An independent review of the Treasury has found its economic policy advice capability weak and ministers losing confidence in the institution, marking the first such assessment of the department in a decade.
The Performance Improvement Review, commissioned by Treasury Secretary Iain Rennie and released by the Public Service Commission on Tuesday, rated the department's economic policy work as weak while placing its Budget management and system performance functions in the developing category.
Declining confidence cycle
The review identified a self-reinforcing negative dynamic in which falling ministerial confidence has reduced Treasury's system-wide influence, prompting talented staff to leave and making the organisation more risk-averse and less ambitious.
Interviewees across government agreed Treasury's performance was not consistently meeting expectations, with the report pointing to Covid-related pressures, high staff turnover, evolving ministerial priorities and changing expectations as factors behind the weakened advice capability.
Monitoring failures cited
Reviewers found Treasury's monitoring of ACC failed to identify and escalate emerging performance issues, which contributed to multiple independent reviews being required.
Treasury also faced confusion about its role in monitoring Health NZ spending, as the Ministry of Health was responsible for monitoring despite Health NZ having the largest annual operating cost of any Crown entity. Cost overruns at Health NZ in 2023/24 damaged ministers' trust in advice from Treasury, the Ministry of Health and Health NZ.
Ministers did not consider Treasury's commercial advice on replacement Interislander ferries robust, which reduced confidence in the department's broader commercial transaction capability.
Growth agenda gaps
The review found Treasury was not bringing enough practical thinking to the government's economic growth agenda. Some interviewees felt Treasury had few concrete ideas to contribute on growth, while others questioned whether its thinking remained too shaped by 1980s and 1990s economic orthodoxy that may no longer be sufficient.
Finance Minister Nicola Willis said Treasury was very good at costing policies and running Budget processes but needed to improve its contributions to economic debate and new ideas. She said MBIE has been leading the charge on new ideas in the growth agenda and she has challenged Treasury to contribute more to the debate. The government has progressed more than 100 initiatives under the Going for Growth agenda.
Response from leadership
Rennie acknowledged room for improvement and faster change in several aspects of Treasury's performance while noting reviewers found strengths in some areas. He said the department must focus on deepening economic advice and analysis, providing greater strategic financial leadership across government, and improving engagement with New Zealanders on fiscal challenges and economic growth opportunities.
The review found Treasury's Budget process, financial statements and public engagement on long-term fiscal challenges effective. Willis said Treasury had acknowledged it needed to improve and was committed to doing so.