Public Finance (State Sector Management) Bill

Part 1, in many respects, cuts to the heart of what this debate is all about, which is the spending of Government money. If this Government knows anything, it knows how to spend money. It loves spending money, and it will spend $23.4 billion worth of new money over the next 4 years. So the Government should have a lot of interest in this bill. I have no doubt that one of the reasons it decided to push this legislation through Parliament was that it knew it was going to spend so much money, and thought it had better have a darned good idea of where the money was going and how it was being spent. I fear for the Minister of Finance, because under this legislation he will probably be giving Government departments not only more money—and when I say more money I mean a lot more, by any standards—but also a lot more authority and accountability.

We have seen in Government departments some quite excessive spending in recent times, in a number of areas. I do not need to get up in this Chamber and talk about things like hip-hop tours and twilight golf—stuff that we know the Government has enjoyed funding, and looks forward to funding. We have seen excessive spending and wasted expenditure across a lot of areas. It is easy to look at things like health and education and to argue that, because they are such important parts of our economy and our society, somehow we should not challenge the idea that the money being spent in those areas is being spent correctly. For a moment, let us look at health spending in New Zealand. It will have gone from around $6 billion to around $10 billion by the end of next year—a $4 billion increase, or around 80 percent of the original Budget spending. When I look through Part 1 of the bill, I do not feel a great deal of confidence at all that the $10 billion worth of expenditure in that very important area will be spent well.

One of the reasons why I do not have a warm, fuzzy feeling in my tummy when I look at Part 1 and think about the $10 billion that will be pouring into health is that this bill will allow for the aggregation of appropriations. It will allow a Government department to put together a number of appropriations into a much larger appropriation, which will be much more difficult for Parliament to scrutinise. I would feel a lot better about that if, when I put parliamentary questions to the relevant Ministers, I got answers that were worth anything more than the garbage that often pours out the other side. Maybe I will pop up to my office and pull out a few of the juicier answers. Maybe I could spend 5 minutes in this debate tonight on reading out the answers to questions like this: can the Minister explain to the House why $3.4 million of unallocated expenditure in XYZ vote has taken place? The answer: “That’s for me to know and you to find out.”, or something like that, is not an extreme example of the kinds of answers that come across my desk. What is this legislation going to do? [Interruption] Actually, I got one the other day about $5.7 million for the Seasprite helicopter. [Interruption] No, it is true. The Minister of Finance answered it. The Minister of Education, who is also the Associate Minister of Finance and who answers a few of those questions, is not very hot, though.

What will the aggregation of appropriations allow?

💬 Hon Dr Michael Cullen: He’s the dark side of the force.

Well, there is definitely a dark side, yes. He is the yang part of the yin and yang, is he not? Does the Minister have any hints as to what that member’s new portfolio will be on Monday? Perhaps we should not go there. I thought of the customs portfolio.

💬 Hon Dr Michael Cullen: Better than anything the National Party would be offering.

It will certainly be better than anything we would offer him; I am prepared to accept that. As long as he does not become the junior whip; we are very fond of the existing one.

💬 Hon Dr Michael Cullen: Been there, done that.

Oh, he has been there and done that. Well, one comes and one goes.

💬 Hon Dr Michael Cullen: He hasn’t got the hair for it these days.

He does not have the hair. But it is little like public finance Acts: one comes and goes with that sort of stuff. The aggregation of appropriations will lead, in some portfolios, to real ambiguity about what is going on. We can see what will happen.The game will be played a little bit like this. The ministry will see how much it can hoodwink the relevant Minister in the chair, by putting together as many as it can of the most ambiguous and unrelated appropriations into one. So we will have the coffee service money being allocated and put together with the money for the new Seasprite helicopter parts for the one that crashed the other day. They will be put together in one appropriation.

I recall that a long time ago, as a stage 1 English student, I learnt about stream of consciousness novels. We have just had a kind of stream of consciousness speech. I am still trying to work out what Mr Key was trying to say in that speech. As I recall it, he actually said that the National Party really supports this bill, but is desperate to find some reason to oppose it. Apparently, the reason to oppose it—if I have it right—is that output appropriations may comprise more than one class of outputs. I ask the member whether that is correct. That is the provision in the bill?

💬 John Key: Yes, that’s right—that’s one of them.

That is right. That provision is designed to give a little more flexibility in what is occasionally a very rigid system within the Public Finance Act, in that respect.

This is an important part of the bill, because it is the part where the Clerk of the House raised some very important issues. Contrary to what Mrs Wong seems to think, the Clerk is happy with the bill as reported back. He believes that the amendments in the bill take care of the objections that he had to the bill. [Interruption] Well, I have no problem with the Clerk raising issues. I would be worried if the Finance and Expenditure Committee had not listened carefully to the Clerk and dealt with those issues, but it has. So I say to Mrs Wong that she should celebrate success. She should stop living in the miserable little world of defeat that she inhabits at the present time. She should come out—come out, if I may say so, and as I would say to a number of members of the National Party—and celebrate success, along with the Government, at the present time.

I also want to deal with very few other matters. What has happened in the bill is that the fiscal responsibility part, which was Part 1, has now become Part 2, so Part 1 is now the appropriations part. Part 1 is important in a very crucial constitutional sense. It is about the fact that the Government has to go to Parliament to seek approval for appropriations. That is the whole function of Parliament around the issue of confidence and supply, and the fact that the Government can survive if it can command a majority in those matters. But it is also about the issue of how we present those accounts and how they are seen to be properly presented. I think that the member was right, if I can allude to a previous statement, to say that outcomes can be very fuzzy. I do not think there is any way of solving that. There will always be attempts to try to define outcomes more closely, and there was always a tendency for the Government to drift back towards focusing on outputs rather than outcomes, because they are easier to measure and easier to show results with. Nevertheless, I think that the legislation is right, as the 1989 Public Finance Act was right, in terms of the focus on outcomes.

