The Ministry of Business, Innovation and Employment (MBIE) has significantly reduced its spending on the Big Four consulting firms, cutting costs by 63% in just one year. The move is part of the government’s broader effort to curb public sector expenditure, suggesting a shift away from reliance on external consultants in favour of in-house expertise.
A Sharp Drop in Consultancy Spending
New data reveals that MBIE paid Deloitte, EY, KPMG, and PwC a total of $7.1 million in the 2022/23 financial year. By 2023/24, that figure had dropped to $2.6 million. The ministry confirmed the cutbacks were part of a “continued focus” on reducing reliance on contractors, particularly for short-term projects like market research and reports.
The spending reduction aligns with a directive from Finance Minister Nicola Willis, who has repeatedly criticised the previous government’s growing dependence on external consultants. “The consultant gravy train is well and truly over,” Willis declared, adding that the savings allowed the government to fund tax cuts and boost investment in essential services such as health and education.
While MBIE’s cuts stand out, they reflect a broader trend across government departments. Total spending on the Big Four firms has dropped significantly under the new administration, with overall departmental consultancy expenses falling from $104 million to $66 million per year.
Public Sector Job Cuts and Budget Restraints
The consultancy cuts come alongside sweeping cost-saving measures that have seen thousands of public sector jobs slashed. As part of the government’s push to save $1.5 billion annually, agencies were directed to trim their budgets by 6.5% to 7.5%. MBIE was tasked with finding the most savings and has already identified $231.5 million in cost reductions, with plans for an additional $254.2 million in the future.
RNZ reported in December last year that the MBIE alone has shed 402 full-time roles through voluntary redundancies, unfilled vacancies, and restructuring. Other ministries have also been affected, with the Ministry of Primary Industries cutting 391 jobs, the Ministry of Justice reducing staff by 127 positions, and the Ministry of Education planning to eliminate 755 roles (as of December 3 2024).
The public service workforce peaked at 65,699 employees in December 2023 but had dropped to 63,537 by June 2024. According to Public Service Commission data, at least 2,250 roles have been cut, and 1,150 vacancies have been closed as part of the cost-saving drive.
A Shift Toward Internal Expertise
The government has argued that reducing consultancy spending will help rebuild internal expertise within the public sector. Willis said that cutting back on external contracts would “build the capability of the public service itself,” arguing that agencies must develop in-house skills rather than continuously outsource key functions.
However, the transition has not been seamless. Some experts warn that while reducing consultancy dependence saves money in the short term, it could leave government agencies struggling to fill knowledge gaps, especially in specialised areas like IT, data analysis, and public health. MBIE acknowledged that some consultant use remains necessary, particularly for large-scale ICT projects and emergency responses.
Debate Over Consultancy Cuts
The sharp reduction in consultant spending has sparked debate over the efficiency and effectiveness of government operations. Supporters of the cuts argue that reliance on external firms had become excessive, draining public funds that could be better spent elsewhere. Critics, however, warn that abruptly slashing consultants without a clear transition plan could weaken government agencies, leading to inefficiencies and delays.
Public sector unions have raised concerns about the impact of job losses and restructuring, warning that cuts to both consultants and internal staff could disrupt essential services. The Public Service Association has criticised the government’s approach, arguing that the speed and scale of cuts risk undermining institutional knowledge.
Long-Term Outlook for Consultancy in the Public Sector
As the government continues its cost-cutting drive, consultancy firms are likely to face further reductions in government contracts. Willis has made it clear that she does not intend to allow spending levels to “creep back up” to those seen under the previous Labour administration.
With MBIE’s deep cuts setting a precedent, other ministries may follow suit, prioritising internal resources over external consultants.