Gabriel Makhlouf 'relaxed' about Ministers disregarding Treasury's advice to make 'political decisions'; Sees the Government as 'very attuned' to Treasury

Treasury’s Secretary and Chief Executive is not surprised the Government is ignoring the concerns Treasury has raised over some of the challenges caused by record migration to New Zealand.

“There are genuinely political choices to be made. The Government at the end of the day makes political choices. I’m completely relaxed about it,” Gabriel Makhlouf  told interest.co.nz in a Double Shot Interview.

Asked what he makes of the fact the Government has denied some of Treasury’s observations and completely ignored some of its advice, Makhlouf says:

“Some of these things take time to deliberate over and to think about. The fact we’ve given advice at one particular time and it hasn’t been taken, doesn’t mean that it won’t be taken later on…

“I’m not surprised that because of the political nature of something like that, ministers will be very careful and will take their time to think about how to make change.”

Current policy settings questioned

Documents released under the Official Information Act reveal Treasury in December told Finance Minister Bill English a spike in demand for housing, spurred by more people arriving in New Zealand, is contributing to rising house prices. It cautioned prices would continue to rise unless supply was ramped up.

Treasury went further saying: “There is a concern that recently there has been a relative decline in the skill level of our labour migration…

“The increasing flows of younger and lower skilled migrants may be contributing to a lack of employment opportunities for local workers with whom they compete…

“Current policy settings may not be doing all they can to support the growth of higher productivity firms and industries, including facilitating the flow of higher skilled migrants to sectors of the economy where skill shortages may be acting as a significant constraint.

“In addition, our current approach to selecting migrants may have encouraged reliance over time on lower-skilled labour in some parts of the economy. This may have been discouraging some firms from either increasing wages and working conditions or investing, either in training their existing workforce or in capital.

“The size of these effects may not be large on aggregate across the economy. But at the margin, we believe that there are benefits to making changes to immigration policy…”

Migration ‘a complicated issue’

Makhlouf says there’s no straight forward way of addressing migration as it’s a complicated issue.

“One of the things we as a community at large – not just officials and politicians – need to make sure, is we understand the issue at a more substantive level than the general sort of one-liners we see.”

He explains around a third of migrants are returning New Zealanders: “It’s quite hard to do much about those.”

Over 20% are students: “Students are quite an important revenue generator for the country and for universities… And when they go back to their countries, they build connections for us, which matter for our longer term prosperity.

“And then it’s about a third of migrants, who are actually on work visas… Businesses tell us they need the skills to grow their firms. Now it’s important we’re very careful that the skills that are demanded are the actually skills that are provided.

“But the rules that we’ve got are working appropriately,” Makhlouf says, changing his tune somewhat from the Treasury reports released under the OIA.

Government ‘very attuned’ to Treasury’s advice

Makhlouf in 2012 delivered a speech saying: “Treasury is a policy ideas factory and service delivery shop with the government as a very discerning customer.

“While they might not take everything on our shelves – and sometimes may not purchase anything at all or may get something elsewhere – we need our customer to feel assured that the Treasury delivers the right range of products of the highest quality.”

Asked how the Government’s shopping habits from Treasury’s “factory” have changed since 2012, Makhlouf says: “The Government continues to have very high expectations of the Treasury. We have very high expectations of ourselves.

“Whether the shopping habits have changed particularly, I’m not sure…”

“I think the Government is very attuned to the advice it gets from the Treasury. It hasn’t gone up, it hasn’t gone down…

“We’d be giving the wrong impression if we left people with the impression that the Government is becoming more or less engaged.”

‘I don’t have a problem with people disagreeing with our advice’

Yet migration isn’t the only major issue Treasury and the Government don’t see eye-to-eye on.

Treasury in March advised the Government to consider including agriculture in the Emissions Trading Scheme – a move that would cause farmers to be up in arms. While the Government began a review of the ETS late last year, it has said including agriculture “remains off the table at present”.

Furthermore, there have been instances where government ministers have been outwardly scathing of Treasury’s work.

Economic Development Minister Steven Joyce in June shot down Treasury’s gross domestic product per capita forecasts – which later turned out to be correct – for being too low.

Finance Minister Bill English did however at the time concede GDP per capita was down because “we’ve had a surge in people … that’s been more rapid than expected”.

The Minister supporting Greater Christchurch Regeneration, Gerry Brownlee, has also on several occasions been publicly scathing of the Major Projects Performance Reports Treasury has done on Canterbury’s anchor projects. He’s called the reports “utter tripe” and said they’ve been done by people who “fluff about the place pontificating”.

Asked to comment on these clashes, Makhlouf says: “I don’t have a problem with people disagreeing with our advice. I want to make sure the work we do is of very high quality…

“Everyone makes mistakes, but by in large our work is of high quality.”

Responding to Brownlee’s comments, he points out English issued a media release after the most recent progress report was published, saying Cabinet would consider it and wants to keep track of the projects it’s investing in.  

Responding to Joyce’s comments, Makhlouf says Treasury makes forecasts to the best of its professional judgement.  

“Ministers have in the past tweaked the rules to make sure issues like the ones mentioned are addressed, and I wouldn’t be surprised if they make them in the future.”

Furthermore: “There are loads of examples of where the Government has basically taken our advice.”

Makhlouf says Treasury publishes a lot of this advice on its website.

“If you went through all that, you’d probably get a much better balanced view of the quality of what we do and the extent to which it delivers the sorts of things the Government expects us to deliver for them.”