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Interview: Gabriel Makhlouf

Gabriel Makhlouf.

The new Treasury head tells Ruth Laugesen that improving teacher quality will raise the country's living standards.

For someone who has just thrown the first punch in what could be an ugly brawl, Gabriel Makhlouf is terrifically laid back. Compact, sleek and as relaxed as a cat, the new Secretary to the Treasury has pounced on teacher quality as the big idea that Treasury will push under his leadership.

“The current system is failing. Three out of 10 people leave school without NCEA level 2, and that is the basically accepted level of education. If you’re going to get on in life, you need that.” And these failures aren’t just a problem for the kids. “The prosperity of the whole country, the living standards of the whole country, depend on skills. There’s an absolute direct correlation between the level of skills in a country and the growth of the economy.”

The cause? “I think all the evidence that we’ve got is that actually there is a teacher-quality issue.” The answer? Sort out the good teachers from the bad using student-assessment data, and recognise and reward the good ones, perhaps through performance pay.

Makhlouf first got in hot water over this matter in February, after recommending in briefing papers to Finance Minister Bill English that improving teacher quality could be funded by increasing student/teacher ratios or consolidating schools. There was an immediate public backlash at the suggestion of bigger class sizes.

“A lot of what I read was completely wrong. Because the story was that the Treasury doesn’t think class size is important, which is wrong. The really key point we’re making in the briefing to the incoming minister is to say you’ve got limited resources. If you’re going to spend an extra dollar in the education area, it’s better to spend it on quality teaching than on classroom size.”

Makhlouf has some solid academic backing for his views that teacher quality is more important than classroom size. He cites University of Auckland honorary professor of education John Hattie, whose internationally recognised book Visible Learning consolidated 50,000 educational studies covering 83 million students around the world. Hattie found that smaller classes have little effect on learning outcomes; what really boosts achievement is how teachers teach, how they engage with pupils and how much detailed feedback students receive about their progress. However, Makhlouf doesn’t have backing from Hattie on the alleged failure of the New Zealand education system. In the book’s foreword Hattie says, “We have a nation of excellent teachers”, as shown in the country’s ranking in the top half-dozen nations in reading, mathematics and science.

Driving Treasury’s interest in teacher quality is some new research that tries to quantify the difference that higher student achievement would have on economic performance. Drawing on international studies on the impact of education on economic growth, Treasury estimates that our GDP could increase by between 3% and 15% by 2070 if mean student scores rose even higher to rival the very top performers in the OECD.

But does Makhlouf really think the Government wants to wade into a battle over teacher quality, measuring teacher performance and performance pay, after three years of conflict over National Standards? “Obviously it’s up to ministers to decide what they want to do; but we think the evidence is pretty powerful. The Treasury is going to carry on promoting quality teaching as the best way of getting value for the dollars that we spend in education.”

“We’re talking to our minister, we’re talking to other ministers as well, we’re working with the Ministry of Education on this. We want there to be a public debate.” And he is amazed that measuring teacher performance is a forbidden zone for teacher unions. “The profession should absolutely want to embrace this stuff. All of us need data because data helps us to measure our performance and it helps us to understand what we need to do to get better. I find it rather baffling why in the education area there’s an allergic reaction when people talk about getting more information on performance.

“There are some teachers who are fantastic, who stand up in front of a classroom and inspire children to actually do great things. What is there that distinguishes that teacher from the one who doesn’t do that? And is it something innate in them, or is it something they can learn?” How important is this really to the Treasury? Well, says Makhlouf, if his arm was twisted “really hard”, and then twisted again some more, he would say education and the quality of teaching are the single biggest issue the country needs to tackle to raise living standards.

The head of the country’s most powerful government department was born in Cairo in 1960 to a Cypriot-British father and a Greek-Armenian mother. His earliest years were spent in the Congo, Samoa and East Pakistan (now Bangladesh) as his father pursued a career in the UN. From age 11, he was separated from his family to continue his education at a British boarding school – although his mainstream accent is certainly not that of a public-school toff.

