Public Sector Performance

The Treasury has released a speech delivered by John Whitehead, Secretary to the Treasury, at the Public Sector Chief Financial Officers’ Forum on 19 Aug 2010.

Thank you for inviting me here today. It is a pleasure to be here to share my thoughts on public sector performance with a group of people who play an essential role in managing public finances.

Just over a year ago, in a speech to the Victoria University School of Government, I laid down a challenge for all of us in the public sector.  I said then that we would fail the New Zealand public unless we:

• moved out of our traditional comfort zone,
• lifted productivity, and
• started to do things differently and more efficiently. 

Today I’ll offer some personal reflections on how well we’re rising to that challenge.

One year on, I believe there have been some significant achievements.

The 2010 Budget was, in part, the product of the collective expertise and commitment of the public sector.

Months of work went into assessing cost pressures, adjusting expectations and
re-prioritising spending.  Together, we were able to help the Government deliver a tax and spending package that has been well-received, and begins to put us on the right track to sustain economic recovery.

Fiscal frameworks introduced 20 years ago set new standards for transparency and helped successive governments reduce public debt to low levels in the 1990s and 2000s. This provided a strong buffer when the recession hit in 2008, helping offset our economy’s other vulnerabilities associated with high private-sector debt and persistent current account deficits. 

Debt and deficits are significant. The Government’s fiscal strategy is based on a forecast $6 billion deficit reduction between 2011 and 2014. But as this slide shows, ongoing deficits mean increasing debt and the projections indicate that net public debt will remain above pre-recession levels even in the early 2020s.
Our shift from surplus to structural deficit has been one of the largest in the OECD. Our primary deficit – that is: our deficit excluding finance costs – is expected to be its largest in 40 years. We need to return to balance or surplus – and preferably not too far in the future. We can’t escape that fact.

I don’t want to labour the point, but New Zealand by a combination of good luck and good management has come through the global financial crisis relatively well. But we urgently need to restore our shock absorbers (like low public debt) because we can’t be sure when the next big shock will come, nor where from.

A point often missed by commentators is that the international financial system came close to meltdown less than 2 years ago.  Another significant financial shock could undo all the good work since then, and we are not currently positioned to cope with that.  That is yet another reason to maintain urgency in our adjustment.

Having a fiscal strategy is good, but ultimately the targets set by the strategy are just a line on a graph.  To deliver on the targets requires more than just tight discipline in the current system; it requires change in what the public sector does and how we do it.  The challenges highlighted in my speech a year ago are now more immediate.

We need to achieve more with less by improving our productivity, and by ensuring that when we spend money, it is targeted at achieving the Government’s priorities.

We need a clear ‘line of sight’ between the Government’s priorities and public sector actions and spending.

All the CFOs here today – and ideally every public sector manager –  should be able to explain how the spending and regulations that they control make a real difference to New Zealanders’ lives and how they deliver on the Government’s priorities. 

We’re not there yet. The public sector still doesn’t tell a clear enough story to Ministers or the public about what they get for their money when we spend it on their behalf. 

I’m proud to be a public servant in New Zealand, and I think we should do more to celebrate the aspects of the public service where we excel. 

Our reputation for integrity and independence is long-established and world-renowned.  New Zealand and our public sector have the least corruption.  We are seen as trustworthy.  We draw on a range of talent and knowledge from the private and academic sectors, and from here and overseas.  We are professional and committed to doing a good job.

However, we can and must tap into these talents in the right way.

Thinking back to last year and the challenges I spoke about, I think we’ve made a start, and we’re going in the right direction. But I’d caution strongly against complacency. 

In a speech last week the Minister of Finance warned that public servants must not wait for politicians to relent in their desire to rein-in spending, or expect that economic growth would make the problems go away.

We need to think about how we’ll cope in the future when the decisions get harder and our choices become more limited. This is both an opportunity and a test.  

Last year I identified five areas that we need to change.

1. We need to focus on doing things that will most help New Zealanders and the economy, in order to improve living standards. The public sector makes up about a third of the economy, so is a vital component of a successful New Zealand. Because of its size, public sector spending and actions can crowd out private-sector activity that generates wealth and jobs.

