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Insights 10: 28 March 2024
New Research Note: Cabinet Congestion: The Growth of the ministerial maze, by Max Salmon
The Australian: Dr Oliver Hartwich on Luxon's challenge - fiscal discipline or tax cuts
Newsroom: Dr Eric Crampton on whether regulatory barriers are limiting competition in banking

Budget Policy Statement 2024: A call for vigour in challenging times
Dr Bryce Wilkinson | Senior Fellow |
The new Government's Budget Policy Statement, released yesterday, reflects the daunting fiscal challenges inherited from the previous Labour-led Government's tax-deficit-and-spend policies. We empathise with the current Government's predicament, having to navigate the consequences of excessive spending, high inflation, and a recession.
It is crucial to acknowledge that the Reserve Bank of New Zealand's decision to flood the country with new money has been a significant contributor to the inflation we have experienced over the past couple of years. This, coupled with the previous Government's fiscal policies, has created a complex and challenging environment for the new Government to operate within.
Despite these difficulties, we believe that a more vigorous and assertive approach is necessary to address the pressing issues facing our economy head-on. The long-term objectives outlined in the BPS, such as reducing core Crown Expenses and achieving an improving OBEGAL trajectory, are steps in the right direction but require more concrete plans and ambitious targets to inspire confidence.
We encourage the Government to draw inspiration from the fiscal management of the previous National-led Government under Minister of Finance and later Prime Minister Sir Bill English. By tightly managing core Crown spending, they achieved a commendable surplus of 1.9% of GDP in 2017. At the same time, core Crown debt was under 20 percent of GDP - and it is more than twice that today.
To truly motivate investment and growth, the new Government must articulate a principled framework for eliminating activities in which it has no comparative advantage. This will involve making tough decisions and prioritising spending programmes that yield the greatest benefits for our economy and society.
We also urge the Government to take a more proactive stance in addressing the Treasury's warning of slowing productivity growth. By vigorously promoting policies aimed at reducing red tape and prioritising development, the Government can create an environment that fosters innovation and encourages investment.
While we acknowledge the delay in publishing the BPS and the lack of detailed fiscal forecasts, we remain hopeful that the May 2024 Budget will demonstrate a more ambitious approach to fiscal management.
The task ahead is undoubtedly challenging, but we believe that with greater positive energy, commitment, and vigour, the coalition Government can navigate these difficult times and lay the foundation for a more prosperous and resilient economy. New Zealanders are counting on their government to take decisive action and provide compelling reasons to invest in our nation's future.

Too complex
Max Salmon | Research Fellow |
How complex is too complex? My new report for the New Zealand Initiative, Cabinet Congestion: The Growth of a Ministerial Maze, poses this question with respect to the executive branch of New Zealand’s Government.

New Zealand’s executive is incredibly powerful. Its members control the levers of state power through its departments and agencies. Everything from healthcare to roads, education to foreign policy, is within its purview.

Importantly, the Ministers who control the executive branch are the leading MPs of the parties that form the Government. These Ministers then control policy creation and law creation.

Even a cursory look at the layout of the executive raises questions about complexity. The executive branch comprises 41 government departments and 27 Crown agencies. These organisations answer to a combined 78 Ministerial portfolios and a further 22 associate portfolios, held by 28 Ministers.

With most Ministers holding at least two portfolios and around half of all departments serving multiple portfolios, a chaotic spiderweb of responsibility emerges.

Zooming in, the level of complexity becomes clearer still.

Departments are frequently split between multiple Ministers. For example, the Ministry for Business, Innovation and Employment (MBIE)­ answers to no less than 16 ministers­.

Policy areas such as environment and construction are split across multiple departments. For instance, environmental policy is split across the Ministries for Transport, Primary Industries, Environment, Internal Affairs, and other Crown agencies like the Environmental Protection Authority.

Ministers often hold unrelated portfolios. Casey Costello holds seniors and customs portfolios, and associate portfolios in police, health, and immigration. Judith Collins has no less than seven portfolios.

The complexity of our system makes us an outlier among parliamentary democracies with populations similar to ours. Compared with the combined average of Denmark, Singapore, Norway, Ireland and Finland, we have 50% more Ministers, 156% more departments, and 280% more portfolios.

Our Ministers are frequently spread too thin, leaving them ill-equipped to undertake serious reform. The fragmented lines of reporting resulting from so many agencies reporting to multiple Ministers pose coordination, accountability, and resourcing problems. Important portfolios such as Environment and Tertiary Education often end up on the Executive’s periphery.

All Kiwis suffer when the Executive is not efficient or effective. We must consider what can be done to simplify our government so that it delivers the best for New Zealand.

You can read Max's Research Note here, and also watch the webinar we held with comments from Hon Stuart Nash here.

Public health warnings for public health advice
Dr Eric Crampton | Chief Economist |
We all have our strange little hobbies.

I keep an eye out for mentions of a shonky old estimate on the social cost of alcohol. When it turns up, pulling on the thread can be great fun.

Back when I was an academic at the University of Canterbury, Sir Geoffrey Palmer was leading a review into alcohol legislation. He cited a dodgy-sounding BERL figure on the purported social cost of alcohol as motivation for some of his work. Matt Burgess and I dug into BERL’s figure.

We found a shambles. The number was largely based on counting costs that drinkers impose upon themselves, including their own spending on alcohol, and mismeasuring other costs. We published our critique and let the Ministry of Health, who had co-commissioned the number, know that it was not reliable.

Nevertheless, it keeps turning up. Big numbers are useful in pushing political agendas regardless of whether the method used to produce them stacks up.

Last year, the Public Health Agency commissioned NZIER and Allen + Clarke to review the alcohol levy. The report cited the BERL figure and rather cryptically noted that the figure had been criticised. Nothing about the nature of the critique was mentioned, but the bibliography cited our work on it.

It looked like the report might have once had more fulsome discussion of the critique. Why else include it in the bibliography? So I started to pull on the thread.

It has taken months of off-and-on OIA work and intervention from the Ombudsman. And the Public Health Agency continues to refuse to provide the early draft that would show what was expunged.

But they did release one comment on the earlier draft. That comment warned against relying on my critique because “Eric Crampton is one person…. He is part of the NZ Initiative which is pro business … I don’t think it is appropriate to be including his views.”

It’s an insight into how the Public Health Agency works. If work commissioned by independent agencies include politically inconvenient bits, those bits may be culled before the work can make it to the Minister.

Chasing these sorts of things down might be a strange hobby. But it can be fun.

And if a government is looking for ways of saving money in the leadup to a budget, a Public Health Agency whose reports require public health warning labels might be worth a look.

On The Record

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