Statement made by Souella Cumming, KPMG Partner

Message to State sector agencies is clear – understand cost drivers, manage cost pressures within existing baselines, ensure all administrative and backoffice activities explicitly support Government policy initiatives, and ensure all services are delivered efficiently and effectively

Line by Line reviews of departmental expenditure have delivered $2.147 billion in savings for the period to 2012/13 and these monies are being prioritised into delivering on National’s pre-election promises to support front line services (600 more police jobs, etc). The on-going need to contribute almost $500 million per annum, together with the cap on new spending to $1.1 billion per annum from 2010 means agencies right across the State sector will need to continue to look for efficiency and effectiveness in the price, quality and mix of services delivered. Any wage and other cost pressures will need to be addressed within existing baselines. The Government also expects an on-going shift in spending away from what it describes as “low priority” areas.

The focus on efficiency and effectiveness will therefore remain a priority for all agencies across the State sector, and savings will be more difficult to achieve without some hard decisions about the services bang delivered. Since its election in late 2008 Ministers across a range of portfolios have indicated a greater willingness to do this but agencies will need to demonstrate the rationale for making changes. There are clear indications that agencies will be expected to consider not only the quantity and price of the services being delivered but also the “standards” being delivered, and the impact of the costs on the rest of the economy.

Perhaps a more fundamental question is whether the services need to be delivered at all. This is what is intended by indicating the need to look across all the spending administered by department including “ultimately at policies and policy settings themselves” For agencies this means ensuring they understand the drivers of their performance, the cost drivers associated with service delivery, and the contribution to outputs and outcomes.

One of the challenges with any value for money initiative is ensuring that the gains are retained into the future. For the past 10 years State sector agencies have mitigated the impact of internal inefficiencies through “top up” funding for new initiatives. This has supported the growth of core Crown expenses from 30% of GDP in 2004 to 32% of GDP in 2007. The cap on new spending to $1.1b leaves less room for future increases to be absorbed, and there is a strong message that this is not acceptable.

Overall the message to State sector agencies is clear – understand cost drivers, manage cost pressures within existing baselines, ensure all administrative and backoffice activities explicitly support Government policy initiatives, and ensure all services are delivered efficiently and effectively. For a State sector operating in an environment of increasing spend some significant spending behavioural shifts will be required to deliver against these expectations.

ENDS

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