The Architecture of a Capable State: Why Cuts, Cosmetic Fixes and Good Intentions are not enough

Keynote address to the New Zealand Taxpayers’ Union AGM – 15 December 2025

Photo by Sulthan Auliya on Unsplash

This is the text of a keynote address I delivered to the New Zealand Taxpayers’ Union AGM on 15 December 2025. It is offered in a personal capacity and reflects an institutional and structural analysis of how the State is organised to deliver outcomes. It is not an endorsement of any organisation, political party, or policy programme.

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1. Opening: The Real Crisis Is Not Fiscal. It Is Institutional

Thank you for the invitation to speak today, and in particular to the Chair, Ruth Richardson, to the Board and to your Executive Director, Jordan Williams.

As a poacher turned game-keeper, I am now obliged to follow the rules so my comments today will be politically neutral. But notwithstanding that caveat, I hope I can provide some thought-provoking comments that can be mulled over during the summer break.

I want to begin with a simple claim:

New Zealand’s core problem is not that our State is too large, but that its design has become too complicated, too fragmented and too weak to deliver on what it already promises.

We often debate borrowing, spending and deficits. We debate the size of government. All of these are, of course, important.

But the deeper crisis is structural: our system struggles to plan, it struggles to coordinate and, increasingly, it struggles to execute.

When execution is compromised, the taxpayer pays twice: once for the system and once for its failures.

You cannot fix an execution failure with cuts, cosmetic tweaks, or good intentions.

What is required is far harder: a fundamental redesign of how the State is organised to deliver, and an equally rigorous discussion about the proper boundaries of what it should attempt to regulate in the first place.

Neither task sits comfortably within the three-year electoral cycle, which is precisely why independent voices like the Taxpayers’ Union are indispensable.

2. The uncomfortable truth: The public sector grew, but remained within OECD norms

Let us be honest about the data, and there are two sets of numbers the Taxpayers’ Union knows better than anyone.

First, the size of the public service itself.

Between 2017 and 2023 the core public service grew by more than 50 percent – from roughly 47,000 FTEs to over 72,000 at its peak. That expansion is well documented and remains a controversial topic.

Second, the debt trajectory.

Even after the post-Covid peak, Treasury’s own Budget 2025 forecasts show Total Crown Borrowings continuing to climb: from $250 billion in 2024 to $354 billion by 2029 – an increase of more than $100 billion in five years, or almost $50,000 for every New Zealand household.

That rising trajectory is why the international rating agencies have repeatedly warned that New Zealand’s long-enjoyed fiscal premium remains at risk unless credible, sustained consolidation is delivered.

Yet even after that rapid headcount growth and with debt still rising, New Zealand’s core Crown spending as a share of GDP and public-sector employment relative to population remain inside the broad OECD median range.

Size alone, therefore, is not the real outlier.

The real outliers are the complexity of our institutional arrangements, the lack of direct accountability, and the persistent weakness of execution at the front line.

We have built a State that is large enough to be expensive, indebted enough to be vulnerable, yet still too fragmented to be effective.

3. Roche’s warning: Capability exhaustion inside the system

In February, Sir Brian Roche offered a blunt assessment of a public service struggling with structural weaknesses rather than political ones.

Last week, in his first State of the Public Service report since taking office, he expanded on that diagnosis. The report is measured, but unmistakably clear: the public service has served New Zealand well to this point, yet the current operating model is under growing strain and must adapt now if it is to keep doing so.

Roche’s most pointed observation was about fragmentation. As he put it:

“The Public Service needs to get better at organising itself around the needs of citizens and businesses. Our system is too fragmented with too many departments of various sizes. This leads to complexity, and cost, that is too often felt by the public. I think we need to reduce this complexity.”

He went on to warn that the system still struggles to operate with a whole-of-government perspective, that too many agencies remain sub-scale, and that our digital capability, particularly the integration of data, analytics and emerging technologies, lags behind comparable jurisdictions.

These pressures are amplified by tight fiscal settings and by talent constraints, especially in the specialist and operational roles that drive frontline execution.

What is striking is not the novelty of these problems, but the fact that the Commissioner himself is now calling them out as systemic risks. They go to the architecture of the State, not to the behaviour of any particular government.

