Joyce unveils first social bond pilot in pitch to get more productive public service

Tuesday 21st February 2017

Finance Minister Steven Joyce unveiled the first social bond pilot to support getting people with moderate mental health problems back into the workforce in a pitch to the public service that it will have to lift its performance to justify any increase in funding.

Speaking to the Institute of Public Administration New Zealand at the Beehive, Joyce told the civil servants that he's very focused on lifting productivity across the public service, building on one of four priorities he outlined for this year's budget in a speech last week. The public sector accounts for 30 percent of the economy and can't be ignored in trying to boost the country's productivity as a whole, he said.

"As the minister of finance I am going to focus on improving our understanding of the value being created by existing expenditure, and improving that value," Joyce said. "Just saying you have 'cost pressures' in this budget round won't be enough. Ministers want to see specific measurable improvements in productivity and results through innovation as part of these discussions - that's really important."

Joyce said the government's social investment programme - where it relies on large-scale data analysis to more closely target spending to achieve actual results in long-term social issues - was a big area of work to improve the public sector.

Social investment was developed into a new portfolio when Bill English took over as Prime Minister last year, with Amy Adams given responsibility for the area. The work developed from the government's decision to introduce actuarial valuation for long-term welfare liabilities with a view to front-load spending in an effort to reduce the lifetime cost of benefits.

Government agencies have been told to come up social investment pitches for this year's budget, though Joyce told media after the speech that it won't be a "big part" of the budget.

Joyce also announced the first contract for a social bond pilot, which was allocated funding in the 2015 budget. Australian-owned APM Workcare, which offers vocational rehabilitation and disability services, will run the programme in South Auckland, with co-funding philanthropic fund Wilberforce Foundation, Johnson & Johnson subsidiary Janssen-Cilag, and property developer Adrian Burr's Prospect Investment Management providing the $1.5 million finance required for the bond.

He said a second social bond is expected to be contracted this year to address re-offending rates of young people.

APM Workcare started operating in New Zealand in 2011 and has 12 contacts with the Ministry of Social Development to deliver employment services and a national contract with the Accident Compensation Corp to provide rehabilitation services. Accounts filed with the Companies Office this month show the company posted a 6.2 percent decline in profit to $1.8 million in the year ended June 30, 2016 on a 14 percent gain in revenue to $24.3 million.

In response to a question from the audience, Joyce said the social bonds need to show a significant improvement on what's being achieved by other models that have been used in a sustainable fashion, and that the returns were capped.

Speaking to media after the speech, he said the returns on offer to the investors are on a sliding scale depending on the level of success in getting people back into work and staying in the jobs, and if a minimum standard isn't achieved the investors may face a haircut.

"They get together and fund it, and they fund the work, and they get the return, and if they succeed and meet all the metrics they get all the money back," he said. "The philosophy is that the investors that are there have a big incentive to work with the provider in a way central government would like to, but it's a bit different in that they have financial risk as well as reputational risk."

Joyce said he expects the public sector "to do much better contracting with private sector providers and NGO (non-government organisation) providers" which is "the real plumbing of the system", and wants them to find the best models in approaching problems that cut across government agencies.

BusinessDesk.co.nz

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