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Key promises productivity magic

Written By: - Date published: 6:50 am, June 19th, 2008 - 47 comments
Categories: election 2008, john key, national, slippery - Tags: ,

Key reckons he could bring down inflation by targeting ‘low quality’ government spending. How?

To counter inflation, you need to increase productivity. Inflation is projected to run at 4.7% this year. The Government makes up a third of the economy. If Key was to bring that down to 2% by increasing Government productivity how much would he have to increase Government productivity? About 7.5% a year.

Productivity growth during New Zealand’s history has averaged about 2% a year. The idea that Key will magically lift that number to 7.5% for the public sector, especially when he has no experience and no plans, is laughable.

[Bear in mind also, all the stories you hear about productivity in the public sector being low are just stories. Most of what the Government produces is not bought by the consumer there is no price on the outputs it makes and that means the normal way of measuring productivity ($ of output/$ of input or labour) doesn’t work. How do you work out whether productivity of the Army or the Police or teachers is up or down? You can’t.]

47 comments on “Key promises productivity magic ”

  1. expat 1

    To counter inflation you need to increase productivity – or cut costs – or both.

    Productivity in government departments is renown for being low value add to GDP growth i.e. economic growth.

    So, cut back on non essential gummint spending that dilutes avg GDP growth and increase relative productivity growth elsewhere.

    Multiple this by giving the cash back to the punters for reinvestment in the real economy or by investing in infrastructure that has been neglected for a decade.

    Its simple maths.

  2. T-rex 2

    Steve – easy

    Increase police productivity by implementing social policy that increases crime levels. Police have more to do, more murderers are taken off the street, productivity goes up!

    Increase army productivity by joining in the next war of opportunity. Soldiers on permanent deployment, army actively recruiting to make up numbers following deaths, productivity goes up!

    And here we’ve been saying the National Party has no policy!!!

  3. burt 3

    I note that DR. Muppet Cullen is pushing back against high pay increases in the public sector again this year. (See page 2 Dom Post) “STATE employees seeking big pay rises had “lost touch with reality”…

    So have I got this right, increasing productivity is impossible and big pay rises are out of the question? In other words … suck it up guys because only the MP’s can have circa 10% pay rises every year….

    Just how do you guys think we will close the wage gap between NZ and Aussie? Let me guess – more middle class welfare….

    There is only one problem, if we can’t afford decent pay rises – how will we afford more middle class welfare? How can we afford the existing levels of middle class welfare if we can’t afford to pay people reasonable salaries?

    Re: Welfare – it only increases take home pay. Take home pay is not as cool a thing to increase as gross pay right? It’s better to increase gross pay because that provides more opportunity to increase taxes and redistribution… which allows the govt to increase take home pay for ‘some people’ and reduce it for others. Sounds a bit like communism to me…

  4. MacDoctor 4

    Your argument is somewhat facile, Steve. Government spending is a major driver of inflation, particularly in the areas of unnecessary bureaucracy. You should therefore expect a significant drop in inflation as well as an increase in overall productivity both in government and in the private sector (less compliance costs).

    Captcha: defending buyers – Too late!

  5. We could start with sacking the team that just spent 56,000 dollars on badges for schoolkids.

  6. burt 6

    From stuff: Big state sector pay claims ‘unrealistic’

    Dr Cullen said the Government was still in negotiations with Toll Holdings over the purchase of its rail operations. Details are expected after July 1 if the talks are successful. The Government has budgeted $690 million for the rail and Cook Strait ferry businesses.

    It’s OK, there is still a chance that the govt won’t waste a few hundy-million more than it needs to. This money could be used for conferences, management retreats or pretty posters telling us all how great the Labour-led govt is and how we are so much better off under Labour. Just don’t ask for a pay rise !

  7. alex 7

    Peeps,

    NZ First is in the news again for a charity that is giving back its donation.

    “New Zealand First has been embarrassed again over its attempts to avoid repaying taxpayers the $157,934 it unlawfully spent last election.”

    Can someone confirm, is NZ First within its legal rights to give the money away to charity?

  8. They don’t “legally” have to give the money back Alex. “Morally” is another issue.

  9. And perhaps some of the $240,000 that Te Puni Kokiri spent in less than a year on staff conferences.
    Both the badges scandal and conference scandal were gleaned from the front page of stuff with little effort Steve.
    Continually beating the “there is no waste in govt spending” drum is not working.

