VZCZCXRO2123
RR RUEHDT RUEHPB
DE RUEHWL #0099/01 1070335
ZNR UUUUU ZZH
R 170335Z APR 09
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 5834
INFO RUEHNZ/AMCONSUL AUCKLAND 1951
RUEHBY/AMEMBASSY CANBERRA 5492
RUEHAP/AMEMBASSY APIA 0559
RUEHDN/AMCONSUL SYDNEY 0830
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE

UNCLAS SECTION 01 OF 02 WELLINGTON 000099 
 
SIPDIS 
SENSITIVE 
 
STATE FOR STATE FOR EAP/ANP 
PACOM FOR J01E/J2/J233/J5/SJFHQ 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN SOCI NZ
SUBJECT: NZ PUBLIC SECTOR CUTS UNDERWAY 
 
WELLINGTON 00000099  001.2 OF 002 
 
 
¶1. (SBU) Summary.  In keeping with its campaign pledge to curb New 
Zealand public sector expenditure, the National-led Government has 
instigated a review of public spending in advance of the May 28 
budget.  The main aim of the review is to identify programs and 
personnel not consistent with Government priorities.  It forms part 
of PM John Key's longstanding goal to introduce more private sector 
principles to the public sector.  However, Government opponents 
assert significant public sector job cuts will ultimately emerge. 
Though worsening economic conditions and reduced operating budgets 
may make some public service job loss and wider program cuts 
inevitable, public and political fallout for such actions may not 
prove damaging for the Government.  End Summary. 
 
Public Sector Review Signaled Well in Advance 
--------------------------------------------- 
 
¶2. (SBU)  Soon after winning the 2008 election, the National Party 
established a review process on state agency spending.  The 
Government's public sector spending reassessment was telegraphed 
well in advance and is largely unrelated to present economic 
conditions.  The ruling National Party campaigned on a pledge to 
undertake such a review well before the November 2008 election.  In 
early 2008, it released the following policy aims regarding the NZ 
public sector: 
 
 - Cap the size of the core bureaucracy in the first term of 
government, and ensure that priority is given to delivering 
frontline services that directly benefit New Zealanders. 
 - Limit new spending in the first Budget to the priorities National 
identified during the election campaign and non-discretionary 
pressures that cannot be deferred or absorbed. 
 - Require departmental chief executives to undertake a line-by-line 
review of their expenditures with the goal of identifying areas 
where savings in government administration can be made. 
- Establish a Cabinet Expenditure Control Committee to oversee this 
process and to consider chief executives' reports on potential 
savings. 
 
Spending Review Indict to All State Agencies 
-------------------------------------------- 
 
¶3. (SBU)  In December 2008, Finance Minister Bill English instructed 
all state agency executives to start the expenditure review process. 
 The list of recommendations from state agencies will be 
peer-reviewed by a panel of senior public service executives and 
private sector consultants.  The Government wants state agencies to 
identify programs that are inconsistent with Government priorities, 
those with uncertain cost-effectiveness, and to outline the scale 
and time of savings.  An indication of the switch of priorities came 
at the Environment Ministry, where 86 positions involved in making 
the civil service carbon-neutral are to be eliminated. 
 
¶4. (SBU)  Additionally, different departments were asked to identify 
up to ten percent of their lowest value spending ahead of the May 
28, Budget.  English stated that there was no target to cut 
government spending by up to ten percent.  Despite English's 
assurances that there was no specific target, junior government 
minister Heather Roy, of the right-wing ACT Party, was quoted in 
February as saying that the Government's "razor gang" wanted to 
slice ten percent from ministerial and departmental budgets.  Though 
Roy later retracted her comments, it was seized on by the opposition 
as evidence of a supposed hidden agenda to slash the public 
service. 
 
