Ministers losing confidence in Treasury advice, review finds

The agency that manages the Government's books has been told its economic policy advice is "weak" against what New Zealand will need in the future, in a review that found ministers are growing less confident in its counsel.

As one of five central agencies, the Treasury has long been the Government's lead financial adviser, helping to run the annual Budget, manage the Crown's roughly $600 billion balance sheet, and guide how billions in public money are spent each year.

But the performance improvement review of the organisation, published today, rated the effectiveness of its economy-wide policy advice as "weak" — the lowest grade available and the only red rating handed down across the report.

Finance Minister Nicola Willis said the Treasury accepts it must do better, telling media that the agency "has acknowledged they need to up their game".

"There are some things that Treasury does incredibly well – it's very good at costing policies, it's very good at running a Budget process," she said.

"But I think there is improvement for them to make in terms of their contribution to economic debate and new ideas for the future."

She added the challenges facing New Zealand today were "very different from the challenges in the 80s and 90s, and that requires new thinking and new ideas".

Reviewers found the agency had slipped into a self-reinforcing decline and that "the window of opportunity to rebuild its reputation as a critical agency at the centre of the public service is closing".

The review said performance "has not consistently met expectations in recent years", pointing to pandemic-related pressures, high staff turnover, shifting ministerial priorities and changing expectations of the agency.

"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," the review said.

As a result, reviewers concluded the gap between the Treasury's current performance and what the country needs from it "increased materially".

Some interviewees told the review they felt the Treasury had few concrete ideas to offer, while others questioned whether its thinking remained too shaped by economic orthodoxy developed internationally in the late-20th century.

The review pointed to issues that have eroded confidence at the top of the Government.

It found 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".

The department's monitoring of ACC was also singled out, having "failed to identify and escalate emerging performance issues", a lapse the review said contributed to multiple independent reviews and active engagement by the Public Service Commission.

On energy, reviewers found the Treasury "was slow to recognise the issue and to bring its potential value-add to bear" as gas and electricity prices grew more volatile.

Government ministers also told reviewers the Treasury could get "down in the weeds", focusing on "relatively small savings rather than the scale of change ministers are seeking", and wanted it to "pair its critical analysis with more practical, clearer options".

Merely "getting back" to the Treasury of old, "will not be enough to respond to the complex and sizeable challenges facing New Zealand over the next four years and beyond", the review said.

One of the sharpest criticisms landed on the Treasury's economy-wide advice - its analysis of the trends and policy settings shaping overall economic performance.

Reviewers found that the role "appears to have underperformed against expectations", with interviewees, including some from within the Treasury itself, saying it had under-contributed at the economy-wide level in recent years.

A recurring theme was that the department was not bringing enough practical thinking to the Government's agenda to boost economic growth.

In a statement released today, Treasury Secretary Iain Rennie welcomed the review and acknowledged the agency had work to do.

He said the Treasury must "focus on deepening our economic advice and analysis, providing greater strategic financial leadership across the system".

"New Zealand faces real long-term fiscal pressures," he said, adding that "without proactive choices, an aging population, weak productivity growth and rising public expectations will place growing pressure on government finances."