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management by reducing total Crown debt to prudent levels and by pursuing the principles of responsible fiscal management (the principle of stability, s. 4, FRA). The Public Audit Act 2001 assures the accountability to Parliament for the government’s use of public resources and powers conferred by Parliament, by conferring on the Auditor General the authority to carry out financial report audits and performance audits.

The 1988 SSA establishes accountability relationships between departmental chief executives and their ministers. All government department chief executives have performance agreements with their responsible minister. Performance agreements include annual milestones to demonstrate the specific results required to achieve each key result area (Treasury, 1996). Budget system laws also focus on maintaining a performance-oriented public finance management.

Finally, the principle of transparency in the budget is assured through the financial reporting requirements of the FRA and the PFA. Departments, Stateowned enterprises, Crown entities and the government as a whole, prepare financial forecasts and reports in accordance with generally accepted accounting practice. Details of reporting requirements are discussed later in this case study.

3. Legal basis for the establishment and the powers of the actors in the budget system

3.1. The executive and the legislature

3.1.1. Overview

New Zealand has a centralised, unitary form of government. Local government’s powers, although reformed, remain limited (OECD, 1997). The executive consists of the Governor General, the Prime Minister, a Cabinet of ministers, ministries, Crown entities, and State-owned enterprises. The legislature has one chamber – the House of Representative (HR). Members of Parliament are elected every three years. The party which has the highest number of representatives elected is invited by the Governor General to form the government. The leader of the government is the Prime Minister, who selects ministers, who in turn, form the Cabinet.

3.1.2. Roles and responsibilities of the Cabinet and individual ministers

Cabinet is comprised of ministers and chaired by the Prime Minister. It plays a powerful role in government policy decisions and initiating legislation. Ministers as a whole must have the support of the House of Representatives and take collective and individual responsibility for their decisions. The Cabinet in 2004 consisted of 20 members; in addition, there were five

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ministers outside Cabinet. Cabinet ministers are usually allocated a number of votes1 to manage, known as their portfolio.

Cabinet decisions are implemented by ministers through departments or other agencies for which they are responsible. The Cabinet Expenditure Control Committee undertakes the detailed scrutiny of departmental budgets and expenditure proposals. This committee is a sub-committee of Cabinet and comprises most of the senior ministers, including the Minister of Finance. It is chaired by an Associate Minister of Finance. The Committee is supported by a committee of officials from the three central agencies: the Department of the Prime Minister, the State Services Commission, and the Treasury. Within the Cabinet, the Minister of Finance has the principal responsibility for the budget. The budget speech is normally delivered by the Minister of Finance on behalf of the government. The Minister of Finance is the responsible minister for the Treasury department.

3.1.3. Establishment of ministries and executive branch agencies

The Treasury is the principal economic and financial adviser to the government. It reports on most expenditure proposals before the government. The Treasury is also responsible for the development and broad implementation of financial management policy in the public sector and for the preparation of the financial statements of the government. A significant part of the department’s work involves advising on the content of the government’s annual budget, as well as assisting with the preparation of budget documents and associated legislation. As part of the budget preparation process, the Treasury co-ordinates the review of expenditure programmes, undertakes fiscal analysis, prepares revenue and expenditure forecasts and monitors revenue and expenditure flows. The above roles of the Treasury are not specified in the law, reflecting the inheritance from the United Kingdom, although the detailed appropriations regime acts to specify the services the New Zealand Treasury can deliver.

Crown entities – bodies that are legally separate from the Crown but are not State-owned enterprises (SOEs) – have important roles in providing various public services. Crown entities are established by law and the government has a controlling interest in them through ownership mechanisms (Treasury, 1996). The fourth schedule to the PFA lists most Crown entities or groups of Crown entities. Crown entities can be added to this schedule by Order in Council, i.e. the government can create new agencies. However, Crown entities can be removed only by amending the PFA. Crown entities are diverse, ranging from research institutes, school boards of trustees, Crown health enterprises, business development boards, etc. Parliament makes appropriations to the Crown, not to the Crown entities themselves. Because they are not legally part of the Crown, Crown entities

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have the freedom to incur any expenses, but each Crown entity must bear any loss it incurs. Appropriations are however required for the Crown to purchase outputs provided by Crown entities and to invest additional capital in them. The Crown Entities Act 2004 set up a consistent governance framework for Crown entities and requires reporting to Parliament on their performance.