After graduating with an honours degree in economics at the University of Exeter, he spent a year as a treasurer for a student union, then did a masters degree in industrial relations at the University of Bath. His thesis was on “intra-union relationships in academia”. As a PhD beckoned, Makhlouf realised it was either a life in academia “or I had to get out”, and he landed his first job in 1984, as a tax inspector.

What drew him to that? Makhlouf looks sheepish. “You finish university, you look for something to do. I looked for an interesting job and at the time that one looked interesting.” From there, it has been a fast ride up the career ladder of the British Revenue & Customs and Treasury. Makhlouf’s five-year contract with the Treasury here will match his longest term in any job; typically he stays a couple of years in a post.

He spent a year as British Treasurer Gordon Brown’s senior private secretary, acting as the interface between Brown and the Treasury, at the very start of Tony Blair’s administration. Did he experience Brown’s famously volcanic temper? “A lot of what I’ve read about his temper is exaggerated. My personal experience wasn’t like that. It was very exciting because it was the beginning of the new Labour government. The civil service was very energised by the fact that we had a change of government and people wanted to do things differently.”

Makhlouf went on to lead work on Britain’s international tax policy; chaired the OECD’s policies on tax havens and money-laundering; and headed the division of Revenue & Customs responsible for capital gains taxes, inheritance taxes and savings tax regimes. Later he managed the same department’s debt-management and banking services, before going on to head dispute resolution. Most of his career has been as a manager rather than as an economist.

Asked if this leap to the Antipodes is another career stepping-stone, Makhlouf responds, “To what?” Until he was headhunted for the position of deputy chief executive of Treasury in 2010, New Zealand had never occurred to him, he says. “But the more I looked into it, the more interesting it was. Because of my personal background, I’m pretty internationalist in outlook. So I came here as the deputy chief executive, and then this job came up, and I thought, ‘Well, actually I love this place, and I love this job.’” Gabriel Makhlouf, or Gabs for short, was appointed last June.

He probably beat local applicants to the job because he was a breath of international fresh air when the Government was looking for disruptive thinkers with no attachment to the old order. The British civil service, where cost-cutting and major reform has been intense for at least the past decade, has become a hunting ground for the State Services Commission. The chief executives of both the health and education ministries, Kevin Woods and Lesley Longstone, were recruited from the UK last year.

The big and scary goal looming for Makhlouf is the Government’s promise to reach surplus by 2014/15. Miss the target, and credit downgrades beckon. A month ago a $1 billion hole appeared in tax receipts, and the safety margins around the target vaporised to nothing. The October projection of a $1.45 billion surplus by 2014/15 has shrunk to just $370 million, so small that it could easily tip into deficit.

“My own sense at the moment is as long – and I’ve got no reason to doubt it – as the Government sticks to its fiscal strategy, then we can hit that surplus target,” says Makhlouf. That fiscal strategy requires departments to carve $1 billion out of their budgets over the three years from July in efficiency savings. The Government has claimed the looming mergers, outsourcing and job losses won’t be at the cost of quality of service. The paroxysms at the Ministry of Foreign Affairs and Trade over the radical downgrading of the conditions of the foreign service are just the start. Like Makhlouf’s challenge to the education sector to tackle teacher quality, the spending cuts are an invitation for new thinking all over the public service.

Makhlouf has exhorted public servants with a rather uncatchy catchphrase: “Innovation should run through our veins”. In the Makhlouf book, it’s all good – it’s not cost-cutting, it’s “continuous improvement”. Economies in back-office functions were touted as a source of more than $300 million in major savings, but so far only $20 million has been cut there. Are departments going to be able to make the cuts that are being asked of them? Makhlouf says he sees signs that chief executives are looking for ways to do things better on smaller budgets. “My sense is that people are up for it. I think it’s not going to be easy, and they’re going to need support and help.”

Are the changes at MFat a good idea? He won’t comment. “I just observe that people anywhere find change difficult; you have to go through a good process to make change as painless as you can.” What matters, he says, is what services the citizens of New Zealand get. It might not matter whether it is a government agency delivering them. “Do people really care who they get their service from, as long as they get their service?”

