Have your say: Bill English tells bureaucrats to cut costs for 30 years (Update 1)

Finance Minister Bill English made a sobering speech to the Institute of Public Administration yesterday that warned bureaucrats to expect 30 years of restricted spending. He also signalled a much deeper look at cost cuts in the coming budget and told them he viewed the public service as professional rather than political. (Adds video from Bill English) Here's a few of the key sections.

I believe the impact of this recession will continue to be felt on the Government's books for 30 years. Public finance cycles are long. Net government debt rose steadily from the early 1970s and peaked at over 50 per cent of GDP in 1992. It then took another 16 years of near continuous growth to get it down and almost eliminate it by 2008. So the last public finance cycle began in the early 1970s and lasted until 2008, when the spectre of too much borrowing was used as a political weapon. Over the four years from 2008, our total GDP will be permanently $50 billion lower than if the global financial crisis had not occurred. That means the Government will collect about $16 billion less tax revenue. With expenses continuing to grow regardless, we will double government debt by 2014 - borrowing another $40 billion, currently at the rate of $400 million a week. We are doing this to maintain entitlements, invest in productive infrastructure such as roads, broadband and electricity transmission, and to keep the economy running. The Government has been concerned to strike a balance between dampening the worst of the recession and preventing escalation of public debt. This is critical because the increase in interest costs competes directly with and displaces spending on more worthwhile public services. Core Crown finance costs have been fairly constant over the past decade.  But in the next four years, they will more than double to over $5 billion annually. That means the Government's interest costs will increase by about $2.8 billion by 2014, or roughly $700 million a year. So our new annual spending allowance of $1.1 billion could have been around $1.8 billion had debt not been rising.  In all, interest costs are taking up almost 40 per cent of new spending. Additional borrowing on that scale cannot continue indefinitely.

And here's the really sobering bit.

It will take a lift in GDP of about 4 per cent over the next four years just for the Government to collect enough revenue to pay for the extra interest costs. In other words, the next 4 per cent of economic growth is already mortgaged. For these reasons, it is strongly in the community's interests that we do not get drawn into a debt trap. Unfortunately, this will be the fate of many Western countries as they emerge from the current crisis.  They will end up with smaller public services, lower pensions or increased taxes as a result.

And here's the message to the bureaucrats.

So my message here is straightforward: We simply cannot afford to continue the public sector growth we have seen in recent years. We cannot escape this fact or wish away this constraint. Government spending has ballooned by about 50 per cent in the past five years - twice the rate of revenue and twice the rate of economic growth. This is unsustainable - no household or business could survive with its spending running at twice the rate of its income. And nor can the Government when Budget deficits exceed $10 billion and surpluses are 10 years away.

We made a good start in the Budget, freeing up $2 billion over the next four years to put back into Government priorities such as boosting frontline services in health, education and law and order. And we have fulfilled an election commitment to cap the size of the bureaucracy by putting a lid on the number of back office positions. That allows us to focus on the frontline, where public demand for better, smarter services is greatest. This is not a time for slashing and burning because the results will be disruptive and will not endure. Our first Budget dealt with the immediate and very real challenges of the recession. The Government is now asking departments and Crown entities to think hard about how to live with little or no extra funding for those three to five years.

Here's the bit where he tells them what to plan for in the 2010 budget.

Budget 2010 will reflect the new spending allowance, the Government's priorities and emergency cost pressures. Beyond that, there will be no further bids for resources entertained in this budget round. The intention is to shift the focus from minor incremental spending to an in depth analysis of whole votes.

Here English talks about making the public service more professional and less political, even to the point of bureaucrats telling politicians how and where they are wrong.

There must be a line between the political role of the Government and the professional independence of the public service. Under the previous Government, it was often hard to know where that line was. This Government is pulling back that line and drawing it more clearly. In recent years, the public service was expected to focus too much on risk management, particularly when those risks were political risks. That's not the public service's role. A no surprises policy is sensible and ministers should expect professional judgment about what amounts to political risks. But the biggest political risks are unpopular or ineffective policy, and ministers - not public servants - should take responsibility when such policies fail.

The professionalism we value is the public service telling the Government what it doesn't want hear. Ministers may well disagree with the advice they receive, but open and respectful debate is the best way to make progress. Public servants can focus too much on nuance. But strongly-expressed disagreement isn't the end of the world.

Finally, English made some interesting comments about opening up government data to the public and streamlining the government's online presence. He appears to be taking his lead from a growing open source-led movement to open up government data and decisions to the public. This movement is epitomised by the Barcamp unconference

In the interests of debate, I want to float a few concepts that describe where public services might evolve. The first is the "single window". We want New Zealanders to access a wide range of government services easily and reduce our costs at the same time. By some counts there are more than 600 government (that's govt.nz) websites. There are numerous government 0800 numbers - at least two agencies have about 20 separate toll free numbers and there are quite a few with more than five of these numbers.  There's a direct cost to the Government from this level of duplication, with what look like quite large variations in unit costs. There's also a cost imposed on those who use them through having to provide the same information to multiple agencies or multiple times to the same agency. I think there is value in exploring whether we could provide people with a single IT window into tax and income support provided by Inland Revenue and the Ministry for Social Development. At this stage, it's just an idea, but it's certainly worth exploring. Where possible, public services should allow New Zealanders to manage their own interactions with government. That will require us to first consider the needs of the public, before the needs of the institution. A second concept for the future is "inside out government". Government holds a wealth of information.  Some of it - quite rightly - is sensitive and access should be strictly controlled - tax records for example. But in other areas, I see no reason why we can't turn government inside out, so to speak, and make the same data and information available to those outside of government. Government can tap wider resources in the community to analyse and use government data to help solve problems and produce insights. A ministerial committee is exploring this concept. Inside out government also requires government to be open to good ideas from business. We want to see ideas generated in the private sector and NGO sector genuinely considered and appraised - not simply ruled out on the basis that these sectors might not understand all aspects of government.

What I think This is the most sobering view Bill English has given of the likely government debt track and his indication of a much more fundamental rethink of government spending in this year's budget is welcome. However, he needs to reform revenue raising as well as spending. Bill English is saying the right things. We look forward to the proof in the pudding from the Tax Working Group, the 2025 Taskforce and next year's budget. Let's also hope that John Key is as determined and will to take the tough decisions to back up Bill English. Maybe Key's Top 10 on tonight's Letterman show should be 'Top 10 reasons why New Zealand can't wimp out on economic reform'. It would not be entertaining, but it would be a useful list for John Key to remember. Your views and suggestions for the Top 10.