For example, outdated, poorly conceived or poorly implemented regulation can hinder innovation and suffocate growth. The public service needs to improve the quality of policy advice and the quality of regulations to enhance New Zealand’s business environment.

Strengthening our Regulatory Impact Analysis regime and introducing regulatory scans and plans has been a good start, but we need to continue to build on this work and extend it wider into all public service delivery.

New Zealand can’t afford to continue delivering public services the same way it has been doing.  Everyone in this room needs to challenge our departments and agencies to describe what they do to contribute to outcomes that New Zealanders need and what they do to deliver services the most efficient way possible.

As CFOs, you should insist on having an input into your organisation’s strategy.  It is critical that your voice is heard.

2. We need to ensure that public services are driven by customer needs. We’re working for a new generation now, with different needs, and high expectations.

New Zealanders are not passive receivers of public services, but active and vocal consumers who use a range of ways to access public services and information. 

The 2009 Kiwis Count survey showed that New Zealanders have experienced a small improvement in service quality since 2007 and that trust in public services is also improving.  But there is considerable scope to respond better and aim to exceed our customers’ expectations. 

3. We need to re-double our commitment to cost effectiveness.  I’m pleased to see that the public sector has largely woken up to the fiscal realities we face. Public servants no longer spend most of their time thinking up new ways to spend money or putting together budget bids for non-essentials.  

Indeed, budget bids have reduced from more than 700 in 2008 to 30 this year.

But budget bids are an indication of new spending - and we still need to delve deeper into the much more significant baselines and balance sheets.

The implication of adjusting public spending to ensure we get the most benefit is that some sectors of society that previously received taxpayer funded services will miss out in future. 

Preliminary results of a recent Treasury analysis suggests that households towards the middle of the income distribution have benefited most from increased social services expenditure over the past 25 years.

Analysis such as this is useful to public servants when advising about what scope exists to focus spending towards the Government’s priorities.

Let me hasten to say that I’m not signalling here the targeting of any sector for cuts.  What I am saying is that if Government is to receive the best advice, then we need to be clear and open about the overall impact of policies.

In addition to boosting productivity, we need constantly to question whether or not the public sector is the best provider of a service – and do so not from any entrenched position but with a genuinely open mind to the possibilities that sometimes we are the best, and sometimes we are not.   And we need to engage in practices – like open tendering – that give us the information to answer those questions.

4. We need more accountability and transparency of operations. 

Some areas of public spending are under scrutiny as never before.  For example, the Government recently announced a review of spending on policy advice.

This review will raise challenging questions.  It brings the issue of public sector productivity very close to home for many of us near the centre of government.  And it is right that it should do so.

Reviews of this kind, and scrutiny by Parliament and by the media, helps hold us to account.  The right kind of scrutiny makes us think and behave better – even if it sometimes makes us uncomfortable.

Treasury is planning to subject itself to additional scrutiny with the establishment of a governance-focused Board. The Treasury Board will bring expertise, experience and viewpoints from outside the public sector that provide additional discipline and challenge for Treasury’s senior leadership.  The Treasury Board’s disciplined external perspective will help us question how we do things, and identify areas for improvement.

External scrutiny, by the news media in particular, plays an important role in holding us to account on the big issues; those areas that have most long-term public impact, as well as the most short-term public interest.

The most valuable scrutiny doesn’t focus on marginal new spending but gets into the more complex and much more significant areas of our core spending and our stewardship of assets. Similarly, we should be looking at the effectiveness of all the regulations that we are responsible for, not just new proposals that are being developed.

5. Finally, we need new thinking converted into action.  We can see in the UK the  speed that the British public sector is being expected to respond to the incoming Government’s desire to control public sector spending. 

New Zealand’s fiscal position is not as severe as in Europe or the US, but we are still vulnerable, especially given our overall (private and public) external debt.  We are on a path of increasing public debt and face many similar issues to those of other countries, in terms of economic and public sector performance. 

