2. Cap on civil servant numbers lifted

State Services Minister Chris Hipkins. Photo by Lynn Grieveson

The Government has announced that it will lift a cap on core public servants

The previous National-led government came to office in 2008 with a campaign pledge to cap the number of core public servants. The initial cap imposed by then-State Services Minister Tony Ryall was 38,859 full-time equivalents. The cap was later dropped to 356,475 in 2012.

Critics of the scheme have argued the cap is arbitrary and ministries have attempted to circumvent it by hiring expensive outside consultants.

The current Minister Chris Hipkins said on Friday that the cap was costly.

Figures provided by the Government said the total cost of external contractors and consultants was $550 million in 2017, up from $272 million in 2008/9 when the previous government took office.

“We want to bring this spending back down over time and invest any savings in permanent staff,” Hipkins said.

National’s State Services Spokesperson Nick Smith said the cap could lead to a swelling of the civil service.

“Our concern is that when Labour was last in Government we had the number of bureaucrats in wellington grow by up to 50 percent with little actual benefit shown in services,” Smith said.

“The system is naturally biased towards the policy advisors and administrators in Wellington because they’re close to where the money is distributed. It is always biased towards the paper-pusher over the deliverer of services,” he said.

Out of control consultant costs

The cost of hiring external consultants is provided by individual ministries at estimates hearings. Many have vastly increased their consultant spend in the last five years.

But Smith defended National’s record on consultant spending.

“There is no question that we spent hundreds of millions on consultants particularly on engineering consultants associated with the Christchurch and Kaikoura earthquakes,” Smith said.

But some of the biggest consulting spends were from ministries unrelated to the earthquake.

DoC’s spend on consultants increased from $40 million in 2012/13 to $69 million in 2016/17. MFAT’s spend nearly doubled from $7.8 million to $13.4 million over the same period. IRD’s spend more than trebled from $52-$162 million.

MBIE came under fire in 2017 for spending $251,815 on one Senior Commercial Advisor for a year and $450 an hour for an “immigration global management system independent government advisor services”.

Cabinet papers proactively released to coincide with the announcement paint the picture of a rising bill for expensive consultancy work and the unintended consequences of a civil service constrained by a hiring cap, rather than a budget cap.

A paper brought by Hipkins to Cabinet noted that the hiring cap incentivised the hiring of expensive experienced (read: overqualified) staff, when inexperienced staff would do.

The cap created a culture of “shifting management focus to staff numbers rather than value that is being created by existing or new expenditure”.

This saw the amount of expenditure classified as expenditure on consultants in the Public Service increase by around 134 percent since 2006/07 compared with an increase of 49 percent in the wage and salary expenditure for non-consultants.

The paper also proposed three-year targets to reduce expenditure on contractors and consultants, with Cabinet being informed each year of the progress.
The decision was taken to the Cabinet Government Administration and Expenditure Review Committee on June 12.

The papers acknowledged that costs are likely to increase in the short term, but argue savings will be made as the number of external consultants is gradually reduced.

The paper said that "existing fiscal management controls” provided “adequate” mechanisms for managing expenditure. It says these include the mechanisms used by the Government in setting its fiscal strategy and fiscal management approach, which is effectively the much-touted Budget Responsibility Rules.

These include a promise to keep core Crown spending at 30 percent of GDP and net core Crown debt at 20 percent of GDP by 2021/22. This could mean that the Government has effectively replaced a cap on staffing with a cap on spending.