Treasury’s monitoring of infrastructure projects more generally.
It cited the example of “two recent PPP projects proceeding without an up-to-date PPP policy framework setting out when and how this model should be used” as well as “ongoing conflation of funding and financing” and a “lack of coherence in the government’s response to unsolicited infrastructure proposals”.
Stuck in the 1990s and 1980s
Interviewees said Treasury had “under-contributed at the economy-wide level in recent years” and that it had not brought “practical thinking” to the Government’s economic growth agenda.
“Some interviewees felt it had few concrete ideas to contribute, including on the ‘next big idea’,” the report said.
Other interviewees, however, questioned whether Treasury’s thinking “remained too shaped by the economic orthodoxy developed internationally in the 1980s and 1990s, much of which is still relevant but may no longer be sufficient”.
No longer seen as employer of choice
The report said Treasury was “no longer the employer of choice it once was”.
The report said Treasury was “operating in a constrained labour market, and this is placing sustained pressure on its ability to attract, retain and grow high-quality talent”.
In the past, the report said, Treasury was “widely regarded as a high-profile training ground for public sector leaders”.
Interviewees described it as “the gate you had to get through” and “a real place of debate and challenge that the brightest and best went to”, the report said.
Cost savings ‘simplistic’, potential for AI
People interviewed for the report raised concerns about the recent round of cost savings which were “relatively simplistic”.
“Limitations in the quality of data available to the Treasury were another recurring theme,” the report said.
“Interviewees pointed, for example, to weak or inconsistent costing of individual services, noting that this reflects both agency capability and the system settings and expectations under which cost information is produced,” it said.
Some interviewees said there was potential for AI to do some of the lower value work.
Treasury responds
Treasury Secretary Iain Rennie welcomed the review.
“While it was good to see that the reviewers found strength in some areas of our operations, such as our Budget processes, it is clear there is room for improvement and faster change in several aspects of our performance,” he said .
“As the PIR points out, we must focus on deepening our economic advice and analysis, providing greater strategic financial leadership across the system and improving the way we engage with New Zealanders both on the long-term fiscal challenges and decisions we face as a country, but also in understanding the opportunities and barriers to achieving economic growth.
“It had been over a decade since our last independent review and much has changed since then. When I commissioned the PIR, I wanted an external perspective on our performance and where we need to focus our efforts to better meet current and future demands.”