Tips on cutting government from a man who really did it

If the Republicans win a majority in one or both chambers of Congress next month, and are as serious as they say they are about balancing the budget by reducing the size of government, their leaders will make a phone call to a man named Maurice McTigue.

McTigue was a member of the New Zealand Parliament during the 1980s and ’90s and the head of a number of that nation’s government ministries. I met him on a couple of occasions when I worked in Brussels and heard him speak about his experiences in cutting government waste. His speeches were spell-binding — not because of some lofty rhetoric, but because of their incredible, real-life substance.

One example: After the government privatized the nation’s forests, the Ministry of Forestry went from 17,000 employees to 17.

That’s not a typo. The ministry’s staff was really cut by 99.9 percent.

I was reminded of McTigue because he contributed to a three-part piece on cutting government that was published in Reason Magazine and posted this morning on Reason.com. I strongly encourage you to read the entire piece, including the parts about past government-cutting in the U.S. and Canada. But here is an excerpt from McTigue’s section:

In the early 1980s, New Zealand was on the fast track to bankruptcy. By 1984, when the conservative National Party called a snap election, the deficit was approaching a massive 9 percent of GDP with no budget in place. The government’s share of GDP was 45 percent, unemployment was 9 percent (it would later peak at 11 percent), the top tax rate was 66 percent, and the rate of economic growth was a sluggish 2 percent.

A decade later, New Zealand had one of the most competitive economies in the developed world. The government’s share of GDP had fallen to 27 percent, unemployment was a healthy 3 percent, and the top tax rate was 30 percent. The government went from 23 years of deficits to 17 years of surpluses and repaid most of the nation’s debt.

This remarkable change was not only possible; it was fast and comparatively easy. The incoming Labour Party government paved the way in 1984 with its market-oriented approach to the economy; the National Party administration that took over in 1990 enthusiastically expanded the successful reforms. To solve deep economic problems, successive governments of New Zealand set out to eliminate the deficit, lower unemployment, and increase investment by shrinking the public sector, reforming or eliminating expensive programs, privatizing government enterprises, and reforming a burdensome regulatory process that was weakening our economy. [FROM KYLE: Take note, Democrats -- it is possible for center-left parties to cut government.]

(snip)

Rightsizing government agencies: After we eliminated [some] government functions, the bureaucracies that used to perform them were too large to perform their remaining tasks. So the civil service was reduced by 66 percent. Some agencies remained almost the same size, while others were reduced by 90 percent to 100 percent. After we privatized our forests, for example, only 17 of the Ministry of Forestry’s former 17,000 employees were deemed necessary.

Cutting taxes: At the same time, we reformed the revenue system by eliminating capital gains taxes, inheritance taxes, luxury taxes, and excise duties and by allowing income to be taxed only once. We halved tax rates, eliminated all deductions that were not a cost of earning income, and created a system where one-third of revenue came from consumption taxes and two-thirds came from income taxes. Under the simplified system, about 65 percent of the population no longer had to file tax returns — a major selling point for reform.

Reforming the appropriations process: Before 1987, a government appropriation was simply a grant to spend on a specific activity. If money was appropriated to employment programs, for example, there was no expectation that a certain number of unemployed people would become employed as a result. With the State Sector Act of 1987 and subsequent laws, funding was linked directly to results. Agency heads were now CEOs, chosen for capability. They received fixed-term contracts: five years with a possible three-year extension. The only grounds for removal was nonperformance, so a newly elected government couldn’t replace department heads with its own people. In the new appropriations process, these CEOs signed a purchase contract identifying exactly what was to be produced for the money allocated.

Consider this case from one of my own portfolios, the Ministry for Employment. Under the old system, a total of $60 million was appropriated in 1989 to 34 different programs, which found jobs for 40,000 clients. After 1990, under the new purchase agreements, the same amount was allocated to just four programs; the other 30 were terminated. The contract required the ministry to place 120,000 people in jobs, with 56 percent of that figure drawn from the long-term unemployed, 25 percent from the Maori, 14 percent from people with disabilities, and 7 percent from people with social and drug or alcohol dependence problems. The ministry successfully placed 135,000 people in jobs that year.

The story of New Zealand’s success is foremost about recognizing what government can’t do well — and getting it out of those businesses — and making it better and more efficient at those things it can do well.

Virginia Gov. Bob McDonnell has already appointed McTigue, vice president of George Mason University’s excellent Mercatus Center, as one of his advisers. Let’s hope congressional Republicans have the good sense to follow suit — and follow up on what he recommends.

