Section 5 - Disciplining Government Spending and Stopping Growth in Bureaucracy

Reducing wasteful expenditure and getting more out of the public service is one of your priorities. You have identified a range of initiatives to advance this priority, including, among other things:

• Increasing productivity in the public sector.
• Requiring departmental chief executives to carry out a line-by-line review of their expenditure.
• Capping the number of "core" bureaucrats.
• Controlling spending (growing it more slowly than previously).
• Restoring sensible balance of front line to head office staff.
• Cutting low quality spending.

Our analysis of the public sector from a value-for-money perspective has identified significant concerns with the quality of government spending that supports the priority you have given this.

In our view, the model under which the public sector is organised has the potential to achieve the outcomes you are seeking, but it requires leadership in the public sector to be re-orientated towards internal management, a focus on delivering the results you are seeking and ensuring services represent VFM at an agency and/or sector level.

To reduce wasteful expenditure and get more out of public services, we would recommend:

In the short term you need to send a strong signal on what you expect from the public sector, as well as freeing up resources to meet the fiscal challenges we face and to advance your priorities.

We recommend you do this by:

• Outlining a set of core priorities for the government sector, including a focus on VFM, communicating this to Chief Executives and requiring that these are reflected in departmental accountability documents and performance agreements.
• Freeing up resources:
  • reviewing the areas of possible savings prepared by Treasury to determine how they compare with your priorities and your fiscal strategy/targets. This is likely to deliver the greatest short-term savings, and
  • a line-by-line review of departmental expenditure, which would involve chief executives reporting to ministers on how their expenditure aligns to the government and ministerial priorities, and areas which do not. A blunter, but simpler, option is to make a top-down adjustment of departmental baselines and then require chief executives to report to ministers on how they would live within a lower budget, as well as other criteria (such as: the nature of the services affected, the impact on frontline vs back office the adjustment would have etc). An objective of both processes is the identification of areas of government spending that could be the subject of more fundamental VFM reviews.

These short-term options are intended to be concluded (or largely be concluded) within the first 100 days of your administration. The medium term options, as outlined below, could commence within the first 100 days, but would take longer to implement.

In the medium-term: to embed the cultural shift you want to see in the public services - reducing waste and a commitment to ensuring services represent VFM.

We recommend that you prioritise the following:

• Improving the quality of performance information across the public service (a fundamental requirement for demonstrating value for taxpayers' dollars and assuring ministers that their priorities are being achieved).
• Developing a standardised framework to assess departmental performance, and strengthening ex-post monitoring and accountability within the public service.
• Undertaking in-depth VFM-type reviews or Task Forces of particular areas of concern to you, (as identified by the line-by-line reviews noted above, or through other means). We are able to provide you a list of areas (departments, sectors or programmes) where we believe there are questions about VFM and could be considered as candidates for targeted exercises. These reviews would be undertaken to ensure that the public sector is aligned with government priorities, reinforce a longer-term focus on continuous performance improvement and VFM, and facilitate a public debate about the provision of public services over the long term.

Both the short and medium-term processes could be supported by a senior officials' process to increase the rigour and ensure that they deliver demonstrable VFM improvements and/or significant savings.

Targeting key agencies is likely to deliver the maximum gains from this agenda. To-date Treasury has focussed on the key sectors of health, education and justice and can provide you with performance information and advice in those sectors. A focus on those sectors could assist in delivering on a number of your key priorities.

Central agencies (Treasury, DPMC and SSC) have been preparing a range of approaches to these matters that could assist you in advancing your objectives. We would be happy to discuss these with you and other key ministers when you wish to do so.