The Modern Face of the Treasury

The Treasury has released a speech delivered by John Whitehead, Secretary to the Treasury, on Thursday 28 January 2010 to the Rotary Club of North Wellington.

Good afternoon everyone, and thanks very much for the invitation to be here today.

This is my first formal speaking engagement of the year, and I’m pleased that it is providing me with an opportunity to meet with a group of men and women for whom community service is such a powerful motivation.

We are lucky to live in relatively prosperous country, but we sometimes overlook the fact that there are still a lot of people in our communities who are in genuine need, and who struggle to acquire many of the things that we in this room take for granted.

That has certainly been the case over the past year as job losses have mounted and household incomes have been under pressure.

I know that at Rotary you do something about addressing that hardship.

You reach out to people who often don’t have the ability to help themselves, and you make a practical difference - a difference for the better - to their lives.  I’m sure I speak for many people when I say that society owes a debt of gratitude for the community work that organisations like yours do.

Now, the theme of practical difference is one I am going to spend a bit of time discussing with you today.

Perhaps at risk of drawing a few disdainful looks or gasps of disbelief, I am going to tell you how the organisation that I lead is also making a practical difference to the lives of everyday New Zealanders.

I know such a view might not fit with popular perception.

Many like to believe that Treasury is populated by a bunch of bookish, chin-stroking, policy eggheads who spend our time, and your money, sitting around dreaming up new ways of blighting your lives with economic misery.

I’m sure some of you have heard that view expressed in somewhat more profane terms.

But it is a view rooted in myth and not fact.

What I want to do today is introduce you to the modern face of Treasury, and tell you how our role is evolving in these challenging times, and why it is evolving.   And finally, I want to take a few minutes to take a closer look at one of those new roles, which is our leadership of a range of work to improve the performance of the state sector.  It is an important area of our work and I want to talk about why we’ve been asked to do it, and how we’re doing it.

First of all, let’s look at some of the myths and legends that we get lumbered with:

• There are the wildly disparate views about our powers of persuasion.  Some believe that we tell the government what to do, and they go away and do precisely what we tell them to.  Others are strongly of the view that we have no influence at all.
• Another myth is that we are essentially a mix of two kinds of people: dull, grey men who don’t see enough sunlight, and fresh-faced pointy-headed graduates who have never set foot in the real world.
• Some would also have you believe that the only women at Treasury are there to push the tea trolleys.
• There is the old chestnut that we are terrible forecasters, and we never manage to get anything right.
• We are also labeled policy wonks, who do nothing practical or useful in terms of improving the economic lot of New Zealanders, and who would never make it in the real world.

Let’s go through that list and sort out fact from fiction.

Of course the two extreme views of our powers of persuasion are both wrong.  Treasury doesn’t tell the government what to do - we are the lead advisor on economic and financial issues, and I am pleased to say that most of that advice is heeded, and some is rejected.  That is how it should be.  The public sector is set up to be independent from the democratically-elected government.  The Treasury, like all other departments, advises ministers freely and fearlessly, but what the ministers do with that advice is up to them.

The misunderstandings, to put it politely, about the make-up of our staff are really quite lamentable.  Treasury might have been a male-dominated stronghold once, and many of them might have been greyheads, but that age has well and truly passed.

Let me paint you a picture of the people inside the organisation today.

Today the women outnumber the men at No 1 The Terrace, making up 52 per cent of the Treasury workforce.  And not one of them is employed as a tea trolley-pusher.  You will find them in significant positions right across the organisation - from managers and team leaders, to advisors and analysts.

It is true that every year we take on graduates, and I can assure you they are extremely talented young men and women whose principal tertiary degree is not necessarily in economics.  It is quite fanciful to think that fresh-faced university graduates control the advice levers.  And nor are our staff all fresh out of university - the range of experience in fact goes from a few weeks to over 50 years.

Furthermore, the men and women who make up the Treasury family are a diverse, well-rounded lot.  We boast several staff who are active in the arts: among them are professionally trained opera singers, actors and even a vintage Burlesque dance teacher.