242 comments Add your comment

seaingsea

October 12th, 2010
11:04 am

New Zealand also ranks (33rd) just behind the Bahamas in per capita income. 68 percent of it’s economy is the service sector,only 25 percent manufacturing. Making it particularly vulnerable to…everything. Awesome?

seaingsea

October 12th, 2010
11:10 am

Also, did cutting the forestry service from 17,000 to 17 reduce the quality of services provided?

WhoEmploysThe16,983Now?

October 12th, 2010
11:14 am

What happened to the 16,983 who used to work for the New Zealand forests? Can you follow up on this, Kyle?

Peter

October 12th, 2010
11:19 am

SO we are to give up all the National Parks ………so tree guys can cross cut and ruin them all for a few bucks ?

Peter

October 12th, 2010
11:20 am

Gee Kyle….so that will improve un-employment in America…is this a REAL Republican attitude……fire everyone ?

Jefferson

October 12th, 2010
11:21 am

I like your optimism, but it ain’t gonna happen in the USA. The best they can do is reduce the rate of growth.

JDW

October 12th, 2010
11:23 am

Kyle, you like most of the Republicans continue to perpetuate the myth that the Democrats are responsible for growth in government. Just for fun lets take a look a the percentage government spending increased by under each president since Johonson…

1. Republicans Nixon and Ford increased spending 43% or 21.5 per term
2. Republican George HW Bush increased spending by 18% in one term
3. Democrat Jimmy Carter increased spending by 13% over one term
4. Republican George W Bush increased spending by 25% or 12.5% per term
5. Republican Ronald Reagan increased spending by a total of 25% or 12.5% per term
6. Democrat Lyndon Johnson increased spending by a total of 24% or 12% per term
7. Democrat Bill Clinton increased spending by a total of 9% or 4.5% per term. BTW this was largely a result of Pay as You Go which was passed in 1993 prior to the Republicans gaining control of the Congress. One of George W Bush’s first acts was to have this repealed.

Now who has the spending problem?

http://cedarcomm.com/~stevelm1/usdebt.htm

markie mark

October 12th, 2010
11:41 am

JDW, and I wonder of you are one of the people who are disdainful of the Tea Party…you know, the conservatives who are going after Republican and Democrat alike for their excessive spending…

Kyle Wingfield

October 12th, 2010
11:42 am

seaingsea: The relevant comparison would be how per capita income has changed since the reforms were enacted. NZ’s per capita income has tripled since 1985…not many, if any, countries that weren’t dirt-poor back then can say that.

Kyle Wingfield

October 12th, 2010
11:45 am

Who Employs: I’d guess some of them remained employed in forestry, only privately so, and others changed jobs. But given that, as McTigue wrote, unemployment fell from 9 percent to 3 percent, I think you’re barking up the wrong tree. (Sorry…)

to heck with it

October 12th, 2010
11:45 am

Everyone needs to get his or her head out of the sand and realize that this is not a democratic or republican thing. If we indeed want to leave this country to our children without creating a massive burden for them with our debt from entitlements and bloated government spending. Look at Greece, if we do not do something we will be in their position within a generation.

The Anti-Wooten

October 12th, 2010
11:47 am

Markie Mark, the Teahadists aren’t really going after Republics, they’re simply replacing semi-sane Republics with hard right Republics.

Kyle Wingfield

October 12th, 2010
11:47 am

Peter: Where have you read that the NZ forests were chopped down? And see my earlier comment about the unemployment rate.

Betty

October 12th, 2010
11:48 am

The Republicans and or the Dems will not reduce federal spending since the American public wants funding for every federal program reduced unless it affects them individually. How many congress persons are willing to reduce social security, medicare, and or defense funding? If you know of any please publish their names.

JDW

October 12th, 2010
11:51 am

Markie Mark, I agree with the Tea Party that the budget needs to be balanced. However, when I look at the leaders and candidates that they have put forth I cannot support their methods or stances on other issues.

Bill Clinton created and implemented a workable blueprint for balancing the budget…First, all new non-mandatory spending must be funded and second taxes must be at an appropriate level to support the spending. These two principles taken together have already proven that the budget can be balanced and economic growth encouraged.

I squarely blame George W Bush and the rest of the Republican party for moving away from this proven solution and leading our country to the current fiscal condition.

markie mark

October 12th, 2010
11:55 am

Anti – Wooten…..like anyone, you are entitled to your opinion, especially on an opinion blog. But when GWB ran the fiscally conversative wing (and I dont mean radical christians, but thats another story) of the party in the ditch, it gave left wingers a legitimate gripe that we werent any different. And I for one, as a conservative (again Fiscal as opposed to social) dont intend to see that happen again by us. So you guys can spin all you want about the Tea Party movement, but the truth is they/we are going after both sides for the lunacy and spending policies of the Federal Govt.

markie mark

October 12th, 2010
11:57 am

and as any broad based movement, we to will have our own special brand of wingnuts which will be used to brand us all….oh well….