  10. T-rex 10

    Man – I just saw the story on those badges.

    We’re hardly talking big money here, and any advertising campaign has elements of hit/miss… but what a miss! Honestly, that is the dumbest idea I have heard since… well, actually since about 2 minutes ago, when I replied to travellerev, but it’s still pretty dumb.

    Who the hell did they think would actually embrace wearing those? The principal is right, what patronising sh*t!

  11. None of you have shown how to increase productivity by anywhere near 7.5%. This is not peanuts we’re talking – cancelling a few conferences won’t get you there.

    Think of it this way. The government spends $61 billion a year. To increase productivity 7.5%, you would have to slash that by $4 billion a year, with no loss of output (assuming that the money, now following into the private sector produces average productivity).

    Where is the $4 billion to cut for no productivity loss? Take into account that $22bln of the $61bln is just government transfers, so cutting them won’t boost productivity one iota – you would just be taking moeny from one part of the community and giving it to another. Also take into account that of the remaining $39bln – $13bln is on health and National has pledged not to cut overall funding for health and another $10bln goes on education.

    Now, you’ve got $16 bln of which to cut $4billion for no output loss. But wait, $2billion goes on servicing debt and $2 billion goes on the Super Fund, and are you going to cut the $7 billion that goes on defence, police, and infrastructure?

    You’re now left with $5 billion to cut $4 billion for no productivity loss. Good luck.

  12. T-rex 12

    Steve, I will buy you beer if you go and respond to Deans question on the after tax incomes thread.

  13. The point is Steve, that after 9 years of unconstrained growth in spending by this govt it is ridiculous to assert that no savings can be made. Also ridiculous to assert that there is no bad or wasteful spending.

  14. burt 14

    barnsleybill

    We could start with sacking the team that just spent 56,000 dollars on badges for schoolkids.

    That $56k will be almost enough for the Clark & Cullen’s pay rises this year. So yes it’s significant.

  15. barnsleybill. I’m not asserting there is no waste or no room for improvement, far from it. But I am saying you’ll never get a 7.5% annual producitvity improvement. (I fail to see why people can’t see the difference between those positions)

    Show me the money.

    Assuming the badges are not at all productive (and by any measure of productivity, they actually would be productive) then you’ve saved $65,000 by cutting them. That leaves just $3,999,935,000 of other non-productive spending to cut.

  16. Ari 16

    Your argument is somewhat facile, Steve. Government spending is a major driver of inflation, particularly in the areas of unnecessary bureaucracy. You should therefore expect a significant drop in inflation as well as an increase in overall productivity both in government and in the private sector (less compliance costs).

    MacDoctor, you do realise that National plans to spend even more than Labour does, and has not outlined enough cuts to even reduce spending to the level it would be before their big broadband spendup?

    How is National simultaneously going to reduce Government spending and give you a tax break and invest one and a half billion on Broadband? And yes, tax breaks are government spending- especially in terms of driving inflation up.

  17. MacDoctor 17

    Ari: If National does spend more without reducing government expenditure, then that would be inflationary. This is elementary economics. I am fairly sure Bill English understands this.

    National, of course, are not going to reveal where they are going to cut spending until the last moment, to reduce to opportunity of a Labour beat up of every least little cut.

    And yes, tax breaks are government spending- especially in terms of driving inflation up.

    Not so. Tax breaks are the least inflationary form of government “spending” – some tax breaks are put into saving, some into debt reduction and some are ploughed back into businesses. All these things are de-inflationary. Every cent a government spends is inflationary except debt reduction (and, possibly, the Cullen fund).

  18. Tane 18

    National, of course, are not going to reveal where they are going to cut spending until the last moment, to reduce to opportunity of a Labour beat up of every least little cut.

    So, to cut to the chase, they don’t want voter scrutiny of their public service cuts, which is why they won’t release policy until it’s too late for voters to figure out what’s happening.

    Good to see we’re on the same page on this.

  19. Steve makes an important point: we must make the distinction between productivity and waste.

    Clearly “Lisl Prendergast, principal of Sacred Heart College”: considers $65,000 spent on badges “designed to prompt discussions between pupils and teachers” a waste of money. As a parent with a child at primary school I tend to agree. I know the principal and vice principal at Ponsonby Primary spend a lot of time fund raising for ‘luxuries’ like building maintenance. I’m sure Anne Malcolm ,principal of Ponsonby Primary, could have easily spent the $65,000 plus associated policy wonk salaries on maintenance.

