Nuance needed in right-sizing the public sector - Jenée Tibshraeny

Finance Minister Nicola Willis has asked public service chief executives to find savings of up to 7.5 per cent. Photo / Mark Mitchell

OPINION

We’ve all heard conflicting stories about the public sector that could lead us to believe it’s either bloated or under-resourced.

Some departments have sunk considerable resource into publishing long-winded glossy reports that have gone nowhere, paid contractors above-market rates, and poured excessive sums into public relations.

Yet under-resourcing is evident elsewhere. Ask anyone who’s been put on a waitlist for a health procedure.

Narratives around waste and underfunding can both be true.

Similarly, the data can tell differing stories, depending on how it’s sliced and diced.

The size of the public sector has grown, but proportionate to the size of the workforce, this growth hasn’t been dramatic in recent years, according to Public Service Commission figures.

The public sector accounted for 18.7 per cent of the workforce in the year to June 2023 – a slightly larger slice than the 24-year average, but a much smaller slice than following the Global Financial Crisis, when there were a lot of layoffs in the private sector.

Indeed, the public sector accounted for 19.7 per cent of the workforce in 2010 and 2011 (under a National-led government).

However, if you strip out local government, those employed in the health and education sectors, people who work at state-owned enterprises and other government entities, the public “service” (a subset of the public “sector”) did in fact grow markedly under the Labour Government.

The public “service” made up 2.6 per cent of the workforce in the year to June 2023.

It grew to 2.7 per cent following the onset of Covid-19 in 2021, having hovered around the 2.3 per cent mark before Labour came into power in 2017.

The public service has, on average, made up 2.3 per cent of the workforce since the year 2000.

One might argue the public service shouldn’t grow in line with the population.

Sure, we need more staff in the likes of Social Development, Justice and Corrections, as a higher population inevitably results in a higher demand for services.

It’s more questionable whether we really need a certain number of policy analysts, economists, communications staff, etc per head of population.

The work required to produce a piece of advice for a minister is surely similar regardless of whether there are 5.2 or 4.9 million people in New Zealand.

An argument one might make against this view is that the challenges the public service faces have become more complex.

Decades of underinvestment in infrastructure means a major catch-up job is needed, climate change mitigation and adaptation are costly, and the world is entering a phase of heightened geopolitical instability, presenting problems for our trade-reliant nation with little military capability.

Our population is also ageing and becoming more diverse on the back of years of high immigration.

More resource is required to teach kids whose first language isn’t English, especially if their parents aren’t proficient in English themselves.

It’s really worrying the portion of the workforce employed in public education fell to the lowest level in at least 24 years in the year to June 2023.

The portion employed in the public health sector, on the other hand, climbed to a record high following Covid-19.

Considering all these moving parts, it would be too simplistic to make sweeping statements about the entire public sector.

One really needs to go project-by-project, agency-by-agency to identify areas of waste and under-resourcing.

The other complicating factor is the use of contractors and consultants, which can mask the true size of the public sector.

The Public Service Commission only has comprehensive data on this going back to 2018, however, it’s understood the use of contractors and consultants grew a lot in the years before.

In the year to June 2018, operational expenditure on contractors and consultants was worth 13.1 per cent of the total public service workforce spend.

It then fell to 10.4 per cent in 2021, offsetting a rise in the number of people employed in the public service, before picking up again in 2022 and 2023, all the while the public sector also remained proportionately large.

Now that the dust has settled from the pandemic, it’s a good time to run the ruler over the public sector.

It’s important to remember that in 2020 economists were forecasting mass unemployment. At the time it made sense for the Government to fork out for job creation rather than for welfare.

However, it didn’t normalise the size of the public service once it became clear economic supply wasn’t keeping up with demand and this was causing inflation.

Looking ahead, the Government needs to take a nuanced approach towards ensuring the public sector is fit for purpose.

Simply taking a sledgehammer to what’s a very diverse sector would be irresponsible and costly longer-term.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.