Hon Tony Ryall

Minister of State Services

21 September Speech


Speech to Public Service Association Congress

Good morning.

I’d like to start by acknowledging on behalf of the Government the tremendous commitment and hard work of the thousands of public servants who took part in the national effort following the Canterbury earthquake.

Whether it was telephoning the elderly in their homes to see if they were alright, or caring for people injured in the quake, or comforting patients during the endless aftershocks, or looking after homeless people in the welfare centres, or checking to see people's houses were safe…New Zealand’s public servants have worked tirelessly in support of Canterbury.

And many of these people had damaged homes of their own and families needing comfort and support.

Yet they came in on that Saturday to help – and stayed.

And while the recovery effort will be a long journey, we thank all of the public servants from across ministries for their continuing efforts.

A time of restraint

The tone of this conference here in Wellington will no doubt stand in stark contrast to that of the Irish public sector union only a few months ago.

In what has been described as a firebrand speech, the union chief demanded his members accept a four year strike ban, a pay freeze following pay cuts, massive redundancies and rationalisations – all of which were agreed with the Irish government earlier in the year.

What is more remarkable is the acceptance by his members and others in the public sector that the global financial crisis and its impact on the Celtic Tiger required such austerity….that is acceptance from the unions other than the secondary teachers union.

After undertaking months of industrial action including marching in the streets, that secondary teachers union there last week decided to finally accept the facts of recession and is joining the wider public sector pay restraint.

Ireland is one of many countries around the world struggling through the economic consequences of the worst recession in 70 years.

And like the rest of the world, New Zealand will continue to experience tight financial times for some years to come.

The times call for conservatism and restraint. And this government will continue to call on the public sector to play its part.

Overseas situation

Countries around the world are addressing how they can deliver the best possible public services in the face of large deficits… and public services are feeling the squeeze

For most countries, the critical factor has been their ability to borrow more money to keep their economies afloat.

Where a nation has relatively high domestic debt, then it is obviously very difficult for it to borrow billions more to fill the gap between spending and taxes – as this raises their national debt to dangerous levels.

So, most nations are using a mix of strategies; depending on their relative financial positions when the economic crisis hit.

Many of these countries have had no choice but to make some tough decisions in relation to public services.

The United Kingdom is facing the largest peacetime deficit in their history. Public servants earning more than $40,000 are facing a two year wage freeze, and performance-related pay for civil servants will be cut by 2/3rds.

Just last week the Governor of the Bank of England urged unions to accept public sector reforms and job cuts by warning that anything short of tackling the UK's Budget deficit would "fail the next generation."

In Italy the Government passed an austerity package of around $50 billion of saving which includes a freeze on public sector wages.

In Ireland the Government has cut public service salaries – including doctors, nurses, and teachers – by up to 15%.

Greece's socialist government has frozen public sector wages and pensions for the next three years.

In Hungary they plan to cut the cost of public servants pay by 15% and freeze government spending.

The Portugese government has put a hiring freeze on its civil service, along with a 5% wage cut for top earners in the public sector.

Germany has the strongest economy in Europe. But the Germans plan to reduce the number of their federal public servants by 15,000 – or 5% - and cut their salaries by 2.5%.

Canada has frozen wages in the public service for the next two to three years.

Compared to what’s happened internationally, New Zealand’s response has been fair, moderate and pragmatic.

PSA wage settlements

I would like to acknowledge the Public Service Association for the constructive and responsible part you have played in employment negotiations to date. You are professional yet determined.

You have sought settlements for your members that recognise the tough financial times we are all in.

While hard fought, those settlements have been responsible, realistic and fair to both parties…often between one and two percent. You’ve also been innovative in your approach to addressing productivity improvement.

You have shown an awareness that things are still very tough for many in the private sector, that for many people in the private sector there have been no pay rises for some time…that actually keeping their job is the most pressing challenge.

You understand our domestic situation, and that New Zealand is not alone.

Tight financial times continue in New Zealand

To support important public services here in New Zealand the Government is running large Budget cash deficits totalling $36 billion over the next three years.

