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MFAT survives NZ 'zero budget'

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COMMENTS

29 May 2012 16:08

The New Zealand Government released its budget last Thursday. Given the general gloom and the somewhat hyperbolic media reporting on the major change program going on at New Zealand's Ministry of Foreign Affairs and Trade (MFAT), what was widely publicised as the 'zero' budget appears to be something of a reprieve for the beleaguered New Zealand foreign ministry. 2012 has seen enough nasty surprises already.

New Zealand has a reputation for an exceptional foreign affairs performance. Its foreign service has been hailed as 'the highest-quality and most cost-effective foreign service in the world'. Even more so than in Australia, New Zealand's geographical isolation and far flung interests mean that its diplomacy is a critical element in maintaining its international influence, trading and investment ties and ultimately, the nation's prosperity.

So the Ministry's ambitious restructuring program, begun last year under Chief Executive John Allen, has caused considerable disquiet.

Of the Ministry's 860-odd New Zealand-based staff (those working for the Ministry either in New Zealand or at overseas posts, excluding locals employed at its missions abroad), 169 staff were to be cut, and approximately 600 staff were told they would need to reapply for their own jobs. Two embassies (Warsaw and Stockholm) were to be closed. Salaries and 'perks' were to be reviewed. There were to be no job guarantees after return from postings. Services, including parts of the vital consular function (the one the public actually cares about) would be outsourced.

The restructuring was originally the initiative of Foreign Minister Murray McCully, launched at a speech in April 2011. It had some supporters. But the energetic implementation by McCully and his CEO has proved too scary for Prime Minister John Key, on whom it may have dawned that this was possibly not the ideal way to run one of the world's finest foreign services. Early last month, Key reportedly intervened to 'take a hands-on role' in the restructuring, concerned to preserve NZ Inc's global dealings. A week earlier, leaked Cabinet documents indicated that Allen's slash-and-burn project had been toned down, the number of job cuts halved and the annual savings cut from $25 million to about $12 million.

After all this commotion, reading the budget papers (always a riveting task) was a bit perplexing. Where were the big cuts, the downsizing, the economising?

Looking at the chart above, the crisis seems to have passed, and 2012-13 will be quite a good year for MFAT. While 2011-12 was originally to be a high-spending year (15% over the previous year), much of the spending (capital) was delayed and now falls into the coming financial year. The Ministry's operating budget remains largely intact, although the forward estimates show the cumulative effect of the ongoing efficiency dividend ($12 million a year).

The biggest surprise for me was the monumental typo in the budget documents, which said the Ministry's appropriations are expected to 'decrease' by $15.789 million, whereas the actual appropriations documents contain an increase of that exact amount. MFAT can rest easy. There was one of those howlers in DFAT's budget last year too.

Chart: author's own, using Treasury budget documents and Statistics NZ CPI data.