And that brings us directly to the reforms now before Parliament. The Public Service Amendment Bill makes some helpful clarifications, but judged against the structural issues Roche has highlighted, it does not yet amount to a redesign of the underlying blueprint.

4. The Public Service Amendment Bill: Reform without architecture

The Bill is more than a mere tidy-up.

It rewrites the purpose clause so the public service is once again clearly there to serve the government of the day, it sharpens chief-executive performance expectations, and it removes some of the more distracting equity mandates introduced in 2020. Those are genuine improvements.

Yet none of them touch the deeper architectural questions: what exactly each agency is for, who carries personal accountability for outcomes, and who has the mandate to fix failure when it occurs. We are repairing some surface flaws without rethinking the blueprint.

5. The fragmentation problem: Ministries that have become “policy shops”

One of the least discussed shifts of the past twenty years is this: several core Ministries, notably Education and Health, have been reduced to policy and strategy centres with almost no operational control over delivery.

In Education, the Ministry sets strategy, schools deliver, boards govern, the Teaching Council regulates, ERO reviews and Attendance Services chase absences.

There is no single executive authority tethered to outcomes.

In Health, the Ministry is a policy shop, Health New Zealand executes (or tries to), workforce planning sits elsewhere, regulation elsewhere and data functions elsewhere still.

The result is a system that no-one truly owns, yet dozens of entities have a finger in the pie.

Responsibility is shared so widely that, in practice, it belongs to no-one.

The same centralisation dynamic is visible in education.

The failings we see in literacy, numeracy and attendance do not stem from the Tomorrow’s Schools autonomy model; they stem from curriculum, assessment, and teacher-pay settings that remain firmly under central control.

School boards and principals have been left with governance responsibility but almost no authority over the inputs that actually drive outcomes.

This is not a question of politics. It is a question of design.

6. The three systemic failures: Mandate, Capability, Accountability

When you strip it back, New Zealand’s administrative crisis comes down to three structural failures.

(1) Mandate

The first is Mandate. Agencies have accumulated overlapping responsibilities. Mission creep is not merely bureaucratic. It is statutory.

(2) Capability

The second is Capability. Over the past decade the public service has consciously shifted toward a highly mobile, generalist leadership group. Chief executives and tier-two managers have been actively rotated across the public service.

The result is that we now have plenty of very capable people who understand “the system”, but far too few who possess deep, long-term operational knowledge of health, education, transport, justice or any other major delivery area.

(3) Accountability

And the third is Accountability. New Zealand is world-class at blurring the lines of accountability.

We are less accomplished at identifying who is personally responsible when outcomes fail.

You can downsize a system with these characteristics, but you cannot expect it to perform better.

A poorly-aligned system with fewer people simply results in weaker performance. This is the execution trap.

7. The legislative origins of mandate creep

There is a deeper driver of that first failure, and it is one that Lord Sumption, the former British Supreme Court Judge, identified with characteristic clarity in his 2019 Reith Lectures.

Over recent decades parliaments of all persuasions across the Common Law world have enormously expanded their statute books, enacting law after law that reaches further into everyday life than any previous generation thought wise or even practicable.

Many of these statutes are aspirational: they announce ambitious outcomes and then create new offences, duties, reporting requirements and funding streams to pursue them.

Think, for example, of the statutory ambition that our education system deliver equitable and excellent outcomes for all learners. It is an aim that commands universal support, but it is now pursued through dozens of overlapping duties, accountabilities and agencies spread across multiple Acts. The result is a system with plenty of obligation, but no single point of ownership for outcomes.

Or take public-sector procurement. Over time, Parliament has imposed layer upon layer of statutory requirements around assurance, risk management, reporting and audit - each sensible in isolation, each introduced with the best of intentions. But taken together, they have produced a system that is slow, risk-averse and process-heavy, where even straightforward projects struggle to get off the ground, and delivery costs rise long before a shovel hits the soil.

Each individual law commanded wide support when passed.

Almost none have been repealed.

The cumulative effect is an administrative State that is legally obliged to attempt far more than it can competently deliver.

When everything is a statutory priority, nothing is an operational priority.