The largest bite of that is happening this year, with a cash deficit of $13 billion expected… far in excess of last year or the year before.

To fund these deficits, on behalf of taxpayers we are currently borrowing $240 million a week.

The net effect of all this borrowing is that our net Crown debt will double from around 14% to 28% of GDP in 2015

And that will mean we'll have to allocate more taxpayers money to service that debt.

But that debt will have to be paid off.

That’s why the Government’s eye remains firmly on what matters … helping our economy recover, to create jobs and opportunity, to provide quality public services.

The National-led government has protected New Zealand from the sharp edges of recession with a strong focus on prudent financial management.

Our approach has been built on our six pillars of growth:

• A multi-billion dollar investment in infrastructure.
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• Cutting red tape and regulation.
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• Better business innovation and an ambitious trade agenda.
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• Improving education and skills.
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• Ensuring better, smarter public services.
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• And changes to the tax system to make it fairer, so that hard work and enterprise are better rewarded
•
Better Smarter Public Services

Ensuring better smarter public services means a strong focus on delivering high quality public services for New Zealanders - in a timely, responsive and effective way.

And we are achieving that. The latest Kiwi Can survey finds New Zealanders with higher levels of trust in public services, with more considering they are better value for money than only a few years ago.

But with limited Budget growth, the public sector is focusing on living within its means. That means moving resources from back office administration to supporting frontline services, and an increased focus on productivity.

This is part of the public service's contribution to economic recovery and easing the tax burden.

Cap on core government administration

One of our tools for supporting this is the cap on core government administration.

Things got seriously out of kilter under the previous government.

The core government administration grew and grew – out of all proportion to the numbers of teachers, police officers, social workers on the front line.

Between 1999 and 2008, the Public Service grew by 50% - about 5% per year.

The National-led Government has halted that growth.

In the first year there were 1,500 fewer core government administrative positions...a 4% drop. Staffing increased in important public safety frontline services like the Police and Prison Service.

If that public service growth had remained unchecked there would be 2,700 more public servants at the end of last year than there actually was.

At an average of $63,000 for a public service salary, that's around $170 million in staff costs that were available for saving or reinvestment elsewhere because of the cap.

Further reductions in core government administration staff can be expected. The pressure on departments isn’t coming off any year soon.

The road ahead is long and the speed of change will only accelerate.

Most of your members and their employers will be confronting the reality that there will be no Budget increase in your agency's funding for the next 3-5 years.

Productivity

All agencies will be thinking about how their organisation has to change to live within those flat baselines.

The focus will remain on productivity and living within our means.

To match Australia, New Zealand needs to grow at an extra 2% a year for the foreseeable future. That will require significantly better productivity on this side of the Tasman.

Treasury research shows that most of the productivity gap between New Zealand and Australia lies in what's called the non-measured part of the economy. That is largely the public sector.

This means the imperative of improved productivity is greater for the public sector. Even greater than it is for competitive firms in the private sector.

I am very conscious of the problems of measurement, and that the statistics often fail to reflect improvements in the quality of services.

Nevertheless, the productivity gap with Australia is real indeed.

It is imperative the public sector improve productivity and get more for the taxpayers' dollar.

The best way to ensure sustainable pay improvements in the future is improved productivity. When departments have to live with no extra money its does mean they have to get more from their current operations especially if they are to provide pay rises for staff.

The government wants the public sector to consider better ways of delivering its services. ... where services can clearly be provided better by the private sector it would be foolish not to have them do so. But this is part of the challenge to the public sector: to outperform your counterparts in the rest of the economy.

We would encourage public servants throughout New Zealand to think about how the system can do better, and we welcome your perspectives and suggestions.

Conclusion

We are, and will continue to be for some years, in very tight financial times. In many ways, the pressure on public finances is getting greater not lesser.

Your members recognise that, as does the PSA.

As Minister of State Services my door is always open to you. I am keen to listen to your positive suggestions for the future.

With a strong focus on improving service to the public, we can deliver for New Zealand taxpayers

Thank you.

ENDS

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