Unexpectedly critical

This week's Performance Improvement Review (PIR) of the Treasury took me aback. 

I've met many people from Treasury over the years in various contexts, and have a high opinion of them. And while I was aware that in recent years hiring had appeared to downgrade the importance of bringing professional economists on board, in favour of some sort of 'broadening perspective' or 'flexibility' approach, I hadn't noticed any drop-off in quality in the Treasury people I've personally encountered. In some areas I thought Treasury had actually upped its game, notably in starting to engage more with the public about our various fiscal and productivity challenges.

But the PIR told a different story about Treasury as an institution. Despite good work in some areas - including the "public engagement to raise awareness of New Zealand’s long-term fiscal challenges" that I'd noticed for myself - "Nevertheless, the consensus of stakeholders interviewed is that the Treasury’s performance has not consistently met expectations in recent years" (p5).

Here are some examples.

The PIR included ratings of Treasury, across 23 different dimensions, on how prepared it is to up its game (p31). There wasn't a single 'Leading' (the top rating). There were six 'Embedding' (loosely, Good). But by far the most common rating was 'Developing' (loosely, Middling/Adequate), with 16. And there was one outright 'Weak', which, worryingly, was for its effectiveness at one of its core functions, providing economic policy advice. 

And then there was this remarkable level of turnover (the chart below is from p65) - high in outright terms and, significantly, relative to the wider public sector. How could it do well when in the worst year Treasury was having to replace a third of its staff? With people voting so strongly with their feet you have to wonder about both staff management and the longer-term impacts of Treasury's recruitment focus. As the PIR found, "Historically, the Treasury was widely regarded as a high-profile training ground for public sector leaders. Interviewees described it as “the gate you had to get through” and “a real place of debate and challenge that the brightest and best went to”. That is no longer the common perception. Many interviewees questioned how the Treasury could reestablish itself as an employer of choice in a more competitive labour market" (p61).

Recent recruitment, whatever it was meant to achieve, hasn't turned out well. The PIR found (p62) that "A strong theme from interviewees was concern that the Treasury has lost specialist expertise. While the Treasury is aiming for a flexible and agile workforce, external stakeholders in particular were concerned that flexibility and generalism are not yet balanced strongly enough with the depth needed in key areas, pointing to the loss of “wise owls” and thinning commercial and economic depth. Internal interviews reflected this more indirectly, highlighting capability pressure, key-person risk, and the need to rebuild depth in selected areas". In passing I'd note the recurrent criticism of the UK's Treasury, that it over-relies on clever generalists with no subject matter expertise, further aggravated by too-early rotation out of roles which people had just got comfortable with. 

One final and rather sad pair of points. Treasury has a system role in the public sector: it's where agencies go for specialist advice on how best to run their organisations. But Treasury isn't eating its own cooking. When it comes to performance reporting (p57), "The Treasury’s performance and accountability system is still developing and is not yet strong enough to drive improvement or provide clear assurance about results ... In that context, the Treasury is expected to model a coherent and credible approach to performance and accountability itself". The same applied to strategic planning (p50): "The Treasury provides guidance to departments on Strategic Intentions as part of the Public Finance Act performance reporting framework, and would be better placed if it more clearly modelled the clarity it expects from others".

There are pluses. The Treasury Secretary made a brave and useful call to have a PIR team come in. The PIR itself has come up with what look from the outside like plausible diagnoses and has produced a comprehensive list of sensible recommendations (pp6-8 and repeated as Appendix 1, pp73-5). And Treasury itself showed some self-awareness and had already got the ball rolling in the right direction with its own internal change programme.

The PIR didn't prioritise its recommendations, and maybe it's right to try and move ahead on all fronts, but for my money I'd particularly like to see the Recommendation 3 bullet points addressed early in the piece. They're about enhancing the impact of Treasury's economic policy advice. 

For one, that's the area rated worst at the moment. And for another, we're never going to get a lot of economic progress if an important national direction setter isn't pulling its weight. It's a bit strange, for example, that although we've been talking about New Zealand's low productivity growth for decades, we're still at the stage of a recommendation to "Refresh the Treasury’s diagnosis for unlocking higher rates of productivity growth (e.g. integrating the potential of AI) and maintain a set of actionable ideas grounded in commercial realities for engagement with Ministers as opportunity presents". 

Memo to whoever is the next Opposition finance spokesperson: diarise a Parliamentary Question for a year's time and let's find out if we're getting the policy impact progress the PIR and the rest of us want to see.