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.]
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.