There have been some strange things going on in terms of some of the criticism of the bill from outside. The select committee has quite properly dealt with some of those criticisms, and some of them were just basically tipped straight out of the window—as they should have been; they were really rather peculiar. One of the most peculiar of those criticisms was the notion that Parliament, or the Government—it was never quite clear which—should set the accounting standards by which the Public Finance Act operated and under which the Government operated. Now, I have been in politics long enough to remember the time when the Government used to set its own accounting standards. I think it is fair to say that when it did so, the standards tended to be rather low and somewhat elastic, and it was very difficult to work out what was actually going on within the Government accounts. The Government can no longer engage in that kind of behaviour. It is very clear within the public accounts if the Government tries to engage in accounting fiddles.

The second part of that was the notion—which it is probably more appropriate to discuss later, although we can deal with it in this part—that somehow or other, under accruals accounting it is easier to sell assets. I have to say to the people who have that strange view that the public’s objection to selling assets has nothing to do with the accounting treatment thereof within the Public Finance Act. There is a quite simple political issue around Government ownership and public ownership of assets. That is the political test that the Government will always have to face on that issue. Accruals accounting gives a much more accurate measure of the fiscal consequences of the sale of assets, as long as those assets are properly valued, and that is one of the difficulties on occasion with the valuation of some State assets.

I think that this is a good bill. There will always be some arguments around the fringes of this bill. I make no apologies for bringing the Fiscal Responsibility Act within the bill. That was the original intention; it is what Treasury supported in 1993-94. I think that Treasury was right at the time, because everything within the Fiscal Responsibility Act is appropriate to put within the Public Finance Act. The final point I would make in response to the member is that it is not for him to preach to me about fiscal responsibility. It is the National Party that wants a looser fiscal policy, not Labour.

I do not intend to take too long on this part.

💬 Brian Connell: Take as long as you like.

About 5 minutes is not too long; I will have made my point. I just want to compliment the Minister of Finance. He is a real character sometimes. He has a wicked sense of humour and he is very entertaining to listen to sometimes.

💬 Simon Power: Is this his valedictory?

No, no—do not worry. The Minister was talking about the valuation of State-owned assets. I have a better idea: the Government should just not sell them. Then we will never get into problems with the valuation of those assets, and we will be able to steer clear of any ambiguity or problems that might occur.

I believe that Part 1 is a very important part of this bill, just as Part 2 is. Part 3 is also important, because it involves the academic situation. I think Part 1 is important, as John Key stressed, as it allows for the allocation of money and expenditure—the Government’s finances. It includes all of that. When we add up the billions of dollars that go through the Government coffers, we see that Part 1 is a very, very important part of this legislation. Apart from the Minister talking about how some members of the National Party need to be a bit more clear, and some of them might need to—

💬 Opposition Member: Careful, careful now!

That is what the Minister was saying, as far as scrutiny is concerned. Something I would like the Minister to clarify is whether, at the end of the day, the Government will be able to cover up a fiddle, and if it could, how that would happen and what would happen.

💬 Hon Dr Michael Cullen: Hell, no—you cannot even cover up Judy Bailey’s salary.

Well, that is a very good point. But that is something I would like the Minister to address.

It is really sad to hear that the Minister of Finance could not find anybody even on his own side of the House to go out and celebrate with him whatever he wants to celebrate. He is so desperate that I cannot resist taking a call to say to him that I am struggling to see how I can go out and celebrate Christmas, when he refuses to answer the call from my colleague John Key to put some turkey on the table.

💬 Hon Trevor Mallard: Turkey’s on the table!

I say to the Minister that if he does not want to put the turkey out, maybe some Peking duck might do the job! Well, that got the Labour members excited; they have not felt like that for a while.

I really would encourage the Minister to take a few more calls. It is very encouraging to see that he is taking calls at such an early stage, but he has still not answered my question that I posted in the second reading. Was the inclusion of the cock-ups in Part 1 that were picked up by the Clerk of the House a deliberate move by the executive, or was it incompetence in drafting? That is a very simple question, and I feel that the Minister of Finance owes it to the public to say what happened.The select committee process is not an invitation for submissioners to rewrite legislation; it is a chance for them to say whether they have any actual concerns. However, the submission of the Clerk of the House led to a major rewrite of Part 1.

I would like the Minister to take a call on a very thoughtful submission made by Dr Graham Scott, the former Secretary to the Treasury. He raised good points, and I am looking forward to the Minister answering them. Dr Scott said that the changes proposed in Part 1 were meant to lead to more accountability in the way that information might link output to outcome. But he reckoned that would not be achieved by the attempts in this bill to aggregate the outputs. Indeed, a better outcome can arise only if a department started to express its outcome statement in more practical and assessable terms. That is so true. Sometimes we pick up the copy of a Government department’s statement of intent and find a statement that it will improve the well-being of New Zealanders. I think that is a very admirable outcome, but to translate it into output certainly would be very difficult.

If a department wants to demonstrate that it could have a set of good outputs that lead to the outcomes specified by the Government, then it should have a management plan that truly reflects the Government’s intention. We are not too sure that what is expressed in Part 1 about aggregating outputs, etc., would lead to that. Dr Scott also pointed out that if we really wanted a major improvement in a Government department’s output statement and in the outcome-oriented approach, Ministers themselves have to show a lot more interest in their Government departments, and be prepared to take responsibility for expressing those goals and those high-level outcomes in terms whereby the Government departments can translate them into outcomes that are practical and measurable.