Thinking about our progress on these issues, the words of economist J.K. Galbraith strike a chord:  “Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof."

Ideally, I would like history to show how New Zealand acted quickly, responsibly and decisively to adapt to the new world. We should be leading and in control of our own destiny, not dragged along behind.

Of course; speed, clarity and coherence of decisions and action shouldn’t come at the expense of a strong evidence base and robust debate – but we need to ask ourselves whether we’ve got the balance right. 

Sometimes processes within the state sector bog us down. We – and I include the Treasury here – should ask ourselves if our good intentions to consult at length and widely with each other and draw on as many voices as possible sometimes unnecessarily prolongs debate and discussion, slowing the pace of what we do.

Targeted and timely consultation contributes to better policy without causing unnecessary delays.

I believe we need to be proactive and open-minded to new ways of delivering public services, for example through shared procurement, shared delivery, outsourcing or public-private partnerships (PPPs).

The way governments throughout the developed world make policy decisions is changing radically. Policy development is becoming more open, faster-moving and less elitist.

A greater number of people than ever before have access to a broader range of information and this creates an environment where challenging questions and fresh ideas come from a variety of sources.

The traditional model of a small group of public servants working behind closed doors to provide a single stream of advice to governments is gone for good.

The experience of the Tax Working Group, among other developments,  has shown the benefits that a different approach can bring; with robust analysis and public participation and acceptance of new ideas – even where those ideas involve difficult choices or winners and losers.

We need to take these new ways of working and use them to enhance the quality, rigour and speed of the advice we offer. Our choice is whether to lead, follow, or get left behind altogether.

We’ve seen a positive response to the launch of new business case guidance in the last few weeks, which shows a strong desire by CFOs and others to meet the challenge laid down by this Government for more rigorous analysis, timely engagement, and better choices. 

A year ago I described the next 18 months as our chance to enhance our reputation as one of the smartest public services in the world.  Now, 12 months on, we’re heading in the right direction but still a long way from that goal.

There are some great examples of bold thinking out there, which I want to talk about in a minute.  But we need to pick up the pace.

One of our key strengths is our relatively small scale. We are not burdened with a massive bureaucracy. This means that we should be able to decide and act quickly when we need to. But the reality is that the lag between identifying a problem and then taking action to fix it is still unacceptably slow.

We need collectively to make maximum use of all the levers, talent and information available to us, to really drive the changes we need at a faster pace than we currently achieve.

Being bolder sometimes requires us to get ahead of the consensus and lead from the front. I take comfort from the Minister of Finance’s comment earlier this month that: “strongly expressed disagreement isn’t the end of the world.”

We must safeguard our reputation for free, frank and fearless advice; both because it is our duty as public servants and because it results in better-informed and more robust decision-making. 

As I just said, there are some great examples of bold thinking and approaches in the public sector and I want to highlight a few of these now.

I’ll talk a little more about the Performance Improvement Framework (PIF) shortly, but I’ve been incredibly heartened by the way Al Morrison at DOC, Colin MacDonald at LINZ, John Allen at MFAT, Leith Comer at TPK and their departments have seized the opportunities for continuous improvement in their agencies and are taking action to achieve this.

At MFAT, John Allen has very quickly seized on the recommendations outlined in its recent PIF review, alongside the Ministry’s organisational change strategy.  Like the other agencies, MFAT has not been defensive or backward looking about the results of its PIF review.

This is a really positive example of taking on the performance feedback from the PIF and using it constructively to ensure the organisation’s structure and culture remain fit for purpose.  MFAT is committing to concrete actions  to address areas that need improvement.

TPK also is responding with pace to needed improvements, LINZ is demonstrating good anticipation of what is needed, and DOC is engaging in some interesting innovation.

There have also been some examples of innovative thinking about smarter delivery of services. While discussion recently has focussed on PPPs, they’re only one of several options public sector agencies can consider.

The point for us as senior public sector leaders is to think about all the ways we can get better value for money, whether that involves benchmarking, IT transformation, leasing, joint ventures, contracting out - or PPPs -  and to consider whether we can work with other public sector agencies, non-government organisations, iwi or the private sector.

