Do public service consultancy criticisms stack up?

"Under National, this gravy train's gonna stop at the station" - Christopher Luxon

Consultants and contractors are a favourite punching bag for opposition parties - of all colours - and National is just the latest to land a solid blow, leaving Labour off-balance. 

The numbers show public service spending on consultants and contractors has recently surged, and the prime minister has largely left it to the sector's watchdog to mount a defence.. 

When Labour took office in 2017, the annual spend on consultants across the core public service - 35 ministries and departments - was about $900 million.

At the time, Chris Hipkins as State Services Minister was describing the situation as unsustainable: a contracting blow-out he blamed on National.

He pledged to cut back that spending - and it did level off for a time - but in the last year the figure has surged, topping $1.2 billion in the latest update. 

National's leader Christopher Luxon, in his state of the nation address last Sunday, paired an early childhood education rebate policy with a $400m cost-saving plan to cut spending on consultants and contractors.

Crunching the numbers, the party added in spending by Crown entities like Waka Kotahi and Kāinga Ora not included in core public service numbers, calculating a total bill of about $1.7 billion. 

Either way it's up by about a third on like-for-like numbers - a sizeable increase. National reckons it can wind back the clock, returning the spend much closer to those 2017 levels. 

National has been relentless in its attack, pursuing the subject every day in Parliament's debating chamber, select committee meetings, and in media interviews. The focus is strategic: National sees the public service as a vulnerability for Labour and for Hipkins especially.

Read more: 

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• National targets consultancy spending figures in Question Time
• Hipkins defends public sector spending on consultants, contractors
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• Luxon's State of the Nation speech: Affordable childcare plan unveiled

As well as being Public Service Minister from November 2020 until he took over as prime minister in January, Hipkins was Education Minister when it was the leading spender on contractors and consultants in 2021-22, forking out almost $240m. 

He was also notably critical of such spending when in opposition. This Hipkins quote from 2012 could almost be mistaken for one from Luxon: "It's a really bad look for them. I think they should be asking some very serious questions about why this increase in consultant fees has been necessary at a time when all New Zealanders are being asked to tighten their belts."

This week, he's stuck to that philosophy - acknowledging spending on consultants and contractors is higher than it should be - while defending much of it as justified and one-off, including projects like the Covid-19 vaccination rollout or IT upgrades. The education spend he linked to building schools. 

Taking MPs through a deeper look at the numbers in select committee however, Public Service Commissioner Peter Hughes was quick to point out contractors play an important role - particularly if a government, like this one, has a large reform programme. 

Expecting questions on the consultancy spend, he came armed with his own data. He stripped out major spending on capital, and targeted operational spending as a percentage of the total workforce bill. 

On that measure, the spend has trended down from 13.4 percent in 2017/18 to 10.4 percent in 2020/21. It spiked in the latest numbers to 14.6 percent - but Hughes sheeted that back to the pandemic. 

National's criticism has not been reserved for consultant spending alone, with repeated references to a growth of 14,000 public servants the party has promised to trim back on - at least somewhat. 

However, the Public Service Association (PSA) union's national secretary Kerry Davies says New Zealand's public service is the same size as Australia's but costs a lower percentage of GDP than Australia or the UK. The public service is also the same proportion of the broader public sector as it was in 2017, she says, and has kept pace with total growth in the New Zealand workforce.

She agrees with bringing more of the work now done by consultants or contractors in house - but says cuts to the core as National proposes would mean run-down services that would take years to rebuild.

Labour doesn't escape blame either, with Davies saying the pay freeze policy Hipkins launched early in the pandemic - the government prefers "wage restraint" - incentivised workers to quit and earn more as contractors. She says some psychologists working for Corrections found they could earn four times their previous rate. 

"It's something that's picked up through the pay restraint, yes."

Hipkins disputes this is a significant problem, and Hughes says if it is happening it's at the margins. 

Problem or not, it's likely to change: the policy is under review and due to be updated within weeks. Luxon seems to support change in this area, and Hipkins' comments hint he may be gearing up for just that:

"I acknowledge that public sector wage growth has been lagging behind private sector wage growth, and there'll be some anxiety about that."

In this week's Focus on Politics Deputy Political Editor Craig McCulloch drills into the public service consultant and contractor numbers, the policies and politics. 

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