Freeing up $980m to improve frontline services

Hon Bill English
Minister of Finance

19 May 2011

The Government expects the wider state service to find $980 million in savings over three years to go towards improving frontline public services and reducing debt, Finance Minister Bill English says.

Agencies will be required to find the savings from 1 July 2012. They will comprise two main parts:

• $650 million from ending the central funding of over 100 state sector agencies’ employer contributions to KiwiSaver, the State Sector Retirement Savings Scheme and the Teacher’ Retirement Savings Scheme. In most cases agencies will have to meet these costs from their existing funding.

• $330 million in core government administration from 31 core government agencies.

“The Government is committed to getting better value for money from public spending so we can deliver better public services to taxpayers with little or no new money over the next few years,” Mr English says.

“The Government is requiring state service agencies to fund their own employer contributions to workplace savings schemes – putting them on the same footing as other employers and improving the incentives for them to fully assess the cost of employment decisions.

“The wider state sector will receive over $100 billion in Government funding over the three years in question to deliver public services to New Zealanders. We believe this level of funding provides sufficient room for agencies to find these savings while improving critical frontline public services.

“Data collected for 33 government agencies, including many in the core public service, showed they spend about $1.8 billion a year on administrative and support functions,” Mr English says.

“This amount of back office spending is simply too high and some of it could be better spent on improving frontline services in areas like health, education, and law and order, or repaying Government debt.

“We have given agencies a number of tools to help them find savings while maintaining high-quality frontline public services, including a recent Treasury report benchmarking the cost of agencies' back office functions.”

The report concluded that the government agencies taking part could eventually save between $230 million and $425 million a year through greater sharing, standardisation and automation of back office processes and systems.

“We are giving core public service agencies time to identify savings of $330 million over three years and we expect most of this to come from back office efficiencies," Mr English says.

Targets will be finalised after the Budget, based on an agency's size and costs. There will be a number of safeguards to protect the quality of frontline services. Agencies will be able to appeal their target and have it reduced if they can show it would have an unacceptable impact on frontline services, or it could be better used to fund projects necessary to deliver future savings.

Agencies that have already undergone a specific review, such as the Defence Force and Statistics New Zealand, will be excluded.

Other agencies may be excluded where Cabinet is satisfied they are already achieving internal efficiencies. Organisations whose budgets are set by Parliament rather than the Government are also excluded.

ENDS

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