The Size of the NZ State | Capability @ Lunch Recap

If you’re familiar with New Zealand politics, you’re probably familiar with the narrative that the state “shrank” dramatically in the 1980s and 90s, as a result of increased privatisation, deregulation, and market reforms. But what if that story is far too simple?

At this month’s Capability @ Lunch session, we were joined by Derek Gill, who took us on a deep dive through more than a century of data to answer a deceptively straightforward question: has the New Zealand state really shrunk?

One Question, Eight Different Perspectives

Derek started the session by noting that you can’t measure the size of the state with a single metric. Depending on what you’re looking at, you’ll see a completely different picture. His research examines the state through eight distinct lenses, each revealing something different about how government has evolved. Each perspective used data for the longest period consistent data is available: for taxes and spending data starts in the 1870s, System of National Accounts data starts in 1972 while data on Government Net Worth starts in 1992 following the introduction of accrual accounting.

These eight perspectives are:

• State as spender – long-term spending trends since the 1870s
• State as taxer – taxation patterns from 1876 onward
• State as producer – data from 1972 showing changes following privatisation
• State as investor – public investment since 1972
• State as consumer – what government purchases and how this has shifted, including COVID impacts
• State as employer – public service and wider public sector employment since 1909
• State as steward – fiscal balance, net debt and asset stewardship
• State as regulator – growth in legislation (words and number of Acts) since the 1908.

Across these perspectives, peaks and troughs don’t line up neatly with political regimes or reform eras. The ‘neoliberal’ reforms of the 1980s and early 90s, with one notable exception, did not result in the state shrinking. Instead, what the data shows is changes in the shape and mix of state activity, but not in a simple “smaller state” way.

Graph One shows the peaks and troughs of range of measures from 1972 highlighting the reform era of the 1980s and early 90s and the COVID era of the 5^th Labour government. It highlights the lack of systematic decline in the 1980s but a succession of local peaks under the latest Labour Government. 

No Evidence of a Shrinking State

Derek’s data challenges the conventional wisdom head-on. While spending and taxation do fluctuate with economic cycles, major reforms, and global shocks, there’s no sustained trend of the state getting smaller across a range of perspectives.

All rules have exceptions. The privatisations of the 1980’s and early 1990s did reduce the state’s role in the production of market goods like electricity and telecommunication. But at the same time, other state roles increased, particularly in collective consumption (public services like roading and law and order) and non-market investment (infrastructure and other public assets).

Public service employment has grown and contracted in cycles over the decades, but there’s no clear, sustained “shrinking trend.”

The COVID Effect and the 2025 Budget

Derek also addressed the elephant in the room: recent trends are heavily influenced by COVID-related spending and speeding spree before the 2003 elections. When you strip out those extraordinary measures, the long-term lines are steadier than many assume.

He posed a straw poll question to the room about the 2025 Budget cuts and whether people perceived them as evidence of a shrinking state. The data shows reductions, yes, but not a dramatic austerity or unprecedented shrinking. What we’re seeing is the system effectively “unwinding” back to pre-COVID settings, not a fundamental transformation.

The State as Regulator: The Hidden Growth Story

One of the strongest insights from Derek’s presentation came from looking at regulation, an often-overlooked dimension of the size of the state .

While the number of Acts passed has grown slowly over the past 70 years, the number of words in legislation has accelerated sharply since 1950. Similar patterns appear in Australia, though with different inflection points.

When you look at the flow of new legislation, new Acts per year actually peaked in the 1980s and have declined to long-term historical levels since then. But legislative words continue to grow faster than the number of Acts. In other words, we’re passing more laws, and each one is far more detailed and complex.

Why Is Regulation Growing?

Derek outlined multiple drivers behind this regulatory expansion, split between supply-side and demand-side factors.

On the supply side:

• Political competition: parties differentiate themselves through more policies and rules
• Institutional fragmentation: more players in the system producing complex policy mixes
• Bureaucratic “ratchet effect”: rules accumulate over time, but removal is rare
• Rules breed rules: regulatory changes cascade into further regulatory effects

On the demand side:

• More complex society and economy: our world is simply more interconnected and sophisticated
• New technologies, sectors, and expectations: think environmental protection, digital privacy, human rights
• Shift in regulatory approach: from light-handed regulation to more detailed, proactive, sector-specific rules

Derek also noted that plain language drafting introduced in 1999 did increase word count but explains only a small part of the growth. Most of the increase is substantive, not stylistic. We’re genuinely regulating more things, in more detail.

The State Has Changed Shape, Not Size

The key insight running through all eight perspectives is this: the state has changed shape, not simply grown or shrunk.

Consider the examples Derek walked through:

• Less direct production of market outputs after privatisation (the government no longer runs the phone company)
• More collective consumption (public services delivered largely free at point of consumption , like healthcare and education)
• More non-market investment (infrastructure and long-term public assets)
• More and deeper regulation across sectors
• Varying patterns of employment and spending over time.

The state that emerged from the reforms of the 1980s and 90s looks different from what came before. It’s less involved in running businesses, but more involved in regulating markets. It spends differently, taxes differently, and intervenes differently.

Final Reflections

The central message from Derek’s presentation is clear: simple narrative of the shrinking state is a myth. The reforms of the 1980s and 90s reduced some activities while expanding others. Over more than a century, the New Zealand state has become more complex, used regulations more, and more deeply involved in non-market and collective services.

Inflection points occur at different times for different measures. The story varies depending on which lens you’re looking through. And that complexity matters, because if we want to have informed debates about the role of government, we need to move beyond simplistic narratives.

Modern policy and regulation growth reflect both political choices and societal complexity. The question isn’t really whether the state is bigger or smaller. It’s what kind of state we have, what it does, and whether that matches what we need.

References

Gill, D., S, Shipman, and K. Simpson (2025) ‘The growth in the supply of legislation in New Zealand’ Policy Quarterly, Volume 21 Issue 1, pp.3–11

Gill, D. Gemmell, N. and Grimes A. (2025) ‘The myth of the shrinking state in New Zealand revisited – What does the data show about the size of the state in New Zealand from 1900 to 2028?’ Policy Quarterly May 2025uarterly May 2025

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What’s Next?

This session is our final Capability @ Lunch session for 2025. We look forward to welcoming you back in 2026.

These sessions are proudly brought to you by Kāpuhipuhi Wellington Uni-Professional in partnership with Hāpai Public.

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Derek Gill is a public policy researcher with deep expertise in fiscal policy, public management, and the evolution of the New Zealand state. His work draws on extensive historical data to challenge conventional narratives and provide evidence-based insights into how government has evolved over more than a century.