As well as questioning the rewriting of this legislation, we question whether there will be investment in research and in the training of those Government departments. One example I encountered just recently was during the financial review of the Takeovers Panel, when the Chairman, Mr John King, expressed dismay to the Commerce Committee that although the Government had promised it money for research into how the Takeovers Code could be made more effective, that funding had not been forthcoming.

I appreciate the opportunity to speak on what is now Part 1 of this bill. As Dr Cullen pointed out, it is Part 1 only because of the excellent work done at the Finance and Expenditure Committee, and particularly as a result of the submission made by David McGee, the Clerk of the House. In the Public Finance (State Sector Management) Bill as introduced, this very important part, the Public Finance Act, was dumped at the back; now it is at the front, where it rightly belongs. I can see the crocodile tears now from Dr Cullen. I know that it may be symbolic, but, as Mr McGee pointed out in his submission, it is absolutely crucial that we get these things round the right way.

It is also crucial, in our view, that we get the content right, and I look forward to support from other colleagues in the Chamber, particularly those from the Government, for the amendments I am putting up to Part 1, and I would like to draw members’ attention to our amendments that are on the Table.

The first amendment I would like to put up is simply to omit subclause (4) of clause 6, “Interpretation”. This bill does an extraordinary thing; it actually deletes from the Act the definitions of “contingent liability” and “cost”. I would have thought that, in this time of increasing contingent liabilities, the last thing we would want to do is to delete that definition from the Act, but that is exactly what the Government wants to do. I am surprised that other parties in this Committee have not already raised this concern. Yes, I know that contingent liability is defined under generally accepted accounting practice, but that is not an excuse for removing it from the existing legislation.

The twin of that amendment is that we are proposing to insert total contingent liabilities under new section 26J, in clause 8, because we believe that the Fiscal Strategy Report, which sets out the Government’s long-term objectives, should not only cover operating expenses and revenues and the balance between them, the total level of debt, and the total net worth; it should also state the Government’s long-term objectives for contingent liabilities in particular.

But, wait, there is more. If members look at our amendment to section 26P, “Economic forecasts”, in clause 8, they will see that we believe that the economic forecast requirements are far too narrow. What is there is, of course, all well and good, but we believe that the economic forecasts in section 26P(1) should also include forecasts of movements in New Zealand’s overseas trade in goods balance, our overseas trade in service balance, and our reserves of natural resources. I would have thought that, given the Māui gas debacle, that would have been an obvious addition to the economic forecasts—to actually know what the state of our stock of natural resources, particularly fossil fuels, is. But that is currently an omission from the economic forecasts, and I hope the Minister of Finance will see the merit of supporting this amendment, so that it can be added.

Of course, those economic forecasts should also include some measures of social well-being and environmental quality. The Government has a lot to say about triple bottom lines. Its members go off to Johannesburg, to Rio Plus Ten, and present a report, the Hon Marian Hobbs, the Minister for the Environment, puts out a statement about the Government’s intentions on triple bottom lines, and the Prime Minister, Helen Clark, waxes lyrical at conferences about triple bottom lines. But do members actually see it in the Economic and Fiscal Updates? No, we do not. I think it is time for the Government to put its money where its mouth is when it comes to presenting a whole-of-Government perspective on these issues. We would extend that to new section 27(2), in clause 10, so that in the annual financial statements the Government also reports on the environmental impacts of Government activities on water use, energy use, waste, emissions and discharge, and use of hazardous substances, and, in relation to the impact of Government activities on people and communities, such criteria as life expectancy—

We are debating Part 1 of this huge bill, and I want to deal with clause 6, “Interpretation”, which deals with the definitions of Crown entity and Crown entity group, and the meaning that is given to a Crown entity. The Government argues that the amendments on Supplementary Order Paper 315 in the name of the Hon Dr Michael Cullen exclude tertiary institutions and universities from that. In fact, all that it has done is to exclude them from some of the requirements to provide information. But the Government is not preserving the status quo. In fact, it is being very tricky with regard to its definition of the status quo. The Minister may say that he is preserving the status quo, because in practice the State Services Commission may offer policy advice on higher learning issues to tertiary institutions—the commission may offer that advice.Yes, that is the status quo, but the commission does not have a statutory, legislative requirement to do that. In fact, if we are to legislate for the commission to be brought into doing that, why do we have the Tertiary Education Commission and the Ministry of Education? Are those not the proper agencies for the Government to seek policy advice from? Why trick around with the definition of the status quo? The Minister knows that in reality that is what he is doing. He looks bewildered, but he knows exactly what I am talking about. He has seen the same correspondence that I refer to. He knows that the status quo in practice is not the same as it is in statutory terms.

The other day I ran into the Rt Hon Sir Geoffrey Palmer in the Koru lounge.

💬 Hon Trevor Mallard: Name-dropper!

I had never met Sir Geoffrey Palmer before, so yes, I am name-dropping. He is one of Labour’s people. It was on the same day that the New Zealand Herald had published an editorial that decried the undermining of academic freedom by this bill. I showed Sir Geoffrey Palmer the editorial, and he was astounded by it. He said that he had understood that when the amendments to the Education Act were passed he had safeguarded the universities from that very issue. He was appalled that the party he had led—his own people—now that it was in Government, would do that to the universities, when he had tried not to do that.

There are polytechs that have behaved appallingly when it comes to public money, and they should be brought under control. Nobody is arguing against that. Christchurch Polytechnic is a case in point. However, this Government is using one institution—and there are more, but I am naming one—as a Trojan Horse to rope all tertiary education institutions into the same corral and exert control over them. The universities have presented numerous submissions to the Government on this issue. In fact they were assured, in the words of the former State Services Commissioner, Michael Wintringham, that the universities had been brought into this legislation “more in the nature of a cock-up and not a conspiracy.” They were assured by Mr Wintringham that tertiary education institutions would be excluded from that provision, but all that the Government has done, as a sop to the Vice-Chancellors Committee, is to bring in a Supplementary Order Paper that excludes them from the reporting requirements set out in clauses 174 to 176.