This legislative hyperactivity is the silent waste on a grand scale.

It costs almost nothing to pass a law, but it costs a great deal, year after year, to pretend to enforce it.

The proposed reform of the RMA is one encouraging sign that Parliament is beginning to confront this problem. Writing in the Post on Saturday, Luke Malpass noted that the economic benefit of the reform could total many billions.

But he cautioned that: “the RMA is just one area symptomatic of a bigger problem: dysfunction in the New Zealand state. It is lagging behind other countries and not delivering the sorts of services the public expects.”

Milton Friedman once observed that one of the great mistakes in public policy is to judge programmes by their intentions rather than their results.

In New Zealand we have institutionalised that mistake: we keep adding statutory intentions to the books and almost never return to ask whether the results justify the costs.

8. Cuts are not reform, and reform is not austerity

If mandate creep is written into our laws as well as embedded in our bureaucracy, then the across-the-board savings exercises of 2024 and 2025, however necessary they may have been after a period of rapid expansion, cannot, on their own, be called reform.

Taxpayers are entitled to ask when they will see a systematic zero-based review of major programmes inherited from the previous governments.

Real reform requires clarity of mandate, concentrated accountability and the political courage to close or repeal, or at least dramatically simplify, programmes and laws that no longer work or that we cannot resource properly.

This requires political leadership, and it also requires the intellectual courage to redesign and simplify the architecture of the State rather than merely trim it.

9. The role of the Taxpayers’ Union: From resistance to responsibility

The Taxpayers’ Union has been extremely effective in exposing waste and has already begun the next phase with excellent work on three waters and local-government reform.

That matters.

The next phase, however, cannot simply be resistance for the sake of resisting. It must be responsibility.

If the administrative system is intellectually exhausted, then civil society must help articulate the core remit of a modern State.

Not a smaller State. Not a bigger State.

A competent State that is crystal-clear about the essential public goods it alone can provide, ruthlessly focused on delivering those to a high standard, and equally clear about what it should leave to markets, communities, and individuals.

If taxpayers fund the State, taxpayers deserve a role in defining its purpose and scope.

10. Media and legitimacy: A subtle but essential point

As the Taxpayers’ Union knows, reform cannot happen without transparency, which in turn requires a media environment capable of leading a genuine debate about the major topics of the day.

The challenges facing journalism are not confined to New Zealand, but our small population is an aggravating factor that increases those challenges mounted by the social media giants and more recently by AI.

I know many of you, like me, have been frustrated by local media that has too often felt narrow-minded, partisan and overly opinionated.

From my position on the NZME Editorial Advisory Board I can say this: there is a growing recognition that public trust will not be repaired by narrowing the range of acceptable views published by the media.

On the contrary, it requires widening them, carefully and rigorously. Some have termed this widening of views, “the Grenon effect”, and whilst we are only at the beginning of the project, I am confident that we will see further examples of the Grenon effect in 2026 both at the Herald and in our other major media outlets.

We should also remember that technology means that you no longer need to rely upon traditional media sources to convey your message.

The effective use of social media has been one of the strengths of the Taxpayers’ Union, allowing it to get its message out directly to the public and to politicians.

11. The central question for 2026: What should the State stop doing?

A tax system cannot be reformed coherently until the scope of the State is defined coherently. Without that clarity, tax becomes ad-hoc, spending becomes reactive and the public service becomes stretched across too many priorities.

The question for 2026 is therefore not only: “How big should the State be?”

The more important question is: “What are the core functions that only the State can perform effectively, and how do we design it to excel at those and only those?”

When purpose is clear, efficiency becomes possible. When purpose is vague, waste is the predictable result.

12. Closing: A State Worth Paying For

New Zealanders accept the necessity of paying tax. What many resent however, quite legitimately, is watching their money being funnelled into systems that cannot deliver the outcomes they were promised. The issue is not ideology.

It is capability. It is execution. It is design. In my opinion, we do not need a smaller State or a larger State.

We need a State that is uncompromisingly good at the core tasks that only a government can do, and equally uncompromising in refusing to take on tasks that others can do better.

Deliver that, and we will have a State that meets the genuine needs of New Zealanders.

No more, and no less.

Thank you.