    But how does it stack up in terms of measuring the productivity of the education department staff who carried out this project ? The inputs are easily measured in terms of wages and costs but how do we measure the outputs ? Will this exercise perhaps result in $65,000 savings on dole payments to south Auckland students who decide to continue with their education rather than drop out and smoke dope ?

    I have no idea, and I would love to know if any of the highly paid policy wonks in Wellington do. Do they measure the outputs of their bright ideas ?

    What I do know is that Government spending as a percentage of GDP justs gets bigger and bigger. Meanwhile overall productivity carries on falling.

  20. Byran.

    “What I do know is that Government spending as a percentage of GDP justs gets bigger and bigger. Meanwhile overall productivity carries on falling.”

    both of those assertions are incorrect.

    Govt as a portion of GDP is falling, look at the 2008 Budget projections. Moreover, more of that spending is just govt transfers.

    productivity is rising, you are arguing that growth in productivity is falling, not that productivity itself is falling. And even that claim is debatable and the result of complex factors.

    I don’t appreciate the racist undertones of your comments that links Maori langauge badges, South Auckland kids, and dope-smoking. You can take that kind of stuff to Kiwiblog.

  21. MacDoctor 21

    Tane: Good to see we’re on the same page on this

    I don’t even think we’re using the same book…:-)

    So, to cut to the chase, they don’t want voter scrutiny of their public service cuts

    No, Tane, No=one could object to public scrutiny of their policies. They just don’t want to leave people like you time to drum up hysteria over them.

    Go on. You know you want to…

  22. Rocket Boy 22

    ‘How is National simultaneously going to reduce Government spending and give you a tax break and invest one and a half billion on Broadband?’

    We are all being a bit silly here, National will not be able to make the necessary productivity savings to fund whatever tax cuts they will offer (which is kind of the point of Steve’s post). They will simply borrow and move certain expenditure out of the budget to balance the books. Anything that is ‘infrastructure’ – new roads, new schools etc will be financed with borrowing so that future tax payers will have to pay for it.

  23. burt 23

    There is a simple solution. Increase departure tax to $1m. People leaving NZ for reasonable pay rises (which they won’t get here if Dr. Cullen has his way) will need to decide, do they borrow the $1m and get out or do they stay.

    If they stay they keep paying tax and MP’s can have their big pay increases even if the rest of us can’t. If they leave then the tax they pay to leave will give the MP’s their big pay rises even if the rest of us can’t have them.

    See it’s simple when you treat rich pricks as cash cows rather than productive contributors to the NZ economy.

  24. Tane 24

    Burt, I’m not sure how you persist in your “Labour sucks at wages” meme when, as much as I have my issues with Labour’s labour market policies, they actually have a pretty good record on raising wages. Certainly compared to that other lot.

    [Though I have to say Cullen’s comments on public sector wage restraint this morning were disappointing.]

  25. burt 25

    Tane

    I persist because the govt (of any stripe) have a long history of calling for wage restraint while enjoying significant pay rises themselves.

    Disapointed at Cullen’s comments… If I were a strong union supporter I’d be calling for a change of govt about now…

  26. Steve: the charts you have linked to are for revenue not spending as a percentage of GDP.

    BTW: have you ever lived in South Auckland and by South Auckland I mean the poor, working class parts of South Auckland not Karaka, Red Hill etc ? Having grown up myself in working class South Auckland I can assure you that my comments are not racist but reflect the real challenge that schools face in these areas to offer children a world view that doesn’t include violence,crime and drug addiction.

    This is an educational and social challenge that cannot be met by a few badges and DVD’s designed by Wellingtonian policy analysts and advertising agency flunkies ( of any colour).

  27. Steve: “Moreover, more of that spending is just govt transfers”

    By “Govt transfers” I presume you mean taking money at gun point from middle class people who don’t qualify for WFF and giving to middle class people who do ?

  28. Bryan. you fool, that’s a multi-page doc I linked to, look at the third page for expenses as % of GDP.

    What DVD are you talking about, Key’s?

  29. Tane 29

    Disapointed at Cullen’s comments If I were a strong union supporter I’d be calling for a change of govt about now

    Burt, if the Alliance were polling 45% I’d be right there with you. But they’re not, and the only viable alternative is the Tories, who’d be even worse for workers. In any case, you know I vote Green.

