Government needs to take note of warning on its cost-cutting

It's hard to remember a time when this Government - or any recent government for that matter - faced a bigger number of brushfires than this one is trying to put out right now.

The smorgasbord of targets for Opposition attack this week makes the point. There's the hydra-headed ACC fiasco including the resignation of Nick Smith, an open revolt at the foreign affairs ministry, the teapot tape, asset sales, Treasury's failure to warn of the liabilities being stacked up at South Canterbury Finance, looming pressure on school class sizes, sensitivity over foreign investment . . . but in all seriousness, not Gerry Brownlee's flick at Finland.

It is all serving to boost morale on Labour's sparse benches, even though the polls are yet to play ball. And Labour leader David Shearer is still a bull's roar away from appearing authoritative.

Against that backdrop, last week's release of local government reforms and the slow-burning revamp of the public service have largely gone off the radar.

Inside the Beehive, the maelstrom and leak-a-thon at MFAT is being seen as the exception to what is otherwise a relatively smooth new round of cuts and reforms to the public sector.

There is no sign yet that Prime Minister John Key and his senior team have broken ranks with Foreign Affairs Minister Murray McCully. But his extraordinary letter "re-pointing" chief executive John Allen's efforts raises serious questions about how a change process could get so far off course from the minister's preferred route. When a responsible minister is blaming a chief executive, something has to give.

To be fair, the angst at MFAT may reflect how long the ministry has avoided the tsunami of change that has swept through other departments. As one insider put it, they are being subjected to 30 years of state sector change in less than a decade.

But it also highlights the dangers of a full-on attack on wages and conditions; a far more fraught process than the slow squeeze and baseline freezes faced elsewhere. It should act as a warning for the Government as it moves on to cutting costs and screwing down wages in areas that evince far more public sympathy than globetrotting diplomats. Like police. But when it comes to public sector restructuring, there are other fish to fry than mere cost-cutting.

Super Minister Steven Joyce's new Ministry of Business, Innovation and Employment - Mobie - is swimming into view, and as John Key has flagged it may be the last full merger for some time.

But the Government is running a ruler over other structural models, not least because its 10 targets for the public sector cut across single department responsibilities. In beltway-speak the Government is setting up "multi-agency targets without multi-agency funding or accountability hierarchies".

Several ministries and departments are already sharing back-office functions. In the justice area courts, police and corrections are working under the broad umbrella of the Justice Ministry in a collective governance model; difficult because while all the chief executives are in theory on a par, Justice Secretary Andrew Bridgman is effectively a first among equals.

As a solution to the multi-agency targets issue, the Government is planning changes to the State Sector Act and the Public Finance Act to allow the creation of statutory boards that are responsible for shorter term outcomes across a multitude of agencies.

It has not yet decided whether to extend that to one of its key targets - improving the lot of vulnerable children - which cuts across a raft of agencies; Child, Youth and Family, Work and Income, social welfare, health, education and even housing.

That will need to include an agreed profile of what constitutes child abuse in the eyes of a professional. It will also require a new mindset; where departments and chief executives are asked to collaborate but where someone can decide to move their resources around, or into a different department, even if they don't like it.

If the Government can find a way to pull off its new governance structure, it will give more meaningful structure and accountability to targets it has set itself.

But there is an inherent contradiction at the heart of the exercise. Is it really credible to break down the silos between departments while at the same time requiring chief executives to focus more tightly on their departmental "knitting" with fewer and fewer resources?