Public Finance (State Sector Management) Bill

I am delighted to have a further opportunity to rise in support of this legislation.

I rise this afternoon to address the bill and to tell the House that National will support this legislation going to the select committee, but with some reservations. The bill cuts to the heart of the State sector: the way it is run, the way its business is carried out, and the way it is reviewed. If the Government is to secure National’s long-term support for the Public Finance Act, we will demand that the bill ends up achieving its goal of building integrity, efficiency, and accountability for the State sector.

This bill is timely—in fact, it is overdue in some respects—and there are a number of things over the last decade, such as the Crown entity accountability regime, that have needed review. I should caution also that the bill looks to incorporate one of the landmark pieces of New Zealand legislation, the Fiscal Responsibility Act, into the Public Finance Act. The Fiscal Responsibility Act should be updated in light of 10 years of experience, but National would caution its consolidation into the Public Finance Act. Any moves to water down the importance or significance of the Fiscal Responsibility Act could have a dramatic impact on the financial resilience of the Crown.

It is worth reflecting just for a moment on the history of the Public Finance Act. It is a piece of legislation that was passed into law in 1989, and was internationally unique in the way it balanced managerial freedom with accountability for finance and performance. Even today it remains on the frontier of best practice in seeking that balance. But we need to stand back and ask what the purposes are of the bill before us today, and whether they have a great chance of achieving those goals.

The Public Finance Act set out to locate financial management in the centre of an integrated, performance-based, public sector management system. That vision, I would contend, is as appropriate today as it was then in 1989. Over the past 15 years a few leading departments have made progress in performance management, and an overdue effort has been made by central agencies in articulating policies and methods for managing outcomes. Therefore, the revisions to the Public Finance Act should cement in what is best about the Act, tidy up loose ends, and promote and facilitate the leading practices in policy development, performance management, and accountability. As the law is unlikely to be revised for some time—we suggest maybe another 15 years—this is a rare opportunity to extend the boundaries again and make New Zealand, once more, a global leader in public sector management, to the benefit of its citizens. If we look, just for a moment, beyond the integration of the Fiscal Responsibility Act, there are a number of elements that National will be seeking assurances about at the Finance and Expenditure Committee, including performance specifications, classes for Crown entities, and forecasting.

I want, however, to spend my time today discussing potentially the most important element of the Public Finance Act—the appropriation structure. This bill allows the Government to aggregate classes of outputs into one appropriation. That has the aim and the potential to assist greatly in allowing the State sector to manage by outcomes, as opposed to inputs. Equally, it poses great risks. By permitting the aggregation of all output classes for any ministry into as few as one appropriation, it could mean the combination of very dissimilar types of services within an appropriation. That could be disastrous if implemented inappropriately.

Parliament has a duty to ensure, via its members, its select committees, and, indeed, the Auditor-General, that public spending is professionally carried out and appropriately accounted for, and that value for money is achieved. Such an amalgamation of appropriations threatens that very process. What is being proposed could trigger an unwinding of the system of financial management back to the situation before the reforms of the 1980s. National will support this change only if it is accompanied by conditions that are both necessary and sufficient to ensure that it leads to a superior format for managing outcomes. Currently, the bill does not provide that insurance, but it could be modified to do so, which is why National will support its going to the select committee.

Under the present Public Finance Act the transfer of funds between output classes is restricted, as each is a separate appropriation. Transfers up to 5 percent are permitted through an Order in Council. This detail and process allows for rigorous scrutiny, not only by Ministers but also by the Auditor-General, the select committee, and interested parties. Indeed, when such a scandal is unveiled it takes up much of question time. Currently, the bill as proposed would allow the transfer of resources at an administrative level—that means without ministerial approval—in one huge lump sum, which even the most terrier-like of an Opposition MP would struggle to dig into.

The removal of the requirement for each output class to be an appropriation weakens the concept of authority, and the concepts of information and audit. Therefore, some of the questions National will raise at the Finance and Expenditure Committee will include: is it really necessary to aggregate output classes in order to achieve the goals the bill seeks? If the proposal goes ahead, are there other measures capable of preserving the quality and availability of the information, even though its role as an appropriation is diminished? Will the new system produce information for budgeting, performance management, and accountability that is superior to output classes that will be no longer needed?

National believes that several steps are needed to move forward the agenda of outcome-focused management, and the proposed easing of the appropriation constraints at the output-class level. These would include, but are not limited to, a much stronger base of knowledge, research, and experience from which to build evidence-based policies and interventions, linking what Government actions take to outcomes with results; outcomes that are expressed in practical and accessible terms and not in the grandiose, woofterish statements sometimes in evidence in Government documents, which make no sense to anybody; management plans and resources that are clearly linked to the services being provided in pursuit of the outcomes; a Budget system that allocates the resources on the basis of those plans, and that responds to performance, information, and detail about the Government’s actions; and a reorganisation of ministerial portfolios that reflects their responsibilities.