We have the sporting arena covered courtesy of a former Black Sticks player, the current coach of the Wairarapa National League canoe polo and a man whose financial advice skills have helped ensure that the All Whites will take their place at the soccer World Cup in South Africa this year.

Our graduates have joined us from, and indeed left us for, diverse fields.  One was a former Presbyterian minister, another featured on television recently to talk about the nudist camp he has set up.

Others have gone on to follow more distinguished paths: Our Alumni include the just-resigned managing director of the World Bank Graham Wheeler, executive director of the New Zealand Business Roundtable Roger Kerr, Rob Cameron - who is recognised as one of New Zealand's most experienced and skilled investment bankers - and of course, our current Minister of Finance and Deputy Prime Minister Bill English.

And if for any reason you should find yourself in need of rescuing, there is a very good chance that you will find yourself in a pair of trusted Treasury hands: we boast a search and rescue paramedic who not only finds the time to perform a weekly shift as a paramedic for Wellington Free Ambulance but who is also the police advisor for search and rescue operations in Wellington.

Another of the myths I referred to before was the one that has been constructed around our forecasting abilities.   Economic forecasting is, and always will be an imperfect science.  But having said that, a lot of the forecasting Treasury provides is remarkably accurate.  However, you will only ever read about our wayward calculations.  I guess that is the nature of the media beast. 

It has been shown that, compared with the forecasting performance of our banks, the Treasury fares very well.  An Australian journalist recently likened economic forecasting to weather forecasting, but pointed out that the weather office has several advantages over economists. He explained that for one thing, the laws of nature are constant.  The air, the land, the sea and the sun all interact in the same way they always have.  A high pressure system or cold front will have predictable effects.

But when a shock such as a credit crunch or sharemarket collapse hits the economy, it’s quite a different matter.

So let me move to the last of the myths I listed before: the one that pigeon-holes us all as policy wonks who spend our waking hours formulating economic advice and forecasts, and do nothing of any practical value for the country.

This of course is nonsense.  There is any number of former Treasury staff who have moved on and succeeded in the world of business - or the “real world” as people like to say.  The best example is I can give you is Stephen Jennings, a former Treasury economist who was co-founder of brokerage and bank Renaissance Capital.   Based in Moscow, he has been dubbed the Kiwi Oligarch, and while the recession has reportedly put a dent in his fortunes, a recent newspaper article put his wealth at about $800 million – not bad for a Taranaki boy who honed his economist skills at Treasury.

So let me assure you that we have people of a practical bent in our ranks.

And there are indeed many practical ways in which the Treasury’s work makes a difference to everyday New Zealanders,  and I want to take a few minutes to guide you through our more interesting roles.

It is correct that our core role is to act as the Government’s lead advisor on economic, financial and regulatory issues, and to demonstrate public sector leadership as a Central Agency, alongside the State Services Commission and the Department of Prime Minister and Cabinet.

But what I’d like to focus on is what we call our operational roles - our doing roles as opposed to our advisory functions.

Let me start with the New Zealand Debt Management Office at Treasury.

Some of you may have seen the Dominion Post story early in the New Year about the Debt Management Office, titled “Treasury office keeps NZ afloat”. This Treasury team is indeed responsible for keeping the Government finances afloat, raising about $240 million a week to do so.

The small team of 30 has a big target of raising about $10.5 billion this financial year - the money the Crown needs to bridge the gap between revenue and expenditure.

There is no doubting the practical difference it is making to the country.  It is ensuring that the government’s bills get paid, and that state services keep functioning.

Another key operational activity is the guarantee schemes.

As the global economic and financial crisis began to unfold in 2008, one of the most pressing issues was the need to maintain depositors' confidence in New Zealand's financial sector, and to ensure the sector continues to have access to funding.

The Treasury administers the Crown Retail Deposit Guarantee Scheme, which involves assessing and approving financial institutions, monitoring compliance with the Scheme and ensuring eligible depositors receive their entitlements if the guarantee is called on.