  30. Rex Widerstrom 30

    How do you work out whether productivity of the Army or the Police or teachers is up or down? You can’t.

    If you define “productivity” as dollars out for dollars in then no, of course you can’t. But governments realise this and so set performance standards and indicators for agencies of state to reach.

    I’m no expert on the Army so I’ll leave that to someone else. But it’s entirely possible to measure the “productivity” of the Police. How much money went in? Then, measure their performance against a set of targets… things like clean-up rates, successful vs unsuccessful prosecutions, number of complaints to the PCA, and so on.

    At present some of these sorts of things are measured whilst others are not.

    Since politicians of all stripes love pumping money into “law ‘n’ order” every election, an audit of Police “productivity” in its broadest sense would, I strongly suspect, lead to savings, efficiencies, or both. However the Police – who are very adept at public relations – have succeeded in scaring successive governments away from any serious review of their budget and performance lest that government be seen as being “soft on crime”.

    However, I agree with you that finding the kind of gains needed to meet the targets Key has set is probably impossible. It’d be nice to see someone try, though. Rudd’s “Razor Gang” isn’t saving nearly what he predicted, but it’s put the wind up wasteful public servants and is leading to efficiency gains – which, being a public servant from way back – is perhaps all he really intended in the first place.

  31. Steve: “Ministry Maori education deputy secretary Apryll Parata said the “buttons” were in packs with DVDs and other teaching resources. About 70,000 were sent out – one for each teacher.”

    So clearly that was a “No” to my question concerning your experience of actually living in the South Auckland Labour professes to care so much about.

  32. Byran. I don’t live in South Auckland, nor am I a Labour supporter. Not that my place of residence would have anything to do with Labour’s concern for South Auckland even if I were a Labour supporter.

    However, as you would know if you actually had any info on politics, Labour is very strong in South Auckland – they’re opening new branches there left right and centre. Don’t see much from National in those parts.

    Rex. I know there are other measures of output from orgs like the Army, I cut the sentence on it, but the post is about the economic metric of productivity and the idea that National will reduce inflation by magically raising publci sector productivity.

  33. burt 33

    Tane

    I hear what you are saying about “what options do we have’ but lets get this out in the open.

    Compare the gross percentage of pay increases the senior ministers have had since 1999 compared to the gross increase in the median wage. Filth .

    Now put that into context Dr. Muppet Cullen has been saying for most of the last 9 years that tax cuts are not the answer to increasing peoples incomes. He’s held tax thresholds at 1999 levels and blamed business for low pay increases.

    Now of course it’s an election year and for the first time since 1999 the Labour party are backs to the wall in the polls so what happens We get tax cuts and we get told that we have lost touch with reality if we expect big pay rises .

    So what’s the deal Tane? How can anybody from the left side of politics continue to support a Muppet Finance Minister who’s had it his way for 9 years but suddenly becomes a turn-coat when the going gets tough? The policies he’s denigrated for the last 9 years are now flowing from his own govt .

    Can we now expect Dr. Muppet Cullen to suddenly start talking about take home pay being the thing we need to focus on? Give that man some gardening leave and don’t vote for a major party that’s my call for election 2008.

    captcha: depart both – see captcha knows what to do with the two major parties 🙂

  34. Burt. Let’s get this out in the open. MPs do not set their wages, nor do they vote in approval of them.

    I would like to see MPs wages tied to the minimum wage but it’s miniscule part of government spending and not something that politicians decide so I don’t see why you go on and on about it. As much as you would like it to be, MPs salaries are not Labour’s fault, nor would National change the system.

  35. burt 35

    Steve P.

    Yes I know MP’s don’t set their own wages, I wish you would stop that distraction every time I bring up MP’s pay increases.

    The point is Steve, MP’s approve the pay rises of many…. Including senior Dr’s who are not going to get a pay rise the same size as the MP’s.

    It’s not the fact that the MP’s get the pay rises that is the issue – the issue is they won’t approve similar pay rises for others.

    I also know that MP’s can’t control private business, but Dr’s, nurses, Police, Teachers etc are all very underpaid and leaving the country. If Teachers had received the same circa 10% pay rises every year since 1999 that senior ministers have – we would not have a Teacher shortage.

  36. Matthew Pilott 36

    Burt:

    A: grow up never mind, boys will be boys.

