Culture News Blog

Government spending is being directed into non productive areas, according to a study led by ANZ chief economist Cameron Bagrie.

His study, prompted by a rise in government spending in relation to the economy, found it impossible to assess whether spending was productive, "because no one really knows the counterfactual".

So instead, Mr Bagrie examined the spending mix – how much was spent on front-line activities, such as welfare benefits, health and education services and police rather than on "back office" (departmental outputs).

"What we find is that back-office (departmental) expenses have exceeded our definition of front-line spending, resulting in an upward trend."

Growth in departmental outputs has averaged close to 7 per cent a year since 1997 while front-line spending increased by 5 per cent.

Nominal GDP growth within the economy averaged 5.5 per cent. Government spending as a proportion of GDP has fallen from 42 per cent in 1995 to 39 per cent in 2001 and risen back to the OECD average of 40 per cent in 1997.

Mr Bagrie said if the back-office ratio had remained in line with front-line spending then there would have been an extra $1 billion free for other activities and a cumulative saving since 1997 of $3 billion.

In education, back-office spending had grown annually at 12 per cent since 1997, massively outstripping front-line purchases.

Similarly, benefit spending increases had averaged 3 per cent while back-office spending had been 7.5 per cent a year.

While it was encouraging spending for tomorrow in activities such as education and infrastructure was increasing, it was puzzling relatively more money was going into departmental spending, Mr Bagrie said.

The study found spending in productive government activities (education, law and order, science, housing, defence, employment initiatives, and transport) grew at 5.2 per cent compared with those in non productive (departmental outputs, heritage, culture, recreation and economic and industrial services) at 8.4 per cent.

In another gauge of the spending mix, Mr Bagrie said it appeared growth in spending in "hand-up" activities (front-line education excluding student loans and employment initiatives) was outpacing "hand-out" (benefits) by 4.4 per cent to 3.3 per cent.

Mr Bagrie acknowledged shortcomings in his definitions and noted the Government may have been playing "catch-up" in departmental spending due to previous under-spending.

He said there were no benchmarks and the mix of spending was not necessarily wrong, particularly as spending priorities were the result of living in a democratic society.

"Nonetheless, we believe the trend across our gauges is sufficiently clear: more government spending is being directed at areas that are not going to the front-line and for consumption today relatively to tomorrow."

Mr Bagrie said there needed to be measurable benchmarks introduced into the Government's stated objectives such as the Fiscal Strategy Report.

However, he said the requirement for transparency and rigorous analysis of spending could be overdone and may be part of the problem. Many resources in education and elsewhere were tied up in approval and monitoring rather than simply getting the job done.

With 41 government departments, 65 crown entities, 21 District Health Boards and 9 Crown Research Institutes, Mr Bagrie said it may be time for a repeat of the 1980s "quango hunt" to slim government down.

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