We’ve guaranteed $133 billion of the money that you and I have deposited in financial institutions through the Retail Deposit Guarantee Scheme, and nearly $10.6 billion that banks have borrowed overseas through the Wholesale Funding Guarantee Scheme.

Another way in which New Zealand responded to the global and financial crisis was to expand our assistance to New Zealand exporters.

This is another important operational area for Treasury.

After private trade credit insurers reduced their line of cover - making it harder for many of our exporters to continue trade in some countries - the New Zealand Export Credit Office introduced a short-term trade credit guarantee in February 2009. This covered the risk of a foreign buyer not making their repayments, as well as enabling a Kiwi exporter to access additional credit from their bank.

Owing to strong demand, the facility for the short-term trade credit guarantee has risen from $50 million to $150 million and ensured exporters have the means to continue to accept orders that in the current environment, might otherwise not occur.  

The Export Credit Office’s support has also enabled exporters to competitively bid for and win larger international projects.  This includes airport baggage handling company Glidepath winning two $28 million United States contracts, and Marinescape recently completing the design and construction of a remarkable $33m walk-through aquarium in Istanbul.

There is one other area of operational activity I want to talk about briefly.

It is the National Infrastructure Unit.

Modern and reliable infrastructure - such as roads, telecommunications, schools and hospitals - is a vitally important part of a growing economy, and the Government has outlined a multi-billion dollar programme of investment for the next few years.  Of course much of the infrastructure sector is publicly funded, and so one of the first steps was to establish a framework to handle this.

That saw the setting up of the National Infrastructure Unit in Treasury, and its job is to take a national overview of the infrastructure priorities - providing cross-government coordination, planning and expertise.

The Unit presently has 20 people working in it, and they are assisting the Government to produce its first 20-year National Infrastructure Plan, with the intention thereafter of updating this every three years.

This will present a high-level view of the state of New Zealand's infrastructure and include a stock-take of existing infrastructure and anticipated future requirements.

The Plan will help Ministers, agencies, local government and the private sector identify needs and prioritise investments to lift growth, and we expect it’ll be published next month.

So I hope that potted summary of Treasury’s operational work gives you some idea of what I mean when I referred at the beginning to the practical difference our organisation makes to the lives of New Zealanders.

The world in which Treasury operates is always changing, but since 2008 that change has been on a scale that we haven’t seen before, and that has had a considerable impact on what we at Treasury do, and how we do it.

As I signalled earlier, I want to devote the last part of my address to some significant new developments in the responsibility we have in regards to state sector performance. 

I firstly need to give you the context for this work.

The government is strongly committed to improving productivity, because it is one of the major reasons that we haven’t kept pace over the last 20 years with the incomes of Australia and some other countries.  There is no single policy that will help get that productivity growth, so the government has identified six policy drivers that will form the core of its economic programme.  One of those six drivers is better and smarter public services.

There are a number of reasons why we need a really high performing public sector, and I want to touch on a few of them.

The public sector is a vital contributor to the economy and the well-being of New Zealanders.  Core Crown expenses are 35% of GDP, and together, central and local government spending is equivalent to about 45% of GDP. 

I don’t want to bombard you with too many numbers, but there are a couple more I want you to think about:  there are 247,500 state sector employees - that’s a shade under a quarter of a million - and the total public sector wage bill is more than $18 billion.  Now those are significant figures, and they underline why it is important that the public sector works as efficiently as possible.

Treasury has been given the responsibility of leading some key work aimed at improving the sector’s performance, and at least five different teams across the organisation are directly involved in it.

Some of you might recall a speech I made last year about the need for the public sector to change the way it operates. The points I made then are still relevant.  If we keep doing what we have done previously, we will fail.  We will fail as public service leaders, as organisations, and we will fail the New Zealand public.

As Treasury sees it, there is potential for significant state sector productivity improvement from doing the same tasks in new ways, learning from the private sector and overseas experience.

There has been some media coverage given to the programme of work that the Treasury and a range of other agencies have started that looks at ways to reduce the cost and improve the quality of administrative and support services across the public sector. These services include finance, human resources, information technology, procurement, and various corporate and executive services such as travel and facilities management.