Rap Star

October 12th, 2010
12:04 pm

Let’s not reduce the size of government because some people might be out of work… hmmm, but they’re on the govt payroll already. Wait.

godless heathen

October 12th, 2010
12:13 pm

See the moonbats oppose any meaningful reforms that will help the country. Privatizing the administration of the national forests becomes cutting down all the trees in the National Parks.

If a private company ran a park, and the park’s attraction was its trees, it wouldn’t make any sense to cut down all the trees, would it?

Jefferson

October 12th, 2010
12:16 pm

Revenue must increase or you folks are fooling yourselves. The country has consistantly been better off with higher tax rates.

godless heathen

October 12th, 2010
12:16 pm

Moonbats want bigger and bigger government so it can 1) Be a jobs program for slackers and 2) Control every aspect of the citizens’ lives.

Kyle Wingfield

October 12th, 2010
12:19 pm

JDW: Not to excuse the spending record of various Republicans, but the current crop of Democrats (the president and, most relevant, Congress) is the group that may be setting spending records. See the chart here: http://bit.ly/dkvQxa

Jefferson

October 12th, 2010
12:22 pm

Kyle, records are made to be broken. If you don’t remove the money/influence from political races what makes you think politicians will change. Look at history, the GOP talk is just talk.

StJ

October 12th, 2010
12:22 pm

“The only grounds for removal was nonperformance…”

We could use a little of that around here. Too many non-elected government employees retain their jobs even though their performance is abysmal.

Brad

October 12th, 2010
12:22 pm

It’s also fair to note that New Zealand has universal single-payer health insurance.

Liberals are ignorant

October 12th, 2010
12:26 pm

Welcome back Kyle. Sorry your dawgs suck badly.

This should cheer you up.

Obama Losing Supporters in Poll as Joblessness Prompts Voters’ Discontent

http://www.bloomberg.com/news/2010-10-12/obama-losing-supporters-in-poll-as-joblessness-prompts-voters-discontent.html

godless heathen

October 12th, 2010
12:26 pm

Why is it a given that revenue must increase? The Federal government outspends the revenue it receives now. Why do moonbats think it won’t outspend whatever amount of additional revenue it receives? We must limit the size and scope of government. Giving it additional money won’t do that,

Liberals are ignorant

October 12th, 2010
12:27 pm

“It’s also fair to note that New Zealand has universal single-payer health insurance.”

It’s also fair to note that NZ isn’t nearly as big as the United States.

Liberals are ignorant

October 12th, 2010
12:27 pm

“is this a REAL Republican attitude……fire everyone ?”

No, just everyone who has a D after their name.

Liberals are ignorant

October 12th, 2010
12:28 pm

“Kyle, you like most of the Republicans continue to perpetuate the myth that the Democrats are responsible for growth in government. ”

Guess you’ve been asleep for the past year.

Hera

October 12th, 2010
12:29 pm

I want to stop spending money on Illegals. I want to stop them from getting my tax dollars through benefits.
Do lawyers have an ethical duty to prevent crimes? I know that clients can tell their attorneys about any crime they committed and there is privilege. But what about crimes that they are planning? What about on going conspiracies? What are the ethical considerations of the attorney to stop the crimes?
I thought Tax Lawyers could not file taxes for people who admit they lied on the forms.
I thought Bankruptcy Attorneys could not file the bankruptcy if the client told them they lied on the forms.
I thought an attorney could not write or consummate a contract deal if the client told the attorney the contract created a fraud on the buyer.
So, if any of this is true, how can Attorneys represent people who admit to them they are Illegals outside ICE and other Immigration matters?
Aren’t these Illegal Invaders perpetuating an ongoing crime conspiracy by being in this country illegally?
Doesn’t that mean that the lawyer either has to NOT represent the Illegal Invader or better yet, report him to ICE?
What is the law?
And why doesn’t the ACLU start suing these lawyers that represent these Illegals?

Liberals are ignorant

October 12th, 2010
12:29 pm

“Markie Mark, the Teahadists aren’t really going after Republics, they’re simply replacing semi-sane Republics with hard right Republics.”

Cute name there, tard. Have fun sitting in the back once we take over Congress.

Liberals are ignorant

October 12th, 2010
12:31 pm

“Bill Clinton created and implemented a workable blueprint for balancing the budget”

Only with Republicans pulling him while he was kicking and screaming.

“I squarely blame George W Bush and the rest of the Republican party for moving away from this proven solution and leading our country to the current fiscal condition.”

So when is Obama gonna fix it?