That is not enough. The Minister needs to take a call to explain why this Government wants to include universities and public tertiary institutions under the definition of Crown entities. I refer to clause 48(1); the Minister has seen it. The universities are clearly listed in it.

I will take a brief call, because this is an issue that has had a certain amount of public discussion, of rather low quality I have to say. The ACT party once used to show some backbone—if I may put it that way—in dealing with special pleading that came from interest groups. Apparently now it is just another populist party that waves in the wind, and sticks its wetted finger in the air to see which way the wind is blowing. For the information of the member, I will explain that tertiary education institutions have been Crown entities since 1993. The Public Finance (State Sector Management) Bill does not make them Crown entities; they are right now. Nothing has changed in that respect. What they wanted was to cease to be Crown entities and to be totally not related to the Crown in terms of a financial interest by the Government in tertiary education. That is what they wanted. They are not going to get that, and nor should they get it. The Finance and Expenditure Committee rejected overwhelmingly that submission from the universities—and quite rightly so.

Those institutions are bodies that do not pay rates, on the basis that the Government has a financial interest in them. On reading the rubbish I have seen in the last couple of days I have been tempted to offer them complete independence, in return for them paying rates to their local authorities. I think they might change their minds at that point and come scurrying back under the skirts of nanny State rather rapidly, in terms of the financial implications that that would have for Auckland University and Victoria University in particular, given the value of their properties within the central areas of Auckland and Wellington.

We have put aside for the moment some important issues—for example, the issue of the argument around ownership. We have put aside the issue of consolidation, which is being addressed by the Financial Reporting Standards Board. The only change the bill makes is that the State Services Commissioner has the legislative mandate to be able to advise on the wider State sector, which includes all the different varieties of Crown entities—advice only, and nothing more than that, which he or she, of course, can do anyway, without a legislative mandate. It is not a requirement that the commissioner has to give advice. He or she may advise, and I think that that is perfectly appropriate. We appoint members to the councils of those bodies. Successive Governments have done so for many years. We still provide the largest part of the funding of many tertiary education institutions. The overall majority of the funding still comes from the Government. Indeed, the member herself used the term “public tertiary institutions”. It is hard to use that term and then to argue that those institutions should not in some sense be encompassed within a very narrow and quite specific definition of Crown entities, which is much less restrictive upon them than the general definition of Crown entities within this bill.

I have been appalled, as an ex-academic, at some of the comments that have been made by the universities in that context. They show a remarkable lack of understanding of what is within the bill. It is a play not for the status quo but for a major shift in terms of the status of universities within society at the present time, whereby the Government has no financial interest within the universities. That is interesting. When I was an academic, we took that interest for granted. My goodness me, we were subject to the State Sector Act. I was automatically dismissed as a university lecturer on being elected on election day in 1981, because I was a public servant under the definition of that Act. It did not affect in the slightest what I taught in my courses. I did not feel that academic freedom was constrained in any sense in terms of the opinions I expressed at the result of what was happening within the State Sector Act, as it was in those particular times in the predecessor of the current legislation. I have to say that the submissions made by the universities on the bill were pretty much without merit.

We have tried to take on board a number of technical issues and have dealt with those. The select committee was pretty overwhelmingly of the view that the bill in this respect should be pursued. I think the Opposition parties were, by and large, in agreement with that particular position, and that is a wise move. There are some difficult issues still to be worked through in terms of consolidation. There is an issue to work through in terms of the so-called ownership interest—what it is, and what it means. That matter is put aside; it is not affected by this bill.

Contrary to what the Minister said, that is a very revealing and partial viewpoint. It is certainly not one the universities came to the committee with or still have on this very day, despite the Minister’s amendments.

The position, as he knows and as has been stated, is that the Public Finance Act set out the new Crown entity. A large number of entities were constructed, although the term was not properly defined in that Act. Instead, they simply became Crown entities because the Act said they were, and there are many others such as polytechs, colleges of education, school boards of trustees, the Commerce Commission, the Securities Commission, housing bodies, district health boards and so on. In fact, the designation in the Public Finance Act, as stated at the select committee, had little practical effect.

That was so because most sections of that Act do not deal with universities. I am reliably told that in that Act the Minister covered only five sections relating to universities. They concerned such matters, as one would expect, as the preparation of annual statements and auditing. Those sorts of matters are properly, and were at that time, part of the Act, and universities never found those matters unreasonable or burdensome, at all.

Those sections did not impinge upon the universities’ autonomy. They related back to the discussions that took place under the Lange Labour Government and the work done by the then Professor Keith and others to put together a settlement, because the University of Auckland and the University of Canterbury took a case against the Labour Government of the day. The universities were of the opinion, quite rightly, that the Government had failed to consult them on the Learning for Life reforms.

That is the historical background to the statements made by the Minister just now. As a former university lecturer, he knows how important and precious—precious in the real sense—universities have valued autonomy and academic freedom. I speak personally, because I have had a long-term association with the University of Auckland. The work that university has done was recognised by Oxford University in its appointment of Dr John Hood to the university. The size of Auckland University and the quality of the work it has done are known throughout the country and internationally.

