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October 24, 2024

$80 Million Spent on Public Sector Redundancies (So Far)

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Image source: Wikimedia Commons

The New Zealand government has spent at least $80 million on redundancy payments since taking office in late 2023, as public sector job cuts continue to afflict the nation’s ministries and agencies. This figure, confirmed by both government and opposition sources, highlights the scale of the coalition government’s efforts to streamline the public service and cut costs.

The coalition government has embarked on an aggressive fiscal policy aimed at reducing what it calls “bloated bureaucracy” inherited from the previous Labour government. However, the high cost of the redundancy payouts has sparked significant debate, raising questions about whether the purported savings achieved through downsizing justify the financial and social costs.

$80 Million Price Tag for Job Cuts

As of October 2024, government ministries and agencies had collectively spent over $80 million on redundancy payments, a sum that is expected to increase as further cuts are made. This figure was first revealed through a series of parliamentary questions posed by Labour’s public service spokesperson, Dr Ayesha Verrall, who has raised concerns about the broader implications of the government’s approach to public sector reform.

The Ministry of Social Development (MSD) reported the largest redundancy payout, totalling more than $14.8 million. MSD’s downsizing efforts saw 218 voluntary redundancies approved in early 2024, with further cuts planned for the remainder of the year. Other ministries also contributed significantly to the overall bill, including Oranga Tamariki, which spent $8.58 million on redundancies, and Statistics New Zealand, which paid out just over $7 million.

The $80 million figure does not account for additional redundancy payments expected in the coming months, with projections suggesting the final cost could exceed $100 million. According to Budget 2024 documents, MSD alone plans to implement further cost-saving measures, signalling an additional $84 million in future savings on top of the $107 million already cut from its budget.

Government Justification and Opposition Criticism

The government has defended the redundancy payments as a necessary expense in its broader effort to rein in public sector costs. Finance Minister Nicola Willis has emphasised that these payouts are a small part of a much larger cost-saving exercise, noting that ministries and agencies have been tasked with delivering over $1.5 billion in annual savings, amounting to $6 billion over the next four years.

“In [the] context [of these savings], the redundancy figure is less than 1% of what has been achieved,” Willis said in defence of the spending. She stressed that while there are upfront costs associated with the redundancies, the long-term goal is to deliver better value for taxpayers by cutting down on administrative expenses and reallocating resources to frontline services such as healthcare and education.

However, the opposition parties, unions, and public service advocates have been quick to criticise the redundancy payouts, arguing that the government’s cuts are undermining essential services and creating instability within the public sector. Dr Verrall has been particularly vocal, stating that behind every dollar spent on redundancies is a person facing the challenges of job loss and the need to make a fresh start.

“Clearly, there are going to be public services that we used to expect that we can no longer get under this government,” Verrall said, pointing out that the job losses are not just administrative positions, but could potentially affect frontline services.

Social and Political Repercussions

The Public Service Association (PSA), New Zealand’s largest public sector union, has expressed concern over the scale of the cuts, calling the process “chaotic” and a waste of money. PSA assistant secretary Fleur Fitzsimons said that many of the workers affected by the redundancies have been left with minimal financial compensation, with the average redundancy payout around $56,400, as reported by RNZ.

Fitzsimons warned that the impacts of these cuts will be felt into the future, especially in areas where essential services are already under strain. “The scale and nature of change has been chaotic, the results will be dangerous, and we will feel them for many years to come,” she said. The PSA has also highlighted the uncertainty created by constant restructuring, with more than 160 change processes or restructures reported across the public sector since the coalition government took office.

Unions and opposition parties are also concerned about the broader social impact of the cuts, particularly on vulnerable populations. Many of the ministries facing the deepest cuts, such as Oranga Tamariki and the Ministry of Social Development, provide critical services to children, families, and marginalised communities. There are fears that reducing staff in these areas could lead to a decline in the quality of service delivery, exacerbating inequality and social issues.

Rising Public Sector Costs Despite Cuts

Implausibly, despite the extensive job cuts, the overall cost of the public sector continues to grow. According to workforce data released by the Public Service Commission, the base salary costs of the public service have risen by 5.3% in 2024, bringing the total wage bill to $6.5 billion. This increase is partly driven by salary hikes, with the average public servant’s annual salary now sitting at $101,700, a 4.6% increase from the previous year.

Further Cuts on the Horizon

With the government committed to ongoing savings, more job losses and restructures are expected in the coming months. As of mid-2024, nearly 7,000 jobs had already been cut from the public sector, with ACT leader David Seymour predicting that up to 15,000 positions could be slashed before the government achieves its savings targets.