Agencies are already working together to save money for taxpayers. Last month Minister Brownlee announced the first of a series of state sector-wide contracts for suppliers of stationery and office supplies. The savings from that contract, combined with savings from potential contracts for vehicles and selected ICT hardware, is estimated at $115 million over the next 5 years.

MED is now assessing the viability of all-of-government contracts for recruitment, travel, ICT hardware, utilities, and, in conjunction with Crown Law, external  legal services.

New Zealand Customs and the Ministry of Agriculture and Forestry have been working together to introduce a single clearance system and standardised charges for all New Zealand exporters.  The Joint Border Management System, which will go out to tender soon, with design due to start next year, will simplify and standardise how New Zealand businesses interact with the Government, bringing benefits in terms of biosecurity, reduced crime and reduced costs for industry and the public sector.”

As part of the Better Administrative and Support Services (BASS) Programme, 14 agencies across the public sector have measured and benchmarked the cost and quality of their procurement, finance, ICT, human resources and corporate and executive services. The Treasury will use this information to recommend improvement goals that reduce the cost and strengthen the effectiveness of those services.

In a similar vein, the three central agencies – State Services Commission, Treasury and DPMC – are beginning the process of integrating their corporate services.

All these projects are encouraging but we need to be realistic about what they can achieve on their own.  Certainly, small tweaks and adjustments won’t add up to make a big enough difference. They won’t transform the public sector.

New Zealand has built a good reputation for innovation over the past 3 decades, and other countries have looked our way to see if our experiences have lessons they can use.  Now they’re looking at our recent history to see if there are lessons applicable to current conditions.

But many of our core systems and ways we operate have been in place for several years – or even decades.  We need to keep asking questions, keep challenging the status quo, keep looking for new and better ways of tackling problems in order to stay at the top of our game.

We need to regain and strengthen our reputation for innovation and new thinking, and guard against complacency. 

As I noted earlier, public servants are becoming increasingly aware of the need to maximise the impact of every taxpayer dollar they spend.  Most agencies have worked with small or zero baseline increases for the last two budgets. But I think many people would agree that we have not yet confronted the really difficult trade-offs.

There is always going to be tension in any negotiation over public spending, but we need to remain focused on the over-riding objective that we all share: helping New Zealand’s elected representatives to decide how taxpayers’ money can best be used to improve the lives of all New Zealanders.

During the last year or so, discussions within the public sector have moved from marginal spending to how we can maximise the impact of the entire $70 billion baseline.  The discussion can broaden further: to how we also build our capability to get maximum impact from approximately $223 billion of assets that we manage for New Zealanders.

I’m enthusiastic about the potential of the Performance Improvement Framework, or PIF, to help improve our capability and capacity.  PIF provides a real opportunity for us to better understand what we currently do well, and where we could do better. The PIF reviews:

• provide a comprehensive analysis of an agency’s capability and capacity;
• are independent, with reviewers appointed from outside the department being reviewed and no involvement from Ministers or political parties;
• are transparent, with both the results of the PIF review and the department’s resulting action plan made public.

The four agencies participating in the first round of the PIF – the Department of Conservation, Te Puni Kokiri, Land Information New Zealand, and the Ministry of Foreign Affairs and Trade – will publish action plans soon and each agency will then need to make their action plan a reality.

The Treasury’s PIF will get under way soon.  The Ministry of Education, Department of Building and Housing and New Zealand Transport Agency will also have PIF reviews in the next 6 months. 

For Treasury, this is a real opportunity to build on our strengths and take part in an honest and impartial assessment of our weaknesses.  I’m expecting the reviewers to identify areas that need improvement. I want the PIF process, including the public commitment to action, to be a catalyst for change at Treasury.

The success of PIF in improving performance will depend on how the public sector responds to the challenges laid down.  It will also depend on how Ministers, politicians in general, the news media and the wider public respond. 

As I noted earlier, we need an informed, intelligent and constructive debate about public sector performance, how it can be improved, and what changes and trade-offs are needed to make that happen.