Public sector agencies need to ask if what they are doing makes a real and positive difference for New Zealanders and the outcomes the Government wants.  And they need to ask if someone else could do it better.  This is not driven by any desire to promote privatisation; it is simply ensuring that taxpayers’ dollars are spent well.  In countries with which we like to compare ourselves - Australia and Britain, for example - such questions are hardly controversial any more.

The public sector may need to adopt and adapt private sector ideas, techniques, experience and expertise.  The private sector already provides many public services, such as the Automobile Association issuing drivers’ licences, physiotherapists providing treatments paid for by ACC, or construction crews building and maintaining roads.  We don’t want or need an army of government employees doing these jobs.  And sometimes a bit of competition can be good for the public sector.

Policies and programmes introduced 10 or 15 years ago may no longer be effective or fit Government objectives, and should be examined.  In many cases, we’ll find they’re worthwhile but in some cases, we’ll find that taxpayers are funding programmes or services that are past their useful life.  The Treasury’s role is to ensure that public agencies ask themselves the right questions and then take action on the answers they find. 

Together with other central agencies, we’re setting the scene for that to happen.

And I should point out that the need for agencies to lift their performance certainly applies to Treasury as well.

We are acutely aware that the new financial and economic environment has created challenges and opportunities that our organisation needs to step up to.

Accordingly, we have just completed a comprehensive review of our leadership function, which I believe will help the Treasury work together in a more consolidated way to provide high-quality advice that helps shape New Zealand’s economic future.

That review has seen the disestablishment of nine positions, and the creation of eight new ones.

But it has not been just about structural changes.  Just as importantly, the review has also been about bringing about a cultural shift at Treasury.  We are setting clear expectations and holding leaders to account for their decision-making and behaviours, so that we are making a real impact in what are challenging times.

And it has also seen the function of monitoring Crown agencies, which was previously carried out by CCMAU and to a limited extent by Treasury, being brought together in one unit inside the Treasury.  That unit is called the Crown Ownership Monitoring Unit, or COMU, and it will be encouraging SOEs, CRIs and other Crown companies and entities to raise their game.

This portfolio of companies and commercial entities represent a significant part of the Crown’s balance sheet, and so their performance plays a really critical part in the development of the wider economy.

In conclusion, I want to again thank you for inviting me here today, and for the interest that you have shown in Treasury and its work.

I think we can all agree that these are interesting times.

We are confronted by one of the most testing economic environments in over 60 years, and facing up to that requires significant adjustment and change. Our history actually proves that we can be quite good at that.

For all the big obstacles that the current crisis has put in our way, I believe it has opened up even bigger opportunities - opportunities to do things better in the public sector, in the international environment, in the tax environment, and in the regulatory environment. The time to grab these opportunities is now.

Never in my time in the Treasury have I seen an opportunity as great as we have right now to support Ministers in shaping New Zealand’s economic future. This isn’t just about lifting our game, it’s about changing it. We cannot deal with the new and demanding economic environment and the demands of the 21st century if we limit ourselves to old structures, approaches and mindsets.

My vision for the Treasury is that it will be recognised for influencing the future agenda for New Zealand and for a commitment to excellence in implementation. Every day, we will engage with advice and debate that reflects the depth and breadth of our intellectual leadership, experience and thinking across the business. We will be adaptable and flexible in meeting changing demands, and our stakeholders will invite our participation and treat us as valued partners.

The events of the past year or so have reinforced the need to tighten up accountability arrangements and raise productivity in the state sector, and the public sector is now facing its tightest budget constraints for some time.

We must take the opportunity to build a leaner, more productive public service - and we need to get on with it now. The next 18 months is our chance to enhance our reputation for having one of the smartest and most ethical public services in the world, and that’s something I am excited about and looking forward to being part of.

Finally, and maybe most importantly, the wider community needs to be involved in the process of debating and making these choices. These are, in a very real sense, choices about the economic strength of New Zealand and the future well-being of New Zealanders. And that’s something that we all have an interest in.

Thanks for listening, and all the best for the year ahead.

I’d be happy to take your questions.