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Insights 22: 23 June 2023
Research Note: Public Service Bloat - The Evidence
Podcast: Michael Johnston and James Kierstead on our universities in crisis
Newsroom: Eric Crampton on why Labour should rule out a wealth tax

There is evidence of public sector bloat – but the critical issue is lagging performance
Dr Bryce Wilkinson | Senior Fellow |
Over thirteen thousand more full-time equivalent workers joined the public service from 2017 to 2022 – a 28% increase.

It contrasts sharply with Australia’s modest increase.

The value of this expansion is questionable given the increasingly troubling outcomes in such major areas as crime, health, education public infrastructure and welfare.

Yesterday the New Zealand Initiative released a policy note “Public Sector Bloat; The Evidence”.

It benchmarks New Zealand’s public service employment against the historical record back to 1913. It also uses contemporary international benchmarks, notably Australia, the UK, and some high-performing Southeast Asian countries.

The pay, scale and focus of top layers of management and what appear to be bloated comms teams serving those managers are also a concern.

Journalists report frustration about undue delay, obfuscation, and concealment of information.

The Controller and Auditor-General’s reports identify cases of ill-justified spending with poor accountability.

International estimates of New Zealand’s public sector efficiency, performance and effectiveness also indicate that, while we score very well in some important respects, we have a real problem. Australia outperforms us on many efficiency and scale measures.

The problem of sub-optimal performance is not new. Over 20 years ago, international comparative studies put New Zealand in the bottom quadrant of member countries of the OECD for public sector performance. Australia was in the top quadrant.

A 2019 international study assessed the public sector productivity of 36 OECD members. It estimated that the most productive could achieve much the same public sector-related outputs as New Zealand with between 28% and 49% fewer inputs.

The potential cost is huge. Central government employs one worker in six. Its (Total Crown) operating spending directs two dollars in five of GDP. Its capital spending directs some of the rest. Add to that a daunting amount of poor-quality directive regulation, for example the RMA.

In 2021, the World Bank ranked 23 of 209 countries ahead of New Zealand for government effectiveness. Singapore took top place with Switzerland second. Australia was 16th.

That is a lot of countries we should be able to learn from.

Those in charge of the public service, including ministers, need to step up. Inefficiency is harmful. Why is the Productivity Commission not flat out on the issue of government performance?

Labour’s “fix” makes company law worse
Roger Partridge | Chair & Senior Fellow |
When it comes to pointlessness, the Companies (Directors Duties) Amendment Bill takes some beating.  

When drawn from the ballot, the Bill proposed amending section 131 of the Companies Act 1993 dealing with the duty of directors to act in the best interests of the company.

Labour MP Duncan Webb was the Bill’s mastermind. He wanted to make clear that, when considering the best interests of a company, directors can consider the Treaty of Waitangi and a mix of environmental and social and considerations – along with profit maximisation.

There’s just one problem. The Companies Act has never suggested directors are prohibited from taking a broad view of what is in a company’s long-term interests.

What then would the courts make of the new law? Would they presume Parliament was simply stupid in passing unnecessary legislation? Or would they read into the new law something that was never intended? Either way, no good could come.

Even officials struggled to say anything positive about Webb’s Bill. The Ministry for Business, Innovation and Employment’s advice to the Select Committee warned the proposed law “may have unintended consequences including creating confusion for directors…”

MBIE’s conclusion was blunt: The Bill should not proceed.

Sadly, the Select Committee has only attempted to temper the Bill’s confusing provisions.

The amended Bill now simply states “To avoid doubt, in considering the best interests of a company… a director may consider matters other than the maximisation of profit.”

Even this formulation is misguided. The problem centres on the difference between short-term and long-term profit maximisation.

Most directors know that if they focus narrowly on short-term profit maximisation, they may harm a company’s longer-term interests. That’s precisely why few directors will ignore broader factors in considering a company’s best interests.

But most shareholders want companies to maximise long-term profits. Indeed, that’s exactly what most of us are relying on with our KiwiSaver investments.

The Bill’s failure to spell out the difference between short- and long-term considerations will create the very confusion the Select Committee was hoping to avoid.

Worse still, Labour MP Camilla Belich, who is now responsible for the BIll, signalled at its second reading that Labour is drafting a Supplementary Order Paper to reinstate much of what was wrong with the Bill’s original incarnation.

Either way, if the Bill’s object was to make company law less workable it will achieve its aim. But if it was trying to do good, it is worse than useless.

What really matters
Benjamin Macintyre | Research Assistant |
Too many minutes are lost every day pondering trivial matters. We think too much about who the next Prime Minister might be, how crime is hurting our businesses or whether our children are being taught the skills they need at school.
Thankfully, on Sunday night, New Zealand’s most important public official – Ian Foster, protector of the realm, decider of fates – appeared on our TV screens with a timely reminder of what really matters.
Had you forgotten? The World Cup is less than three months away and the first All Blacks squad of 2023 has just been named. It is undoubtedly the most important news story of the year so far.
Yes, we all enjoy gossiping about which Chris will be picked to the country. But Dallas McLeod has been picked as an option at centre when he might struggle to get into a fully fit Crusaders team, let alone the All Blacks!
You might be fretting, if you’re a small business owner, over whether you’re in danger of being ram-raided. It’s tempting to spend time worrying that your life may be threatened by a group of teenagers for the sake of a pack of cigarettes and an energy drink.
But consider how little these concerns are of consequence compared with Shaun Stevenson being robbed, in broad daylight, of a place in the squad. Sure, he’s injury cover, but didn’t he deserve more recognition for the season he’s just had?
These are the issues that really matter in New Zealand. It is high time that we abandoned our fascination for “politics”, “current affairs” and “our children’s futures”. We must focus on how the hell we’re supposed to stop Antoine Dupont from scoring four tries on the 8th of September.
Don't ask why our kids aren’t learning to read and write at school. Instead, ask yourself: why doesn’t my eight-year-old know how to jackal and counter-ruck yet? Rugby World Cup 2035 is just around the corner and the blindside flanker spot is wide open!
Forget about elections, the economy and unruly backbenchers. Between now and the World Cup, it should all be about back rows.

On The Record

Initiative Activities:   
All Things Considered
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  • Hear Dolly Parton scream for vengeance with Judas Priest’s Rob Halford ($)
  • Housing intensification puts water supply for firefighters at risk
  • Correcting a misconception about AI, eh?
  • Culture eats policy
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