IV. NEW ZEALAND

1.Overview

1.1.The legal framework governing budget processes

Since the mid-1980s the legal framework for the budget has been modernised, reflecting ambitious and unprecedented reforms (Scott, 2001). A series of laws to give effect to fundamental changes in budget and financial management practices were enacted in the decade until 1994 (Box 1). Since then, there have been some amendments and modifications. The Constitution Act 1986, the Public Finance Act (PFA) 1989 as amended, and the Fiscal Responsibility Act (FRA) 1994 as amended, are the underlying legal framework governing budget processes. The State Sector Act (SSA) 1988 governs key budget actors.

The Constitution Act 1986 recognises that Parliament is the supreme lawmaking authority and controls public finances. This act includes principles for the budget system: it specifies that the Crown may not levy taxes, raise loans, or spend public money except by an act of Parliament. These aspects are set out in formal legal documents, decisions of the courts and conventions (see State Services Commission, 1995; Governor General’s Office, 2004).

The PFA governs the use of public financial resources, notably to: 1) provide a framework for parliamentary scrutiny of the government’s management of the Crown’s assets and liabilities, including expenditure

Box 1. New Zealand: Main budget system laws*

●The Constitution Act 1986.

●The Public Finance Act 1989, as amended.

●The Fiscal Responsibility Act 1994.

● The State Sector Act 1988, as amended; the State-Owned Enterprises Act 1986, as amended.

●The Public Audit Act 2001, as amended.

●The Crown Entities Act 2004.

*In 2004, the 1989 PFA and the 1994 FRA were being merged in the Public Finance (State Sector Management) Act.

Source: All laws are available at www.legislation.govt.nz, maintained by the Parliamentary Counsel Office.

IV. NEW ZEALAND

proposals; 2) establish lines of responsibility for the use of public financial resources; 3) specify the minimum financial reporting obligations of the Crown, departments, and Crown agencies; and 4) safeguard public assets by providing statutory authority and control for the raising of loans, issuing of securities, giving of guarantees, operation of bank accounts, and investment of funds.

The FRA lays out transparency and accountability principles for public financial management. The law requires the government to publish regularly its short-term and long-term fiscal intentions, via a budget policy statement, fiscal strategy reports and economic and fiscal updates. Minimum disclosure requirements for these reports are set out. While the 1989 PFA altered arrangements for management and decision making in public sector organisations at a micro level, with the intention of achieving a greater efficiency and more accountable provision of government services, the 1994 FRA focussed on macro-fiscal policy requirements, notably the reduction of public debt and the achievement of operating surpluses (Janssen, 2001). In 2004, the 1994 FRA was being incorporated into a “Fiscal Responsibility” part of a revised PFA (for a guide to the new legislation, see Treasury, 2004). Although the 2004 amendment did not significantly amend the budget system, the new PFA allows greater flexibility for output appropriations. Several commentators had previously drawn attention to the overemphasis on outputs, at the expense of outcomes (for example, Audit Office, 1999; Petrie and Webber, 2001; Rae, 2002).

The State-Owned Enterprises Act (SOEA) 1986 and the SSA 1988 are two other important acts governing public sector financial management. The SOEA allows the government to provide commercial services through an organisational form similar to private sector enterprises. The Act’s aim was to increase the efficiency and profitability of publicly owned enterprises.

The SSA focuses on administrative arrangements for core government public services. This law established new accountability relationships between departments’ chief executives and ministers. Heads of government departments – who are career civil servants (there are no political appointees) – lost their permanent tenure, being appointed for a fixed term to fulfil contractual obligations to the minister, who became the “purchaser” of government services. Under the act, chief executives became fully responsible for employing their own staff on conditions similar to those applying in the private sector. In exchange for increased budget management flexibility – most input controls were relaxed – chief executives were made accountable for delivering outputs to ministers.

The Public Audit Act 2001 recast the legislation covering the statutory Office of Controller and Auditor General (OCAG). As an officer of Parliament,