The SOEA established SOEs under the jurisdiction of the Companies Act 1955. Their aim is to improve efficiency in trading operations such as postal services, broadcasting, and electricity generation and transmission. Under the Act, a SOE has a responsibility to operate as a successful business. Their Boards of Directors are accountable to the Minister of Finance and the Minister of State-Owned Enterprises, who are prohibited from involving themselves in the day-to-day decision making of SOEs. SOEs have the same powers as private sector companies to borrow, including without government guarantees. As in the case of departments, any investment in the capital of an SOE requires an appropriation by Parliament.

3.1.4. Responsibilities of senior civil servants

The SSA and the PFA provide the legislative basis for the financial management system of the core central government (ministers, departments and Crown entities). Departmental chief executives are hired on fixed term contracts. Each chief executive is responsible to the appropriate minister for carrying out the functions and duties of the department; providing advice to ministers; the good conduct of the department; and the efficient, effective and economical management of the activities of the department.

The core values of the public service are described in the New Zealand Public Service Code of Conduct, which is issued by the State Services Commissioner under the 1988 SSA (s. 57). The code provides guidance to public servants on standards of behaviour. Three principles of conduct for all public servants are included in the code, notably that public servants should: fulfil their lawful obligations to government with professionalism and integrity; perform their official duties honestly, faithfully and efficiently; and not bring the public service into disrepute through their private activities.

3.1.5. Establishment and roles of parliamentary committees

New Zealand has inherited a Westminster parliamentary system, in which Parliament is, in principle, supreme in budget matters. Parliament grants “supply” (authority over resources) to individual ministers by passing appropriation bills, which “vote” money for specific purposes. Parliament’s Standing Orders (SOs) establish a Finance and Expenditure Committee (FEC) as one of the House of Representative’s 14 subject select committees (s. 187, SO, see Parliament, 2004). After the government introduces the budget, the FEC

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may examine any vote itself or refer it to another select committee for examination. Each select committee may recommend a change in the vote. All committees must report back to the House on their examinations of votes within two months of the delivery of the budget. A vote can not be passed until it has been examined by a select committee. FEC also allocates to subject select committees each year the task of conducting a financial review of the performance in the previous financial year and the current operations of each individual department, office of Parliament, Crown entity, public organisation or SOE.

3.2. Role and responsibilities of sub-national governments

Local governments, whose structure is governed by the Local Government Act (LGA) 2002, include regional councils, and district and city councils (OECD, 1997). The last two are collectively termed “territorial authorities”. With a few minor exceptions, a group of territorial authorities is defined within the boundary of a regional council. In some cases, a territorial authority may have the statutory functions of a regional council. These bodies are known as “unitary authorities”. The number of bodies in each category in 2004 was 12 regional councils and 74 territorial authorities.

The powers and functions of local government are provided in the LGA and in other legislation where central government chooses to devolve responsibility. For example, in the field of territorial planning and environmental management, the Resource Management Act 1991 devolves responsibilities and powers to regional councils and territorial authorities for local policy development and approval. Specific aspects of public health are also devolved through the Health Act 1956 (Part III) to local authorities.

Sources of revenue vary across sub-national administrations. The principal source of local revenue is property taxation. The right to tax property is determined through the Local Government (Rating) Act 2002 (LGA). Under this Act, a local authority can levy a charge on the legal owner of land holdings. The levy may be applied differently across properties – local councils have considerable discretion to determine the most appropriate spread of the rating burden in the community. Local authorities are also authorised to borrow money in accordance with their liability management policy, included in their long-term council community plan (LGA). The LGA specifies reasonably stringent provisions for consultation on a council’s plans, policies and decision making, and provides that the Crown is not liable to contribute to the payment of any debts or liabilities of any local authority. Grants from the central government, even though not a large part of local authorities’ revenues, are also a source of revenue. They are limited to direct programme grants (for example, for land transport programmes) and payments in lieu of property taxation where land is owned by central government. There is a