In the longer term, Makhlouf is keeping up the pressure on the Government to look again at cutting big-ticket spending items such as Working for Families, student loans and pensions. The Treasury argues that since the global financial crisis, the country has become more prone to external shocks that could send the economy careering into crisis. Stronger government books are crucial to providing a buffer. Prime Minister John Key has recently foreshadowed plans to rein in the loans scheme “in a big way”, but has pledged to resign rather than make any changes to pensions. The Treasury has plans to push the pensions issue further in December by running a conference with Victoria University on how the Government is to balance its books in the long term, with the help of an expert panel drawn across the left and right of the economic and social justice spectrum.

If one question makes Makhlouf noticeably uncomfortable, it is the question of inequality. The policy direction Treasury has advocated for the past 30 years, of promoting stronger market forces in the economy, has been a factor in the widening income inequalities the country has experienced over that time. But Makhlouf, like Finance Minister Bill English in a recent Listener interview, doesn’t like to express a view about inequality.

“When people talk about inequality, I pause, because everyone’s got a slightly different definition of it,” he says. For the Treasury, income inequality isn’t the important measure. “For us, what really matters is persistent disadvantage and people being intergenerationally disadvantaged.” Okay, pick any definition you like, but do we have an inequality problem? “Um … I … [long pause] I honestly don’t like to use that word. I think the distribution of income and persistent disadvantage of particular groups matters but I do think we need to spend more time really understanding what it is that we’re talking about.

“From our perspective, these things are important, but you can get quickly from a discussion of inequality to a discussion of fairness, and that’s really a political value judgment which I don’t want to get drawn into. Giving people opportunity is important. Making sure the productive capacity of the country is used to fulfil its potential is important. That’s why for me the fact that three out of 10 kids leave school without NCEA level 2 matters.”

He isn’t impressed by the thesis of the book The Spirit Level that societies with greater levels of income inequality have poorer social, crime and health outcomes across the whole population, not just for those at the bottom. Its conclusions are “simplistic … It’s just more complicated than that. I’m cautious about arriving at generalisations across countries.”

Makhlouf, who moved here with his wife, Sandy, has become a New Zealand citizen. He seems to relish his emerging role as provocateur and goad of a public service at the crossroads.

“There is no grand plan for the career that I drew up in 1984. I like to do interesting things. I’m passionate about organisations having a purpose and I’m passionate about organisations doing a job better. And if you have a purpose that’s worthwhile – and I think Treasury’s purpose of improving the living standards of New Zealanders is pretty close to being one of the most worthwhile things there is in the country – that’s a fantastic combination. It’s pretty easy to get up in the morning and come to work.”

School time for the economy

Our country can only prosper if all our kids do better in the classroom.

Treasury has its sights on education. In background research papers released to the Listener, the agency complains that, despite government spending per student on schooling having risen about 20% above inflation over the past decade, our performance on international surveys of student achievement has stayed relatively static. The gold standard in terms of measuring performance internationally is the OECD's Programme for International Student Achievement (Pisa). For years, New Zealand has been one of the stars of the survey, near the top for mathematics, science and reading.

But successive education ministers have wrung their hands over the so-called "long tail", of low-performing students, of whom we have a higher percentage than other high-achieving countries. Treasury also notes that the socio-economic background of New Zealand students plays a much larger role in their achievement than in most other OECD countries: "In other words, New Zealand's education system does not appear to be very good at enabling students to succeed, regardless of their background."

Another quirk is that we have the largest variation in student achievement within schools, suggesting it isn't just the poorest schools that have a problem. and that "all schools could do better at lifting the achievement of their lowest-performing students," says the Treasury. Fix some of this, and the economy will grow faster. It says if New Zealand's mean Pisa scores were lifted even higher, by 25 points, the GDP would grow 3-15% faster by 2070. That's an ambitious target, requiring us to rival the hard-working Asian countries that are top in the world for learning. We would be trying to equal China's top ranking for reading literacy. We would climb to fourth place, behind China, Singapore, and South Korea, for maths, and to second place (behind China) for scientific literacy.

This article was first published in the March 24, 2012 issue of the New Zealand Listener.