Michael Reddell: One in five roles could go at the Reserve Bank

That is the headline in a story in The Post this morning. After inquiries from Post journalists a Reserve Bank spokesperson said that final decisions on organisational change, advised to staff last week, would mean a net loss of 142 jobs (35 of which were currently vacant; presumably the Bank has had some sort of hiring freeze in place for some months now).

The last public number we had for Reserve Bank staff numbers was in the Minister’s Funding Agreement Cabinet committee paper: 660 FTEs as at 31 January. Presumably a) there were some vacancies even then, and b) the number of jobs was greater than the number of FTEs, but even if there were 700 filled or unfilled jobs in January the recent decisions would still be a cut in excess of 20 per cent. That is brutal in any organisation, especially when its statutory roles and functions haven’t changed a jot. It is hard to imagine morale is particularly high in the Bank at present, and we might even sympathise with the more junior of the staff losing their jobs, especially those hired in the last year or two, really on what amounts to false pretences. Even those (probably a minority) doing useless jobs far beyond the scope of the Bank’s actual statutory functions.

You don’t really expect junior hires to a core government agency to have to do due diligence on whether that agency was running spending levels – and hiring plans – far in excess of what had been approved for them by the Minister of Finance. But that is what had happened: Board approved spending last year was 23 per cent higher than what the previous Minister of Finance had approved for 24/25 when he increased the Funding Agreement amounts just before the last election. Treasury didn’t seem to have noticed, or done anything to call it out, so one can only sympathise with new hires now being thrown back onto the job market.

And you can see how last year’s excess created today’s problems. The number of FTEs increased from 601 to 660 between 30 June last year and 31 January this year. Had they not gone on that last hiring binge, adjustment now would be much less painful all round. This table, showing FTE numbers, is from the 2023/24 Annual Report published last September.

Click to view

It is a reminder of how rapidly Orr and Quigley had been ramping up staff numbers, with no substantial change in functions. Cut FTEs by 20 per cent from that 31 January level (660) and it would take the Bank down to 528 FTEs, at which point it would still be larger than it had been on 30 June 2023, the final balance date under the previous Labour government (under whose term almost all agencies had seen rapid growth in staff numbers). It makes the point that the cuts the current Minister of Finance approved have not been deep at all relative to what was going on (spending allowances, staffing) on Labour’s watch. (I reckon the Bank’s core functions could probably be done professionally with 350 staff, but save that debate for another day.)

One way of seeing this is to look at the Bank’s total operating expenses. In the final budget approved during Labour’s term, the Bank budgeted to spend $212 million in total operating expenses in 2023/24. For 2025/26. the recently published budget for total operating expenses is $204 million, 3.8% lower than in 2023/24. Add in, say, 5 per cent inflation over the two years and you are still looking at a real cut of under 10 per cent. Not easy to adjust to perhaps, but not very different from what a lot of other government agencies have experienced. The wild card of course was the budget for 24/25: $231 million. This year’s budget is about 14 per cent lower than that in real terms. But that 2024/25 budget never had any ministerial authorisation at all.

Another, but murkier, way of looking at it is to look at approvals under the Funding Agreement (which cover a – changing – subset of total operating expenses, but which are where the Minister of Finance is supposed to have control).

In the August 2023 update to the last Funding Agreement, Grant Robertson approved the Bank spending $149.44 million on in-scope operating expenses. In addition, they were explicitly allowed to spend on these items about $5 million of the amount that had been allowed for currency issuance expenses but which wasn’t needed for that purpose. So, say, $154,5m on in-scope operating expenses.

In the new Funding Agreement approved by the Minister in April this year, total in-scope operating expenses allowed for this year is $155 million (dropping away to $145 million next year, for reasons not made clear in the documents published so far, but maybe reflecting upfront restructuring costs – redundancy payments now for all those losing their jobs, already some weeks into 25/26?).

But you can’t just compare and contrast $155 million with $154.5 million because in the new Funding Agreement more spending items have been moved out of scope, not required to be covered within that $155 million limit. There are some smallish items (eg costs associated with the Bank’s legacy superannuation scheme, totalling probably less than half a million this year). But there is also this

Click to view

Remember, these are business case costs, not some full cost of a project but you’d think they might easily total another million or two (consultants don’t come cheap).

And there is this explicit carveout, with some numbers

Click to view

ie $5 million a year

Add those three items back in and the appropriate comparison to last year’s Funding Agreement level (the $154.5 million) is perhaps more like $161.5 million ($155 + 5 + 1.25 + 0.25). It drops away next year, but taking $10 million off that total still doesn’t leave them much less than the $154.5 million they were allowed for 24/25. The big problem – for them – is that they simply ignored that 24/25 limit and went for broke, hoping they could trick the Minister into setting them a permanently higher new baseline level of spending. It didn’t work fortunately. In a decent world they’d all (Orr, Quigley, the rest of last year’s board) apologise to the Minister, to the public, and to their own staff. In our world, staff lose their jobs and Quigley and the board keep theirs.

It is still interesting that they are needing to make such deep staff cuts to meet the budget and stay within the new Funding Agreement limits. Perhaps one partial reason might be the big new commitment they made to office space in Auckland – in what is apparently one of the fanciest new buildings in Auckland, with a five star green rating as well – on a scale which to have been anything like justified would have required even more growth in staff numbers. They signed up to that 4800 square metres last November, with no idea where the Funding Agreement would land and knowing they’d already well-overreached the previous Funding Agreement limits. According to last year’s Annual Report they spent $1 million on Rental and Lease Expenses (presumably mostly/wholly on their existing office space in a 40 year old building in Queen St). Not exactly a source I’d rely on for much but Google’s AI overview suggested that annual lease costs on the space in the new building could be $3.5 million (and their lease there runs from 1 August, while the existing lease doesn’t expire until 31 December).

In concluding I want to come back very briefly to the Post article. It is right to say that the Bank got much less than it had had the gall to ask for (unlike Oliver Twist, in asking for more they were already bloated), but what they are allowed to spend this year and next isn’t much different in real terms than what Grant Robertson had allowed them when he’d set the spending limit for 24/25. It is just a shame – actually, it should be scandalous – that they chose to ignore that limit so egregiously. Taxpayers and their own staff now pay the price.

Michael Reddell spent most of his career at the Reserve Bank of New Zealand, where he was heavily involved with monetary policy formulation, and in financial markets and financial regulatory policy, serving for a time as Head of Financial Markets. Michael blogs at Croaking Cassandra - where this article was sourced.