The review of the State Sector Act is an opportunity to ensure the Public Service is best placed to achieve the objectives of Government; increasing the wellbeing of all New Zealanders and working with integrity and professionalism to help the Government of the day frame and implement its policies. Our aim is a Public Service that puts people at the centre of how it organises services, respond flexibly as needs and priorities change, and works with integrity and a spirit of service. This is an opportunity to change aspects of the current law to support this vision, including the Public Finance Act 1989 and the State Sector Act 1988.

We will know we have succeeded when New Zealanders tell us that public services are more effective and accessible, when Ministers are increasingly satisfied with the professional support they receive from public servants, and when we can see that changes to the legislation governing the Public Service have been of positive assistance to these developments. As is shown below there are aspects of the current law which are less than optimal to take the Public Service in the direction required.

Current State

New Zealand’s public services perform very well by international standards in terms of both integrity and effectiveness. Levels of public confidence in the Public Service are correspondingly higher than in other comparable jurisdictions. One reason for this is that the departments and ministries which make up the Public Service, are efficient and responsive in their operations. There is general consensus that the legislative framework for the Public Service, including the State Sector Act 1988 and Public Finance Act 1989, has enhanced this level of efficiency and responsiveness at the department and ministry level.

But success at the departmental level is not enough. The Public Service also needs to perform excellently in the things that departments need to do together in a joined up way, and it needs to maintain the same high standards of professionalism and integrity across the board in order to support the role of executive government in our democracy. Over time, the focus of the Public Service has shifted more to these system-wide concerns. Work in recent years has greatly enhanced the ability of the Public Service to work in a joined up way. However, our statutory provisions have lagged behind our practice and now need to catch up. This chapter discusses this issue in detail. The analysis below forms the problem definition for the review of the State Sector Act through a discussion of the strengths and weaknesses of the current legislation.

The State Sector Act, in its original version, dates from 1988 and was part and parcel of the transformation of New Zealand’s State services that occurred through the late 1980s and early 1990s. Over this period the Public Service shrunk to a ‘core’ of agencies providing policy, regulatory, and non-commercial service delivery functions of Government. The State Sector Act of 1988 and Public Finance Act in 1989 was enacted to drive far-reaching change in this remaining ‘core’: including in the governance, accountability, management and employment arrangements of Government departments.

The new State Sector Act was intended to decentralise and devolve decision making in the Public Service to the level of individual departments and to the chief executives of departments. The new system, in combination with the Public Finance Act 1989, gave chief executives much greater control of departmental funding, operational and employment decisions than had been the case previously.
The intention was that with the freedom to manage ‘inputs’ would come greater accountability to Ministers for ‘outputs’. Accountability was enhanced by making chief executives fixed-term employees (rather than ‘permanent heads’) who could be rewarded or replaced on the basis of their, and their departments, performance.

Issues with the Act

The State Sector Act is generally acknowledged to have been positive in terms of increasing the efficiency and responsiveness of individual departments. However, on a larger scale, in terms of the performance of the system overall, issues have been identified. There is concern that a previously unified Public Service was fragmented by the Act, that too little was done to ensure a strong ‘centre’ of the system, and that a range of issues arise from this. Overall, the issues identified tend to fall into three broad groups:

  • Matters of fragmentation including the narrowing of each department’s focus to its own particular outputs and a short-term horizon. One commentator has called this “the Silo Effect”
  • Effects on the capability, in particular the senior leadership capability, of the Public Service
  • Concerns about the ethical foundations of the Public Service including the conventions around political neutrality and the provision of free and frank advice.

Issues arising from fragmentation have been highlighted in various formal reviews to the State Sector Act over the past 30 years, including:

  • The Logan Report of 1991, which found that the legislative framework enacted from 1988 had been sound, but pointed to some emerging problems including in the “translation of collective strategies into organisational plans”.
  • The November 2001 report of the Ministerial Advisory Group of the Review of the Centre, which found that the current system was a “reasonable platform to work from” and that client service had improved, fiscal transparency had allowed prioritisation, freedom to manage has enabled flexibility and innovation, and governance in the Public Service was clear and well understood. However, it also identified a lack of systematic process for setting outcome goals and priorities, and a tendency to a short-term focus. Fragmentation was also making it hard to agree and pursue cross cutting objectives.
  • The Report of the Better Public Services (BPS) Advisory Group, presented to Ministers in November 2011, which found that: “Change is needed to [amongst other things] manage the state agencies that provide or fund services less as a collection of individual agencies, in pursuit of their own singular objectives, and more as a system that is focused on the results that will have the biggest positive impact on New Zealanders’ lives”.

