John Carran thinks Government departments shelter too much unproductive spending even when their masters call for a 'zero growth' cap on total spending. Your view?

By John Carran*

Another Budget has been and gone. The overwhelming focus of the Opposition, media and general public is on the marginal new spending and taxes that are announced.

As we know, this year net new spending was a big fat zero, with various spending reallocations to achieve that.

Typically over the past decade new spending initiatives have roughly totalled $1 billion-$2 billion per year, which has been around 1-3 per cent of the Government's total annual spending.

Yet this new spending pales in comparison to what's already been built into the Budget by current and past governments.

This year total core expenditure is estimated at $70 billion. Some attention has been given by the media and commentators to the dubious quality and unsustainable nature of existing policies, such as interest-free student loans and universal Superannuation from age 65. The questioning is well justified, in my view.

But, even a quick perusal of the Estimates of Appropriations that accompany the Budget shows that there are vast arrays of other policy programmes built into departmental baselines.

Given the large magnitude of existing spending commitments it is a wonder that there is not more focus on this rump.

To be fair, in the lead up to each Budget there are government processes that aim to weed out redundant programmes so money can be freed up for higher priority initiatives.

We saw that clearly in this year's Budget - savings were made in a number of areas to help fund the Government's current priorities.

But the Budget garden-tending is far from perfect because the link between many programmes and the Government objectives they are designed to meet is poorly understood.

Many departments will only include in their Statements of Intent vague or meaningless explanations of the links between their programmes (outputs) and Government objectives (outcomes).

To take a random example, in Vote Economic Development how does the $62 million to be spent this year and next on Services to Support Sector Development and Special Events contribute to the Government's desired outcomes for the area?

How will the Ministry of Economic Development measure whether its plans in this area are a success?

There's not much in the Estimates or department's Statement of Intent that you can hang a hat on. There are many more examples of this lack of clarity across government spending.

In some cases it is very difficult to isolate the specific effects of government programmes on them given all other influences. For example, how can the links between the Treasury's outputs under Policy Advice - Finance and the Government's priority of building a more competitive and productive economy - be explained? It's a tall order.

In these circumstances judgments on programme effectiveness need to be guided by theories or expert guesses rather than solid data and evidence. Regardless, it means that it is difficult to sift the dud programmes and spending areas from the good ones.

When information on programme performance is opaque political guesswork, fudging and expediency come to the fore. Cuts in services and benefits are often concentrated on particular groups, and some groups are louder and more widely supported in their opposition than other groups.

Guess which groups are generally likely to have their programmes cut the least? Interest free student loans and New Zealand Superannuation fall under this category. What about all the other forms of industry, social and environmental assistance? Do departments know how their programmes cost-effectively meet the desired outcomes set by governments? It's not always clear from the official documentation.

It is a credit to New Zealand that programme information is available to the public via the door-stop sized Estimates. These outline all the programmes currently in play and those that are being retired, with brief reasons. This is certainly better than no information on programmes, and can spur public questions and scrutiny about them.

But, if bureaucrats can't make the links between programmes and objectives and measure programme effectiveness, how does the general public make sense of it?

Holding departments and ministers accountable for the performance of programmes and putting pressure on them to cull the deadbeats on this basis is nigh on impossible.

In my view there are four key areas further changes need to take place:

1) Government ministers need to be clearer in specifying their objectives so that results in meeting those objectives can more effectively be measured.

2) Departments need to maintain sufficient capability to rigorously analyse and monitor the performance of their programmes in meeting government objectives.

3) Greater incentives need to be built into department Purchase Agreements and chief executive performance agreements for finding baseline savings and giving these up for higher priority uses elsewhere in government.

4) The media and commentators should focus just as much on the rump of existing spending as they do on the new initiatives in the Budget.

It's a tough task to link many of the things government departments do to the objectives desired by governments. But the public service needs to continue striving for improvements in this area. Better prioritisation of existing spending through more clarity about what works and what doesn't will deliver better quality government services and benefits to people, while significantly reducing the tax burden.

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Reading the Treasury's Budget 2012 documents is tough, but we have made it much easier with our cascading summaries here » and here »

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John Carran is a senior economist at Gareth Morgan Investments. Any opinions expressed in this column are John Carran's personal views and are not made on behalf of Gareth Morgan Investments. This column was first published in the NZ Herald. It is used here with permission.