Treasury 'losing ministers' trust', independent review finds

An independent review of the Treasury has found its ability to effectively deliver economic policy advice is weak and ministers are losing trust in it.

The report, commissioned by Secretary to the Treasury Iain Rennie, was the first of its kind in a decade.

The Performance Improvement Review, released by the Public Service Commission on Tuesday, rated how the Treasury was performing across a number of functions, services, and engagements.

While its core functions of Budget and fiscal management, and system and sector performance, were rated as 'developing', its economic policy advice was rated 'weak'.

"Contributory factors include Covid-related pressures, high turnover, evolving ministerial priorities and changing expectations of the Treasury," the report said.

"This set in motion a self-reinforcing dynamic in which ministers became less confident in the Treasury's advice, the department's influence across the system reduced, and the Treasury lost talented people, and collective confidence, becoming more risk averse and less ambitious."

In particular, reviewers found problems with the Treasury's advice regarding ACC and Health New Zealand, two agencies that have experienced significant deficits.

For example, the Treasury's monitoring of ACC was seen as having "failed to identify and escalate emerging performance issues, contributing to multiple independent reviews".

With Health NZ, it was more due to confusion around the Treasury's role in monitoring its spending.

Health NZ had the largest annual operating cost of any Crown entity, but it was monitored by the Ministry of Health, not the Treasury.

Cost overruns in 2023/24 had affected ministers' trust and confidence in the advice they were receiving from all three agencies.

"Clarifying roles and expectations across the system would better enable the Treasury to apply its stewardship and system CFO roles in a complementary way alongside the health-specific agencies, ideally in supporting the Ministry of Health to be an effective financial monitor while protecting the Treasury's ability to provide independent advice to the minister of finance on fiscal risks."

The Treasury's advice on the Interislander ferries was also called into question.

"Ministers did not regard the Treasury's commercial advice on replacement Interislander ferries as robust, which reduced their confidence in the Treasury's capability in commercial transactions more generally. There was a consensus amongst people interviewed for the review that the Treasury's performance was not consistently meeting expectations."

However, the Treasury's role in the Budget process, financial statements, and public engagement to raise awareness of New Zealand's long-term fiscal challenges were found to be effective.

Responding to the release of the report, Rennie said while it was good to see the reviewers found strengths in some areas, such as the Treasury's Budget processes, "it is clear there is room for improvement and faster change in several aspects of our performance".

He agreed with the review's assessment that the Treasury must focus on "deepening our economic advice and analysis, providing greater strategic financial leadership across the system and improving the way we engage with New Zealanders both on the long-term fiscal challenges and decisions we face as a country, but also in understanding the opportunities and barriers to achieving economic growth".

The government has made a big deal about its economic 'Going for Growth' agenda this term, but the review found the Treasury was not bringing enough "practical thinking" to the matter.

"Some interviewees felt it had few concrete ideas to contribute, including on the 'next big idea', while others questioned whether its thinking remained too shaped by the economic orthodoxy developed internationally in the 1980s and 1990s much of which is still relevant but may no longer be sufficient."

Finance Minister Nicola Willis said the Treasury was very good at costing policies and running a Budget process, but agreed it needed to improve its contributions to economic debate and new ideas for the future.

"They are supporting the Going for Growth agenda, in which we've already progressed more than 100 initiatives to support greater growth and productivity across the New Zealand economy. But I think it is fair to say that the Ministry for Business (MBIE) has been leading the charge on the new ideas in that agenda, and I've challenged the Treasury to contribute more to the debate."

Willis said the Treasury had acknowledged it needed to up its game, and it was committed to doing that.