The real contention for Auckland University, and for other universities as well, is the question why this Act has changed the core nature, as they see it, of the relationship established under the Public Finance Act, particularly as the Education Act set out the intention very clearly that universities would have as much independence and freedom to make academic, operational, and management decisions as was consistent with the services they provided and the efficient use of national resources in the interests of the nation, and so on. The Act also declared in section 161 that it was the intention of Parliament that academic freedom and the autonomy of institutions were to be “preserved and enhanced”. Universities feel that greatly. Finally, section 161(4) states: “In the performance of their functions the Councils and chief executives of institutions, Ministers, and authorities and agencies of the Crown shall act in all respects so as to give effect to the intention of Parliament as expressed in this section.”

That is the background the university group presented to the select committee. Despite what the Minister said, it feels that the intention of those sections of the Education Act and the thrust of the work done by the Keith committee are deliberately being thwarted. I will talk more about that when we debate Part 3. So contrary to what the Minister said, those university representatives feel that this bill in its original form, and even with its recently proposed amendments, does not give effect to what they thought they had and what they had hitherto exercised at universities, council by council.

Dr the Hon LOCKWOOD SMITH (National—Rodney): In speaking to Part 1 of the Public Finance (State Sector Management) Bill, what I am curious to observe in this legislation we are debating tonight is an unprecedented backdown by a Minister in presenting legislation to this Parliament. As I count the pages in Part 1 that have been struck out by the Finance and Expenditure Committee, it seems to me that three-quarters of the original Part 1 introduced into this Parliament has been struck out and replaced; only a quarter of the Minister’s original intent remains. That is unprecedented. I do not recollect in my time in this Parliament any other occasion where a Minister has had three-quarters of what he or she had proposed to Parliament struck out by the select committee. What is more troubling is that I gather a lot of this was struck out on the strong submission of the Clerk of the House.

What this legislation is all about is the public scrutiny of what a Government is up to. Having been deputy finance Minister for a number of years, I understand to some extent what the Minister was trying to achieve. The issue is the compromise between the achievement of outcomes the Government is seeking to achieve and the outputs specified in estimates. I understand the problem—that at times there is difficulty in making sure how well the outputs specified, which this Parliament approves estimates to fund, can ensure the achievement of the wider outcomes the Government wants.

I think a number of issues need to be explored by this Committee in some detail tonight, because if we look at the parts of this Part 1 that are “struck out”, we can see that it is troubling that so much of what is struck out is not amended in the new provisions in Part 1 inserted by the select committee. A lot of this stuff is just struck out. For example, I am looking at all the provisions struck out under the bill’s original clause 8, where a number of those provisions related to some of the principles around, and the fundamentally important parts of, the Fiscal Responsibility Act. They have simply been struck out.

But incorporated in the new unanimous provisions of Part 1, and particularly in new clause 14, are the estimates. They have been reinstated. I think the Minister should explain to the House how the balance of what he was seeking to achieve remains within this bill, because a number of clauses around the Budget Policy Statement, the various fiscal updates, and the pre-election fiscal update are all in the “struck out” parts of Part 1, and there are a number of reinstatements of estimates requirements in the new unanimous clauses.

This is such important legislation, because it involves the transparency of the Government’s spending plans and the ability of this Parliament to scrutinise Government spending and the way that that spending relates to the outputs and outcomes of Government departments. Yet it is not clear from Part 1 what the final balance of all that is. Quite clearly, when the Minister introduced this legislation he intended that there should be more discretion for departments: that outputs would be aggregated and that departments would have greater flexibility—perhaps to pursue the Government’s wider outcomes. The problem with that is that this Parliament has less ability to scrutinise particular expenditure in detail, because the aggregation of outputs leaves departments more flexibility.

I can understand what the Minister was trying to achieve, but he should explain to this Parliament what the changes delivered by the select committee to this bill will mean in that balance. What kind of balance will we now see, given these new clauses here with the specific outputs those estimates provisions will reinstate in the legislation and the way they will tie in with what he was trying to achieve? I think this legislation is so important that Parliament should hear some serious comment from the Minister on how the select committee changed what he sought to do.

BRIAN CONNELL (National—Rakaia I start by thanking my senior whip for giving me the opportunity to come down here and debate this legislation this evening, keeping me away from the media party and so looking after my health. I very much appreciate that.

Today is something of a red-letter day, because I find myself agreeing with something Michael Cullen said about polytechnics. I think he is right on this issue. I believe there is an issue relating to polytechnics, as opposed to universities, in terms of responsibility and accountability and how polytechnics spend their money. It is a matter of public record and concern that they have been engaged in activities that are less than satisfactory. I do not blame them for that. I am simply saying that a loophole has been exploited, and on this issue I think the Minister is quite right in closing that loophole.

💬 Hon David Carter: It’s Government policy.

💬 BRIAN CONNELL: I accept there is that responsibility, but on this particular issue I think the Government is exercising good judgment in closing it down. I also think the House owes David McGee a debt of gratitude. The work he has done in bringing the legislation to a point where it is reasonably constructive and able to be debated rationally is something we should be grateful for.

The issues that concern the National Party, with some gravity, are the appropriations. More than one class of output has been combined. On the face of it, that seemed a reasonable idea. A lot of the issues that come before Ministers are minor. Therefore, giving Ministers the flexibility to make judgments within their portfolios and within their budgeted expenditure is reasonably sensible. But the problem arises as to the quality of the Minister. Once a Minister is given the flexibility, the range, and the scope to deal with appropriations, if he or she is not capable of dealing with that then we have an issue. I know there are some members of the Government who probably have no idea that the letters “bs” stand for “balance sheet”. I think their abilities to manage cash, read cash-flow statements, etc., are something that would concern most members of the business community if they realised just how big some of the budgets the Government has are. So anything that enables or allows that lack of accountability or control is something we simply cannot agree with.

We are talking here about accountability for taxpayers’ money, and we in the National Party take that extremely seriously. We have only to look at how some of the money in this country is being expended today to understand why we have concerns. We know that some members of the Government are very enthusiastic spenders. Today on television Dr Cullen waxed lyrical on how he intends to spend more, rather than reduce taxation or costs, and that gives rise to the types of concerns I am talking about.