Further, we would contend that the aggregation of output classes is done without considering the more comprehensive package noted by my good self, which is likely to result in weaker performance and a weakening of the State sector, which may be at the heart of some of the architects of this bill. It is likely to have a reverse of the very plan for this bill and the very methodology behind it, and it risks threatening a move back to the situation prior to the Public Finance Act of 1989.

Parliament has a very, very important role indeed in scrutinising Government departments to ensure that appropriations are spent on what they are intended for, and that accountability can take place within Government departments and ministries. The Public Finance Act is critical legislation for driving the State sector. We must ensure that integrity and the ability to audit those Government departments are held paramount. Therefore, we will support the bill going to the select committee, but not without some great reservations.

I, too, support the bill going to the Finance and Expenditure Committee. This 350-page bill will get good scrutiny in the committee, and some of the issues raised by Mr Key will be dealt with.

National supports the referral of the Public Finance (State Sector Management) Bill, which will be further divided into five separate bills, to the Finance Expenditure Committee. The only reason we are doing so is that we believe that these five pieces of legislation should be subject to public submission and a lot of scrutiny.

Personally, I am very sceptical about the Labour Government’s agenda of collapsing the Fiscal Responsibility Act into the Public Finance Act. We know that this stand-alone Act has been seen as a landmark in terms of the accountability of the New Zealand Parliament for the way it conducts its financial scrutiny of Government spending.

I would say that most of the business community and a lot of professional bodies I have talked to over the years have become increasingly sceptical whenever Labour Governments put up legislation that seems to be well meaning but can be a real disaster to implement. So as a member of the Finance and Expenditure Committee, I welcome the opportunity to give particular parts of this bill real scrutiny.

I want to raise some of the questions we will look at during the select committee process. One of those questions concerns the changes to the Budget Policy Statement. Currently, the statement, which the Finance and Expenditure Committee has just finished examining, contains two parts. One is the Government’s spending strategy; the other one is the longer-term objective. This particular legislation proposes that in future the Budget Policy Statement will not draw on the longer-term objective. Rather, it will simply focus on short-term spending.

We already have the business associations commenting in last week’s select committee that the bill removes a very important part of the Budget Policy Statement. We all know that there is great danger in any Government telling the public about its short-term spending without that public at the same time gaining an appreciation of the wider, longer-term horizon in terms of where that spending will occur and what the Government’s financial position is.

Interestingly, during the debate on the Prime Minister’s statement today, the Deputy Prime Minister pleaded that the Government was already cash-strapped and was looking at a cash shortage. Last week the Government announced to the public that its initiatives included a family assistance package and big spending in all sorts of areas, but today our Minister of Finance is pleading that for the coming year the Government is already short of cash.

I think the proposed change to the Budget Policy Statement might be received with a lot of scepticism that the Government can fail, in any one period, to give the total position. [Interruption] Exactly, and it might just signal that Labour, after being in Government for 4 long years—and has already put up tax in 18 areas and in various forms, like the petrol tax—may make the poor taxpayer face more charges. I have a lot of scepticism about the Government’s proposed changes to collapse the Fiscal Responsibility Act. We are looking forward to the submitters examining that particular issue.

I also want to focus the public’s attention on another matter that the legislation is meant to address, and that is the issue of the State sector providing standards, value, and integrity. Certainly, during the last 4 years we have seen a very sad state of affairs regarding how some senior management in entities such as New Zealand Post and TVNZ handle their financial statements, which were supposed to be scrutinised by their internal auditors and executive management.

But when there are scandals, when there are outrages over spending as far as the taxpayer is concerned, those matters eventually have to be pursued by very hard-working members of Parliament—such as my parliamentary colleagues the Hon Murray McCully and ACT’s Rodney Hide. Without the dedication and tenacity of those members of Parliament, the senior management of those State-owned enterprises would have refused to answer questions from the select committee, and would have had to be dragged to the Privileges Committee, and that wastes more taxpayers’ money.

The Audit Office took 12 months to find the truth of the TVNZ matter, and, I would say, let the chairman off the hook. I do not think that that is the type of behaviour, the standards, or the values that the public should tolerate. The Labour Government always likes to introduce legislation and use a lot of glossy terms such as “to raise the high standard of the State sector, provide leadership, and have a coordinated approach”. But I want to say on the record that Labour’s past performance simply does not stack up.

When this legislation is referred to the Finance and Expenditure Committee, the hard-working members of Parliament—particularly from National, ACT, and New Zealand First—will certainly make sure the bill, which makes changes to the well-received Fiscal Responsibility Act, is well scrutinised. I have to include the Greens in that, because every now and then they put in some good work, and we cannot rely on Labour and United Future to raise any questions during those select committee hearings. Secondly, we want to ensure that the bill steps up to the mark in terms of setting new standards of accountability for State sector performance.

The Labour Government should not take National’s support for the referral of this bill to the select committee as an indication of anything other than that we believe it should be subject to public scrutiny. National members have a lot of reservations about the changes proposed, and we certainly have a lot of reservations about whether the words in the legislation can actually be implemented, adhered to, and monitored properly.

Bill read a first time, and referred to the Finance and Expenditure Committee.