I think that is a particular challenge for the fourth estate. Will it satisfy itself with easy headlines or will it hold us accountable in a well-informed way, for the good of New Zealand?

Debate about the public sector will and should include debate about the number of public servants and external consultants, what they do and how much they are paid for doing it. 

It should include discussion of what standards of service are acceptable now and in the future, the role of the private and voluntary sector in delivering public services, distribution of benefits and public service provision across different income and age groups.

A responsible, ambitious public service asks these questions – and equips Ministers with advice and information to answer them.

As part of the debate, we can very usefully ask ourselves whether we currently have a public sector management system and culture that rewards ambition, challenge and pace.

Where the public sector has introduced things that haven’t worked as well as we wanted them to or where new ideas have not added enough value (and we shouldn’t be afraid to admit when we’ve done that), I want public servants to feel they can point out what isn’t working well and propose improvements.

We’ve started to take action on the five areas of change I have spoken about today. We’ve started, but to really do better we will have to increase the momentum.

What would a better-performing public sector look like?  My personal vision of a high performing New Zealand public service looks something like this:

• Services are designed and delivered in ways that are cost-effective – and we can prove it;
• There is a clear and shared understanding of good public sector performance by Ministers, Parliament, the public sector, the media and the public- and we are held to account for delivering it;
• Success is transparently measured by what has been achieved, not what has been produced, or by a count of dollars spent;
• We continue to provide free, frank and fearless advice – but we would make the transition from idea to delivery faster than we do at the moment;
• We have high aspirations about performance, supported by a capacity to make the most of our strengths by moving first, and moving quickly;
• We have a longer-term approach than we do now, possibly including multi-year budgets;

A public sector that looks and behaves like this will better support any government in achieving its core goals.

Getting there will involve difficult trade-offs.  For example:

• If we want quicker decisions, we’ll need shorter, more focused consultation within and between departments;
• If we want greater consistency and economies of scale, we can’t have customised systems and processes for every area in every department;
• If we want less duplication and more seamless service delivery, we’ll need to stop habits and behaviours such as working in silos.

Perhaps the biggest challenge, and the greatest opportunity, is breaking out of our traditional risk aversion.  To get greater gains, we need to be more comfortable with risk-taking – and we need politicians, the news media, and the public to be more comfortable too.  We need to learn to live with the consequences of our inevitable mistakes, fix them and learn from them in the future.

The safe and easy path may be more comfortable most of the time, but it is ultimately a path to mediocre performance and mediocre results for New Zealand.

Conclusion

Our duty as public servants is to deliver on Government policy. If we don’t change, we’ll end up in a position where we can’t fulfil that duty.

CFOs have a key role to play in this – helping to shape strategy, challenging the CEO and the rest of the top team, learning from each other and driving change in groups or clusters of agencies.

At the moment, the biggest risk I can see for the public sector is carrying on as we are.

The last thing anybody here wants is short-term or indiscriminate cutting of services but we do need to pick up the pace of what we do and we need to drive significant changes.

Nations that have reacted too little or too late to their economic woes have ended up having terms dictated to them by their creditors, repaying their debts on someone else’s timetable and constrained from making the choices they might prefer to make for themselves.

The Chief Executive of New Zealand’s independent Institute for Economic Research describes New Zealand’s challenge in these terms: “We can make the hard decisions now and soften the inevitable blow, or we can wait until crisis hits.”

New Zealand faces tough choices about key policy settings in order to avoid the situation currently facing some deeply indebted nations.  All parts of the public sector have a shared responsibility to help this and future governments to make those choices.

By and large, the New Zealand public sector is characterised by prudence, probity and professionalism.  But to achieve our potential we need to add pace, passion and persistence. 

• Pace – because our task is urgent.
• Passion – because we need to innovate and take risks to achieve more.
• Persistence – because complacency is the biggest enemy, we must resist the temptation to declare victory when there is so much more to do.

And most of all we must keep our eyes firmly on performance – not just in terms of what we do but also in terms of what we are seeking to achieve for New Zealand and all New Zealanders.

Thank you.