For example, the National Party is concerned about the level of welfare expenditure in this country, which is running at something like $20.5 million a day. We are experiencing the best of times, yet the working-age population on welfare is bigger than the city of Christchurch. The Government, in its latest Budget, intends to extend that welfare trap to middle New Zealand, as well, which is why we do not support the legislation and why we need the ability to hold the Government accountable.

I will take a brief call on section 26N, “Statement on long-term fiscal position” inserted by clause 8. This clause obliges Treasury, no later than the second financial year after the Act comes into force—and, by my reckoning, that will be before 30 June 2006—to present to Parliament a statement relating to a period of at least 40 consecutive financial years. That would be, if you like, a long-term forecast of New Zealand’s financial position—or, more correctly, the financial position of the Government or the Crown—for the next 40 years. That will be a very welcome development, because one of the things that has bedevilled New Zealand in the last 30 years or so has been the concentration of successive Governments on short-term goals—something that is understandable in a highly-politicised environment—often to the exclusion of longer-term strategic thinking about the direction of the country.

Yet that longer-term thinking, if we think about it, is vitally important in a number of areas. I will mention just a few of them. The first one is superannuation. We actually need to know, here and now, what the liability of the Crown for superannuation is, going out 40 years. We would be well served if we had a well-researched actuarial assessment of what superannuation will cost the country over the next 40 years. I know that some work has already been done on that, and I have seen some of the projections, which, of course bring into account the demographics over that period of time, and other assumptions. Such an assessment would make the situation very, very clear for those people who still have doubts, for example, about the worth of the New Zealand Superannuation Fund, commonly known as the “Cullen fund”, and it would hold those parties to account in terms of throwaway lines about how we should just wrap the whole thing up and pay off some debt, or whatever. It is not so simple, and a 40-year projection would illustrate that for all concerned.

There are other things. Roading, for example, lasts for at least 40 years, if not longer. In fact, it is a bit like the carpenter’s hammer—as long as one keeps it maintained and upgraded from time to time, it will last forever. Transmission for the national electricity grid is a similar thing. Most of the transmission grid we have now has been in existence for 40 years. Hospitals are another case in point. Most of our hospitals have a very, very long life, and recently we have been going through a period of replacing many of them. Then we look at things that will be introduced in the future, I hope, like public-private partnerships. Certainly, if United Future has a bigger say in the next Government, that will be something we will be looking at much more seriously. Interruption] I would have thought the National Party might actually be in agreement with some of these policies, but maybe those comments just illustrate the point I am making about concentrating on short-term political expediency to the exclusion of longer-term considerations.

Public-private partnerships could be used for prisons, roading—as we already have in our legislation—hospitals, and so on, and could enable the infrastructure development in New Zealand to proceed much more quickly. I am a bit concerned at times that we seem to be focused on funding all those capital costs out of current revenues, when we could take a longer-term view, smooth it intergenerationally, and end up with better outcomes for our nation. So I think the new provisions in the bill will be positive for the country. They are a very good inclusion, and I will look forward to seeing, before June 2006, the first 40-year projection prepared by Treasury.

I missed the contribution from Dr Cullen, but from the ensuing debate I gather that Dr Cullen suggested to the Committee that the Public Finance (State Sector Management) Bill, which we are debating tonight, will actually ensure that we get better accountability for things like the debacle associated with Christchurch Polytechnic. Well, I have to say the Christchurch Polytechnic matter is about bad Government policy. It is the policy that gave something like $6.5 million to that well-known Labour Party lackey, Vicki Buck, and that needs sorting out. I would not have thought it took a bill of some two or three hundred pages to be passed under urgency—at the same time as the press gallery party is being held—to sort that out for the future. It always surprises me that a debate on legislation like this seems to be timed for when the press gallery has its annual party. [Interruption] The Minister suggests it is all about more scrutiny of taxpayers’ money but maybe, on this occasion, he actually does not want the press gallery to scrutinise the debate. He does not want the press gallery to scrutinise the legislation.

It is fine for Gordon Copeland to stand up and suggest that he has worked on the Finance and Expenditure Committee and has accepted the word of the honourable Minister.

💬 Martin Gallagher: How can you think the press gallery is so shallow that they would not be here for this really important debate?

I invite the member to raise his eyes skyward and look at the press gallery. It is absolutely empty! If the member cleans his glasses, I am sure he will see for himself that not one member of the press gallery is there, and that is probably the very reason the Minister decided to run a large piece of legislation through on the argument, which he gave the House, that it will improve transparency. I am sure that as we get further into the debate tonight we will come to the conclusion—certainly on this side of the Chamber—that this legislation is not about increasing transparency of expenditure.

This is all about Dr Cullen being worried about transparency. He has been caught out and is so embarrassed at this huge gift of taxpayer money that has gone in the pocket of Vicki Buck that he has brought this legislation into the Chamber during urgency. When the press gallery—

💬 Hon Brian Donnelly: Isn’t that National Party policy?

💬 Hon Dr Michael Cullen: Yes, it was, absolutely.

Excuse me, there is no need to suggest that this legislation that effectively wipes the Fiscal Responsibility Act is National Party policy. I assure Brian Donnelly that he has not done his homework if he thinks that this party will give way on the Fiscal Responsibility Act. It has worked well. We have had accountability, as we have seen with the Government being totally embarrassed by the recent Vicki Buck gifting affair at the Christchurch Polytechnic. We have seen the embarrassment it has caused the Government. Maybe Brian Donnelly should take a call if the Minister will not, and assure us that this legislation will provide more transparency. I do not accept that argument, at all.