JDW

October 12th, 2010
12:31 pm

Kyle, I agree that the current spending situation is more than I would like. However, we have found ourselves in a deep hole dug by the last crop of Republicans. I would have made some different choices on how to rectify the situation but I also recognize that we were damn close to a total economic meltdown and lengthy Depression. I have to give the current President and Congress some credit for moving us back from the brink of that disaster. I for one am not willing to give the keys back to the very people that created the situation in which we find ourselves.

How long do the Republicans get a free pass for preaching smaller government and fiscal responsibility while doing the exact opposite?

How long do the Republicans get a free pass for preaching smaller government and fiscal responsilbity for doing the exact oppisite?

Gator Joe

October 12th, 2010
12:34 pm

Kyle,
Just after the Right Wing take over, you dream of, and the privitzation of everything, most the whining you will begin to hear will be from people like you complaining about how bad everything is.
Just look to the Bush years for how things will be.

JDW

October 12th, 2010
12:34 pm

“It’s also fair to note that NZ isn’t nearly as big as the United States.”

X dollars per person is X dollars per person. The size of New Zealand means that they have implemented a solution with far less resources than we have at our disposal.

Jefferson

October 12th, 2010
12:35 pm

You can give the GOP all 3 branches of the US gov’t like in 2000 and what did they do to reduce spending and balance the budget. ALL 3 BRANCHES.

JDW

October 12th, 2010
12:37 pm

“Only with Republicans pulling him while he was kicking and screaming.”

Not true. The key components of Clinton’s success were Pay as You Go and appropriate tax levels. Both were implemented prior to Republican control of Congress. The Republican congress did NOTHING to further fiscal responsibility.

Liberals are ignorant

October 12th, 2010
12:38 pm

“Not true. The key components of Clinton’s success were Pay as You Go and appropriate tax levels. Both were implemented prior to Republican control of Congress. The Republican congress did NOTHING to further fiscal responsibility.”

I bet you also think Obama will win another term.

Liberals are ignorant

October 12th, 2010
12:38 pm

“The size of New Zealand means that they have implemented a solution with far less resources than we have at our disposal.”

We’re not allowed to use our resources. Too many laws.

Liberals are ignorant

October 12th, 2010
12:39 pm

We can’t use our own resources but China can.

China stakes claim to S. Texas oil, gas

http://www.mysanantonio.com/business/local/China_stakes_claim_to_S_Texas_oil_gas_104753969.html

Liberals are ignorant

October 12th, 2010
12:40 pm

“Just look to the Bush years for how things will be.”

You mean low unemployment and more jobs? Gee Gator, you make it sound so bad.

JDW

October 12th, 2010
12:42 pm

“So when is Obama gonna fix it?”

First he has to fix the mess the Republicans made. First step is letting the Duhbya tax giveaway expire, second is re-implementing Pay As You Go. On February 12, 2010, Obama signed statutory PAYGO rules into law. I would like to see the rules implement more quickly.

JDW

October 12th, 2010
12:47 pm

“I bet you also think Obama will win another term.”

Don’t know if he will or not. For that matter don’t know if he will be the best choice in 2012. That depends on who else runs. He was the best choice last time and is far better than his predecessor.

That said there a many that are much more qualified but choose not to subject themselves and their family to the BS perpetuated by our current political environment. For example Colin Powell or Sam Nunn.

Liberals are ignorant

October 12th, 2010
12:48 pm

“First step is letting the Duhbya tax giveaway expire, second is re-implementing Pay As You Go.”

Not going to happen. He’ll cave on it just like he caved in letting Gitmo stay open.

“I would like to see the rules implement more quickly.”

Again, not gonna happen.

What I really find funny is the fact that you guys said the stimulus would work. IT DIDN’T and unemployment is still high.

The liberal dream is over and libs know it.

Liberals are ignorant

October 12th, 2010
12:48 pm

“He was the best choice last time and is far better than his predecessor. ”

That’s not what the polls show.

“For example Colin Powell or Sam Nunn.”

Neither one of them have a plan.

Junior Samples

October 12th, 2010
12:49 pm

Privatize the foresty service, and lumber exports rise dramatically. Just a coincidence I’ll bet.
http://www.maf.govt.nz/statistics/forestry/other-forestry-releases/facts-figures/page5.htm

Liberals are ignorant

October 12th, 2010
12:50 pm

JDW, explain this.

Why Obama Is Losing the Political War

http://www.time.com/time/politics/article/0,8599,2024718,00.html

Liberals are ignorant

October 12th, 2010
12:51 pm

“First he has to fix the mess the Republicans made.”

Nothing like a liberal in denial.

JDW, the bottom line is your party is done. Over with.

JDW

October 12th, 2010
12:55 pm

Nothing like a liberal in denial.

Either you can’t read or you aren’t real smart, either way our dialogue is done.