    B: why would I pay any creedence to your arguments when you persist with the tory idea that we’ve been ‘waiting nine years for tax cuts’? Ask yourself what happened to taxes in 1999.

    C: The tax cuts aren’t regressive, so there’s no problem there. They also cut corporate tax, so your ‘9 years’ line is even more of a joke.

    bryan: “Gun point” What is it with kids these days? For some people, paying tax is like trying to make a three year old eat veges. I take that back. It’s what I imagine it would look like if an adult were acting like a three year old being forced to eat veges.

  37. MPs don’t approve pay rises of any public servants like doctors. That’s an operational matter and handled by the Ministries (or other employing body, eg DHBs for doctors), not the Ministers or Parliament.

    It’s a very important distinction at the heart of how we do government in NZ.

    Also, don’t you want bigger tax cuts? Where’s the money going to come from for pay increases on the scale you’re talking. I mean, you just called for a roughly 50% increase in the wage cost for Education. You’re talking a billion a year plus at a rough guess for your increase in teachers’ pay alone.

  38. burt 38

    Steve P.

    I mean, you just called for a roughly 50% increase in the wage cost for Education.

    I would have thought that many on the left would be calling for big pay increases in govt sector employment. Must be hard defending low pay increases over time and calling for bigger wage rises at the same time – how do you do it?

  39. I’m all for larger public service pay rises. But you’ve got to be able to pay for them.

  40. Matthew: given “imprisonment for up to five years and/or a fine of up to $50,000.” appears under penalties on the IRD website I don’t think “at gun point” is too far into hyperbole when it comes to describing taxation.

    Steve: Labour is popular in South Auckland for the same reason Jesus Christ is: an unwillingness to take personal responsibility for ones situation. Those residents of South Auckland who do take personal responsibility for their lives find themselves moving on.

  41. Steve: “I’m all for larger public service pay rises.” I bet you are 🙂

  42. Felix 42

    Bryan, you read far too much PJ O’Rourke and it’s not helping you become any smarter.

    You’re either saying there should be no laws, no penalties or no enforcement.

    Which is it?

  43. Matthew Pilott 43

    Bryan, that’s as stupid as saying you’re prevented from committing murder “at gunpoint” because there are associated penalties. Do you want any enforcement of law in New Zealand? I guess not.

    Not that I really want to reduce my response to your level, but just quietly, you can head off to a country with no taxes at any time, good luck with that. The decent folk of this country will look it not as extortion, but as a price for services better provided collectively.

    And you’re still looking like that three year old, having your wee tantrum, shoulting at mummy that you don’t like vegetables, so you shouldn’t have to eat them.

    P.S from what I’ve read here all you got out of your experiences in South Auckland was a tendency to look back with bigot-tinted glasses (I’m not sure which colour that is specifically), as opposed to some meaningful insight. How is voting for Labour showing an unwillingness to take ‘personal responsibility’?

    Have the opposition got any policies to make the alternative one of ‘taking responsibility’? Or are you just generalising, and launching a tirade at a few hundred thousand people you seem to percieve as lazy, irresponsible bludgers?

  44. Matthew/Felix: Gentlemen I am simply reinforcing the point that many on the socialist end of the political spectrum seem to forget: the right to tax that governments have, needs to be accompanied by careful spending what it must be remembered is other peoples money.

    For example Labour’s current plan to make redundancy clauses compulsory in employment contracts is yet another example of a government being very free with other peoples money.

  45. burt 45

    Bryan

    If you believe that a tax cut is the govt giving people money then it naturally follows that the govt are allowed to spend their own money how they like. Welcome to socialism. Please don’t confuse the issue with absurd assertions like tax payers money is the money of tax payers spent for them by the govt.

    Of course money paid in taxes is to be spent as the govt see fit. The business of govt is whatever govt define it to be.

  46. Matthew Pilott 46

    Bryan, reinforce away. Don’t forget that the state is the enabler of private enterprise, not some obstruction as the libertarians would have you believe.

    Calling taxation theft is not simply reinforcing the idea that tax money needs to be spent carefully as you posit. It’s implying that it is taken against will and used for purposes to no benefit whatsoever to the payer.

    Clearly false.

    And of course your original comment was about WfF – surely you know WfF is in effect a rebate on tax paid – no one gets back more than they pay in taxes so your original premise was a bit off too.

    burt, you wouldn’t know socialism if it bit you on the arse and nationalised your industry. Please don’t pretend to speak for it.

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