💬 Hon Brian Donnelly: Criticise them for not fixing it up—that’s fair enough.

I do criticise them for not fixing it up. But I understand that Dr Cullen made a contribution earlier, suggesting that this legislation will mean those sorts of horrific wastages of public expenditure will be seen more easily. I do not accept that. Dr Cullen has rolled in this legislation so that we do not have the chance to really examine the estimates—he is making sure it will be more difficult with the passing of the legislation—and I have become concerned. What argument is Dr Cullen advancing that we need to be able to aggregate the outputs? I do not accept that from the Minister, and I am surprised that Brian Donnelly has come here and found that it does not need further examination. I suspect that we will have dumber Ministers being led by their departments. That is what will happen.

💬 Hon Dr Michael Cullen: We’re ahead in the polls, don’t worry.

Dr Cullen says that this legislation can pass, because Labour is ahead in the polls. I say to Dr Cullen that that has nothing to do with this, at all.

💬 Hon Dr Michael Cullen: It has not got a lot to do with dumber Ministers.

It certainly does have a lot to do with dumber Ministers; I see one just coming through the door. Certainly what the Opposition is worried about is that this legislation before the Committee today gives more control to the departments.

I rise to challenge the Minister, Michael Cullen, who seemed to imply earlier that I was arguing that universities were calling for no accountability, at all. He knows very well that that is not what they were calling for. He confuses State control with accountability for public money. There is no way that the universities are saying they should not be accountable for public money. Why does the Minister not take a call and say why he thinks it is necessary to breach the spirit of sections 160 and 161 of the Education Act, why he thinks it is necessary to do away with the convention that academic freedom is protected, and why he thinks this Government should be—as the academics have called it—such a control-freak Government, eroding universities’ independence and stifling their academic freedom?

The Minister should give one example of a university in New Zealand that his Government has had serious problems with, in terms of the spending of public money. He knows perfectly well, when he twists words and says that my argument is spurious because universities have always been Crown entities, that the Government is redefining the meaning of Crown entities in terms of Government control. That is what this legislation is about.

💬 Hon Dr Michael Cullen: No, no, it doesn’t.

The Minister should take a call instead of sitting there shaking his head and repeating the word “No”. The universities are not resisting public accountability. There is already existing legislation that requires them to be publicly accountable. The fact that some polytechnics have got away with not being accountable is the fault of this Government’s own tertiary education—

💬 Jill Pettis: Don’t be ridiculous.

That member can take a call too, instead of shrieking like a gooseberry. This Government’s Tertiary Education Commission does not do its job. It goes in and audits those institutions and gives them a clear bill of health, and it is not until the Opposition parties raise concerns about the spending of public money that it is revealed that they need to be brought under greater control. But not one of those issues has involved a university. The Minister should get up and, instead of arguing about the status quo and Crown entities, explain why he thinks it is necessary in New Zealand—in a Western, liberal democracy—to pass legislation that seriously undermines the autonomy and academic freedom of universities.

Can the Minister assure us, for instance, that he will not create a Minister responsible for tertiary institutions? Will we see a Minister responsible for tertiary institutions?

💬 Hon Dr Michael Cullen: We’ve got one already.

We already have one. And who is that?

💬 Hon Dr Michael Cullen: Steve Maharey.

I thought he was responsible for tertiary education, and not a Minister for universities. Is that what he already thinks he is? That is interesting. Will university council members be able to be dismissed for just cause? Can the Minister assure us that that will not happen, too? I challenge the Minister to take a call and answer that query.

What will happen to the private funding of universities when they come under the scrutiny of the Government if it feels that they are not promoting Government policy? Those are all fears the vice-chancellors have, expressed in the negotiations they have tried to have with the Government—negotiations that have severely broken down. How will borrowing from universities be affected by this legislation? What effect will it have? Will the Minister for tertiary institutions have the right to conduct inquiries into the academic affairs of universities? Will research and papers produced by universities come under the proposed Public Records Bill?

💬 Hon Dr Michael Cullen: What?

That is what the Vice-Chancellors Committee has asserted. Perhaps the Minister can stand up and explain why that will not happen.

💬 Hon Dr Michael Cullen: They’re talking codswallop. They’re away with the fairies.

Of course it is a nonsense, but will they? I challenge the Minister.

I think we can all breathe a sigh of relief that the previous speaker has sat down before she embarrasses herself any further. I wish that Deborah Coddington had taken some advice from whoever the ACT member was on the Finance and Expenditure Committee when it considered the bill. I know that the ACT membership changed midstream because of the party’s change of leadership. The other thing Deborah Coddington should do is read the Government’s Supplementary Order Paper, which removes a number of the requirements on tertiary institutions from this bill, including the Minister’s power to request information relating to clause 175, “Good reasons for refusing to supply requested information”, and omits and substitutes provisions in clause 199 relating to bank accounts. However, I do not want to use up my 5 minutes on that. Everything I have heard Deborah Coddington say tonight relates to Parts 3 to 7. At the moment we are dealing with Part 1, so it was entirely inappropriate for the previous speaker to talk about schedule 6B.

I return to Part 1 to discuss further the amendments I have put on the table. The first one, which I talked about before, relates to triple bottom line reporting—the Government’s commitment to triple bottom line reporting and the fact that it has not put its money where its mouth is. The Government says a lot about triple bottom lines but is not prepared to incorporate them in this legislation. It ought to, in section 27(2), inserted by clause 10, and in section 45B, inserted by clause 17. After all, what will be crucial to the future of New Zealand is not just its financial well-being but its environmental and social well-being. So I invite the Government and other parties to support our amendments on that.