Labour and Unions Foresee Greater Cuts 
-------------------------------------- 
 
¶5. (SBU)  The opposition Labour Party has accused National of 
reneging on its election campaign promise to simply cap core public 
service numbers at present levels.  Labour has asserted that 
National's true agenda has now been brought into sharper relief and 
that it intends to cut thousands of public sector jobs.  Labour 
argued that if the Government downsizes the public sector it will 
have a dramatic effect on the delivery of frontline public services. 
 Union leaders also chimed in and claimed a push for a ten percent 
cut in public sector staffing levels will ultimately emerge. 
 
PM Key Insists No Enemy of Bureaucracy 
-------------------------------------- 
 
¶6. (SBU)  Like past leaders of the traditionally conservative 
National party, PM John Key favors smaller government.  However, he 
freely acknowledges the role government must play in the provision 
of certain essential front-line services and wants this to continue. 
 He claims to not want a radical overhaul of the public sector. 
 
WELLINGTON 00000099  002.2 OF 002 
 
 
Rather his over-arching objective is to make the NZ public sector 
more innovative, efficient and accountable to public needs. 
 
More Private Sector Principles in Public Sector 
--------------------------------------------- -- 
 
¶7. (SBU)  A central tenet of the Government's broader program is to 
introduce private sector practices to the government's bureaucracy. 
Before the 2008 election, Key stated that he recognized that "there 
is a high level of professionalism and competence in New Zealand's 
public service.  What is needed is effective political leadership 
that sets clear goals that are professionally communicated."  Key 
openly recognizes the professionalism of public servants and expects 
high-quality, timely advice and has included public service advisers 
in Cabinet committee discussions where appropriate. 
 
¶8. (SBU)  Key has already ordered a public sector pay freeze along 
the lines of normal commercial practice in economic downcycles. 
Though the Government will honor agreements to boost public sector 
wages where it is contractually bound, other public sector workers 
have been told bluntly they cannot expect wage increases. 
 
Some Labour-Friendly Public Officials Move On 
--------------------------------------------- 
 
¶9. (SBU)  A commonly-held perception among New Zealanders is that 
Labour inserted its own people in key public sector positions as a 
means to further its narrow political objectives.  National was 
highly critical of this practice and asserted that it undermined the 
apolitical tradition of the NZ public service.  It pledged that it 
would assess candidates for public service positions on the basis of 
competency and not political affiliation. 
 
¶10. (SBU)  After the 2008 election, National moved quickly to inform 
a number of Labour-appointed (and organized labor friendly) public 
sector directors that they will not be re-appointed.  These included 
Trade Unionist Ross Wilson at the Accident Compensation Commission 
(ACC) the state-owned national accident insurer, and former Labour 
Party candidate David Shand at the state-owned energy company, 
Meridian Energy.  In their place, National has appointment new 
directors with well-established business credentials. 
 
2009 Budget and Public Sector Spending 
-------------------------------------- 
 
¶11. (SBU)  The Government is presently busy deciding on expenditure 
priorities for the May 28 budget.  In what will be his first Budget, 
Finance Minister Bill English will account for the line-by-line 
review of public sector spending.  But as Budget Day draws nearer he 
will try to talk down expectations of new public sector expenditure 
given the worsening state of the Government's books.  Ultimately 
though, the likelihood is that public spending levels will still 
track upward but more slowly than under Labour. 
 
Comment 
------- 
 
¶12. (SBU)  Most New Zealanders believe, with some justification, 
that the previous Labour-led Government went overboard on expanding 
the bureaucracy without achieving better outcomes.  Budget surpluses 
were spent in the good years on an expansion of the bureaucracy and 
a proliferation feel-good measures, such as the drive to make the 
public service carbon neutral.  National's public sector review will 
likely result in some pain being felt by public servants - job loss 
and program reduction.  The political cost for the Government of 
such actions may, however, be mitigated by the public's pragmatic 
recognition that the country faces a worsening economic climate not 
of National's making.  Therefore, a reassessment of spending 
priorities will, to some extent, be accepted in light of the stark 
new economic realities.  End Comment. 
 
Keegan