Reforming the state – again

Major changes in management of the state sector are planned by the government and it is trying to build cross-party support in advance of legislation due in Parliament in November.

The changes, which follow the “review of the centre” in 2001, will:

* give more flexibility in financial reporting and control to improve coordination between departments and more clearly link their work to government objectives;

* extend the scope of some of the State Services Commissioner’s powers to cover Crown entities, instead of just the core departments, as now; and

* systematise the governance of Crown entities.

Finance Minister Michael Cullen and State Sector Minister Trevor Mallard are now attempting to win parliamentary consensus so that the “fundamental” changes are also “enduring”.

Cullen intends to integrate Ruth Richardson’s 1994 Fiscal Responsibility Act, which requires the government to demonstrate prudence in its budgeting, into the Public Finance Act, the overarching financial management law.

The December budget policy statement (BPS) will no longer set out long-term taxing and spending objectives. They will appear only in the fiscal strategy report (FSR) published with the budget in May. The BPS will focus on the detailed priorities for the next budget.

And every four years the Treasury will have to review long-term fiscal issues — projecting 40 years into the future to take into account demographic changes. Cullen’s superannuation fund is predicated on a 40-year horizon.

More important, the new legislation will broaden appropriations — the allocations of money by Parliament for specified activities or “outputs”.

An appropriation now is for only one class of “outputs” by a department. Cullen wants appropriations to be able to cover several output classes.

He also wants to allow one department to deliver or contract services on behalf of another. And he wants to more than one minister, as now, to have responsibilities for a “vote”, or group of allocations. There are now 70 “votes”, which makes coordination difficult.

The point is to focus more on “outcomes” — what the “outputs” actually achieve, rather than just whether they have been produced. This is to better respond to complex issues — especially social issues which increasingly cannot be dealt with by one department alone.

To get that focus, ministers and departments need more flexibility to allocate resources across portfolio boundaries. For instance, if money is to be moved from one output to another during a financial year, specific parliamentary approval is now needed. Multiple-output appropriations will obviate that.

Cullen argues that his changes will provide clearer information about the spending impact of policy changes. In addition, he intends to require departments to provide more non-financial information — reporting on “strategic issues and achievements and the links between what a departments does and the government’s goals”.

In behind all this, the Auditor-General will have more powers, notably to require ministers to report to Parliament for serious breaches of appropriations.

The November legislation will also extend the mandate of the State Services Commissioner, who in effect is the government’s human resources manager.

This is to encourage the adoption of core public sector ethics, values and standards — traditionally summed up as loyalty, neutrality and anonymity — by the sprawling plethora of “Crown entities”.

Crown entities are bodies that are part of the state sector but run by boards, not directly by ministers as departments are. Many have a quasi-private sector ethos which at times causes ministers embarrassment — as did the Tourism Board for National’s Murray McCully in 1999 and the Building Industry Authority (BIA) for Internal Affairs Minister George Hawkins.

Under the November bill the commissioner will provide “advice and guidance” on conduct and set minimum standards of integrity, backed by a code of conduct.

The commissioner’s extended mandate will also cover machinery of government and management systems and structures.

The new legislation also gets back on the road the Crown Entities Bill, stalled in late 2000 by Prime Minister Helen Clark.

Much rewritten, the bill will group Crown entities into three categories:

* Statutory entities, which are broken down into three subcategories — Crown agencies, which carry out government policy, independent Crown entities (ICEs), which operate at arm’s length from the government (such as the Commerce Commission and the Human Rights Commission), and autonomous Crown entitites (ACEs), a ragbag of “other non-company Crown entities”, including Te Papa;

* Crown-owned companies, such as Radio New Zealand and the Crown research institutes, which are commercial operations that have a social function and so are distinct from state-owned enterprises;

* school boards of trustees, which are essentially Crown agents but have “unique accountability”.

Each category and subcategory will have a standard governance and reporting framework, replacing the patchwork quilt of specific arrangements under which the entities now operate. Duties of board members will be spelt out.

Ministers will be able to fire Crown agency board members “at their discretion”, thereby getting over the problem McCully faced in 1999 and also ending the practice of high golden handshakes for board members who fall out of favour.

But boards of ICEs and ACEs will be more difficult to fire, in keeping with the independence or autonomy of their organisation.

However, all Crown entities’ boards will be required to “adhere to the ‘no surprises’ convention”. The BIA conspicuously did not in 2001-02.

State Services Minister Trevor Mallard says a wider range of information will be required for parliamentary select committees, as is proposed for departments.

And, in keeping with its determination to get better coordination and “whole-of-government” action, the cabinet will be able to direct Crown entities to support such action (within “legislative constraints” to respect the independence or autonomy of some).

One example Mallard gives is a common approach to electronic standards to enable e-government initiatives.