A Conversation with Jim Gerrard

Conversation, Public Sector, Frontier Centre

Frontier Centre: With the election of a Labour-led coalition government last November in New Zealand some people are predicting a U-turn in New Zealand public policy. Will the new government reverse the reforms brought in by the Labour government during the 1980’s — ending policies like free trade and more transparent government?

High Commissioner Jim Gerrard: No, absolutely not. There is no suggestion at all that the base of the reforms in the public sector as enhanced by legislation in Parliament will be changed at all. That has never been said and never been suggested. There will be some change of focus in social policy – the new government has said that that they want to see less than more disadvantaged workers, maybe minor changes to the accident compensation legislation and we are waiting to see what that will be. There will be some increases in social policy and social spending in and welfare and areas like that.

FC: Will it reverse Labour’s previous privatizations of government companies – like the telephone company, New Zealand Telecom and New Zealand Rail?

JG: No, not in those areas at all. There is one area of privatization that they have changed and that is in the area of accident compensation and they have re-nationalized.

FC: But privatization of the power industry, will that will remain the same?

JG: There is no suggestion of change in those areas.

FC: Why did the government split up the power industry and privatize large parts of it?

JG: For competition, efficiency, and to lower prices to the consumers. That is happening and has already happened with quite considerable reductions in the real cost of electricity to consumers and business.

FC: New Zealand removed all farm subsidies during the 1980’s. Has this been a disaster for farmers?

JG: Well, I was farming as well as a politician at the time and, very briefly, I thought the world had come to an end. But, shortly, the answer is no. There is no suggestion of going back in those areas either. The land use change in New Zealand has been truly remarkable. Where we once had sheep and cattle, we now produce some of the world’s greatest grains. As far as farm incomes are concerned – I noted just this week as I left Ottawa to come here – that farm returns are expected to increase by 30% from the marketplace this year. So farming is looking to have a good year.

FC: Why was the New Zealand Wheat Board abolished?

JG: The New Zealand Wheat Board was abolished a long time ago and that was well before the reforms – in fact, that was in the early part of de-regulation. Domestic transport was de-regulated at the same time. It allowed farmers a choice of where they marketed – you could ship your own wheat to Australia, you could sell directly to mills you could sell for feed. You could make your own choice and it was considered in New Zealand that the farmers were much better off.

FC: What do you mean by transparency in government?

JG: Transparency in government is where the government buys outputs from the department and the department makes the decisions, runs the department – there is no political interference and it is open and everyone can see what is happening. There are no surprises. Transparency means openness and public scrutiny.

FC: The concept of separation between elected officials and government administrators – can you explain that briefly?

JG: Previously, government ministers were heavily involved in the day-to-day management of the departments along with the CEO and the financing was never quite clear. Departments would run short of money and they would say they wanted more money and in supplementary estimates they would get more. Now the Minister sets the outcomes while the CEO is left to implement those outcomes. The CEO is totally in charge of the department and they have the total resources of the department at their disposal. The CEO decides how to produce the outcomes leaving the government minister at arm’s length from his own department.

FC: So a politician or elected official has no day-to-day involvement in operations?

JG: No, none at all.

FC: Are New Zealand top civil servants paid differently now compared to before the reforms?

JG: In many instances they are on a performance bonus. So, if they achieve the outcomes and do well, they have the ability to add substantially to their salary packages.

FC: Could you explain the concept of a capital charge in government?

JG: The capital charge from government is a levy – in New Zealand it is 10% on all the assets of government or of a department. Here in Ottawa, for example, as High Commissioner, my residence attracted a 10% capital charge on its asset value; our cars and vehicle attracted a 10% capital charge. What this has meant since I have been in Ottawa – I have looked at our assets, I have analyzed them and, for example, we no longer own the cars – we rent them. You have an incentive to get the best possible value for the assets you’ve got.

FC: You have to add up your assets then pay a charge of 10% to the government just so you recognize that there is a cost of capital. It’s not free capital, in other words?

JG: Exactly, but initially when it was introduced, that bottom line – that 10%, was funded in different departments’ budgets. So they weren’t penalized initially but, from then on, they have got to make sure they get the best use of assets. It’s a system I believe has worked particularly well.

FC: So, people in departments now have an incentive to sell excess assets to lower the capital charge?

JG: Well, it mightn’t necessarily mean to sell the assets to lower the capital charge but you have to get good value for your assets. For example, if you are putting up a new lot of offices you are not going to have great big offices for everyone — because it now costs money.

FC: What is “bulk funding” of schools and how has it worked?

JG: Bulk funding is paying to the school the total amount of money that it is entitled to during a twelve-month period and really leaving it to the school to decide how to use it within the system. They make the decision as to whether they want more computers, whether they want an extra teacher or whatever. It is a system I personally believe has worked very, very well. And, included in that – school management was also handed to the community at the same time.

FC: So, if I have a school and I am the principal and I manage to attract more customers does it mean that I receive more bulk funding?

JG: Yes, it is based on a per-pupil basis – but you will only attract more customers if you have a good outcome from the school and the standard of education is high. Bulk funding is aimed at improving the standards of education and improving the role of the school in the community.

FC: How do you measure those outcomes? How can I as a parent in New Zealand decide between different schools – is there some form of testing?

JG: School certificates publish, for example, what percentage of pupils pass certain examinations but I haven’t known any school yet where the pupil didn’t know whether the teacher was good or not and the parents not know. So, I think that parents that are close to the schools and bulk funding brings quite a lot of parental involvement in the school management and parents, of course, know what is going on within the school.

FC: Is there testing that is going on in the schools to see how they rank in terms of literacy and math skills?

JG: Exams in New Zealand are nationwide. The government sets the policy that all schools have to meet for testing and everything else. So there are no schools singled out.

FC: Are those results published?

JG: Yes, people are aware of how schools are performing but you don’t want to get carried away and take too much notice of that. Similar schools in the same area you can compare but nationwide you can’t because some schools are in very disadvantaged areas, more difficult areas and it would be quite a false reading in my view.

FC: Do special needs children get extra funding?

JG: Special needs children get extra funding that goes with them to the school but also schools in very difficult areas, socially more difficult areas also have that recognized on their funding criteria so they get extra funding as well.