Governments these days place great emphasis on addressing complex issues that require a highly organised response from the Public Service. Though the system has improved, it remains the case that the response to highly complex issues, especially those that require sophisticated cross-agency collaboration, is slower than it needs to be. This was shown by the experience of the 10 Better Public Services Results. Successive progress reports to Cabinet on the Better Public Services Results highlighted the extent to which agencies found it challenging to make decisions in the best interests of the broader sector and/or state sector system rather than serving the interests of a single portfolio. Progress reports also highlighted the costs of collaboration between multiple agencies.

Māori have also raised concerns about the lack of a holistic and joined up approach in the Public Service and the failures of the Crown in meeting its Treaty obligations to improve outcomes for Māori. Historically, Māori have been over represented in negative statistics in most social areas. Concerns about the ability of the system to respond to issues that affect Māori have also been expressed in the recent hui Hon Kelvin Davis, Minister responsible for the new Crown/Māori relations portfolio has held, in numerous contemporary claims before the Waitangi tribunal and in other processes. It was clearly indicated during the hui held by Minister Davis that the system has not adequately delivered in its engagements with, and in outcomes for, Māori.

The present review is an opportunity to take a system-wide approach and to reflect the changing expectations of the relationship between the Public Service and Māori. Many Māori have now settled their historical claims and have a strong expectation of a different relationship with the Crown and Public Service. Formal recognition in legislation of the relationship between the Crown and Māori will signify a more future focussed relationship that can aim to improve outcomes for Māori and the nation generally, and help to ensure that the Treaty partners meet their respective Treaty obligations. The Public Service has a significant role in supporting the Treaty partnership.

Reviews of the Act have also pointed to capability deficits, particularly in leadership capability. For example, the 2001 the Report of the Advisory Group on the Review of the Centre noted: “This is apparent in the areas of senior management and staff development. There are not enough people with the mix of skills and experience required to provide effective leadership of the departments and agencies of the State sector…. Current highly devolved arrangements for senior management development and career management are inadequate to produce the number of skilled leaders required”. The 2011 Better Public Services Advisory Group Report found the same problems persisting. The Group found that:

  • The role of State Services Commissioner to lead the system was not explicit and there were limited levers to shape the state services
  • The State Services Commissioner had limited ability to plan succession or develop future chief executives through influencing second tier appointments or shifting people to development opportunities.

Capability deficits, and leadership deficits in particular, undermine the ability of the Public Service to work innovatively and agilely in response to new and different challenges. We live in a fast changing and unpredictable world and it is very important that the Public Service is able to work in a modern, flexible and adaptive way. For this reason, building agility and flexibility is the second objective of the review of the State Sector Act.
Concerns were also raised about standards of integrity and conduct in the Public Service. There was in the SSC a renewed focus on integrity issues from the early 2000s. This was mirrored in the State Sector Standards Board which, in June 2002, produced an Ethos of the State Sector report. This reported concerns about the ethical and managerial standards of organisations in the State Sector. “Regrettably, instances of inappropriate behaviour continue to come to light and underline our observation in last year’s report that there is ‘a need to be vigilant, in terms of behavioural standards, effective systems, and commitment by leadership.”

Integrity and professionalism are fundamental to the public reputation of the Public Service. Low public credibility would put at risk the legitimacy of executive government and the role the Public Service plays in ensuring the proper and effective functioning of our democracy.
For this reason, the third focus of the current review in on ensuring that the Public Service is well placed to perform its constitutional role in supporting New Zealand’s democratic form of government.

Despite the issues with the State Sector Act there have been, for most of its history, few voices calling for fundamental change in the statute. Generally, this is testament to the strength of the Act. However, over time the pressure for change has increased as the deficiencies of the legislation have been seen in practice. This found expression in the 2013 amendments to the Act which, while significant, did not alter the underlying framework of the Act. Experience since the legislative amendments of 2013 shows the persistence of the same issues that have been apparent since the early 1990s. Fragmentation, difficulty of system-wide leadership development, barriers to collaboration, and system integrity concerns still remain.

Consequently, arising from the experience of the State Sector Act in practice, the current review focuses on change that will ensure the Public Service is able to:

  • deliver better outcomes and better services
  • create a modern, agile and adaptive New Zealand Public Service, and
  • ensure its constitutional role in supporting New Zealand’s democratic form of government.

Reform of the State Sector Act will be a contributor to change in the Public Service, but it is not the only one. A range of drivers of change, legislative and other, are involved in system change. Changes to the Public Finance Act, to build a wellbeing perspective into Government fiscal objective setting and Treasury reporting, will make a major contribution. Other levers for change include organisational change, such as measures to build collaborative organisational cultures. Clear expectations and targets will be of vital importance as will be a range of employment and workforce policy changes to ensure the Public Service is an exemplar employer.