I also invite the Government and other parties in this Parliament to support our amendments to section 27(2)(b), inserted by clause 10. I am looking forward to Mr Keys’ comments on that—as a man with considerable experience in this area; in fact, as someone the select committee relied on a lot for technical advice about derivative transactions, securities, investments, and guarantees—and whether he thinks we need to insert a subparagraph that adds to the Government’s annual financial statements a statement of all securities, derivative transactions, investments, and guarantees. We think it appropriate for that to be specified, in addition to the requirements under generally accepted accounting practices. It is very much a belt and braces approach in relation to derivatives.

We do have some concerns there, which is why we also propose that in section 30(2), inserted by clause 14, in addition to the requirements that the Auditor-General must audit the annual financial statements of the Government, the Auditor-General should also conduct an annual performance audit of the management of Crown debt. When I discussed this issue with officials, they said that that was a rather unusual and exceptional thing to require the Auditor-General to do. But the extent to which the Government is engaging in derivative transactions, usually for the right reasons, does require such a performance audit. I am concerned that the internal scrutiny of the Debt Management Office could be changed through a change in management practices, but there is also the need for some external scrutiny.

The next amendment we will be putting up is to section 39(1), inserted by clause 17, which is simply to remove the words “(other than an intelligence and security department)”. We believe it is appropriate for Parliament to know what the intelligence and security services are doing in relation to future operational intentions. That is, after all, something that every other Government agency does, and we do not see why those services need to be an exception. There needs to be much more accountability to Parliament about the work of the security services.

That, effectively, encompasses the additions we want to see to Part 1. We believe that the part would be more robust if the Government took a triple bottom line approach to all of its forecasting, reporting, and accounts, and if the Government extended its economic reporting to include trade in goods and services, reserves of natural resources, and social well-being and environmental quality.

I want to respond to the amendments proposed by the Green Party in relation to derivatives and to make some comments around those, because the Finance and Expenditure Committee received quite a number of submissions on them, led mainly by Sue Newberry and Alan Robb, I think, of the University of Canterbury. I did not agree with their submissions, at all. They were based on the fact that they believe that under section 55 of the Public Finance Act—which makes the New Zealand public unlimited guarantors of all public debt—derivative transactions entered into by the Crown would, effectively, be guaranteed by the taxpayer of New Zealand. In one sense that is correct. But—and I think this is the “but” people have to consider before they get too extreme—we need to look at what might be happening in the State sector in relation to derivatives, and at who is actually using them. My understanding, and the understanding of the select committee, is that derivatives are being employed by the Debt Management Office. The derivatives are fundamentally interest rate derivatives. Basically, the office is looking to swap its exposure from fixed to floating and from floating to fixed. There is some limited use of credit derivatives, although I am not sure it has progressed to the latter.

Essentially, for all intents and purposes, the first thing the Committee needs to consider is the liability around when the Crown actually purchases derivatives, and when it sells them. When it purchases derivatives, it is like purchasing insurance. It has a liability totally quantified by the premium under which it pays, and therefore the Committee should not feel at all concerned about that. Where the Crown writes derivatives, that can pose a liability. We have seen examples of where fraudulent activity takes place, and Nick Leeson is a great example of that in Barings Bank. But I think there are quite a number of safeguards.

We questioned the select committee about the process under which the review of derivative transactions was taken within the Debt Management Office, and the segregation and separation of who was able to undertake those transactions. I think it was quite clear to the committee that there was a rigorous process in place in respect of derivative transactions, where they were transparent, where they were mark-to-market, where they were consistent with the size of the portfolio, where they were very vanilla derivative transactions, and where they were not of the nature to which Sue Newberry and, I think, her fellow submitters wanted to claim that the Crown was exposed.

It is also worth recognising—because one or two others internationally have also made statements around that sort of Armageddon scenario in derivatives—that derivatives can reduce risk and exposure for the Crown quite significantly. It all comes down to the people who are undertaking them, and to the rights and responsibilities they have in the process for managing that risk. At this stage, unless some select committee has been misled—and I have no reason to believe that one has—then I do not think there is a risk to the Crown, and it should be able to continue to use those. Where other Government departments or parts of the State sector wish to undertake derivative transactions, then, first, there would have to be some very solid reasons for doing that. It would be unlikely that most Government departments would, although some actually can manage their own foreign exchange exposure and, on that basis, they could have currency derivatives. Again, as long as those are handled in the right way, with the right process and the right procedures, then I do not think that is something for alarm and concern.

The amendment put forward by the Greens to section 27(2)(b) really just says that a statement of all securities, derivative transactions, investments, and guarantees should be listed. In one sense, that is a fairly benign statement. I would not argue that the world would cave in because we had that in the legislation, but my understanding is that that would be exactly the risk a committee would be looking at and reviewing. As long as the risk committees of those various departments of Government are doing their jobs properly and are in fact looking at those, I cannot see why we need to insert that physically into the legislation.

So I do not agree with the position taken by the Greens. I certainly do not agree with the position taken by Sue Newberry, and I do not think we should have any degree of alarm. My involvement with the Debt Management Office, in a professional sense, goes back for the last 20 years, and in my opinion it acts extremely professionally in the marketplace and does a very good job of managing New Zealand’s debt. We should in fact be quite proud of what it does.

I move, That the question be now put.

I am grateful for the opportunity to speak on this riveting legislation. I am sure that for many in the Committee who bothered to scrutinise the legislation—other than, perhaps, Dr the Hon Lockwood Smith—this will be the first time they have actually seen the appropriation process down on paper.

The bit I want to see if I can get some answers about is section 26A, inserted by clause 8, about the transfer of resources between output expense appropriations. I think it is pretty obvious to anyone who has worked in the system that that is probably not a bad idea, because Ministers can find themselves having to grapple with a rigid process to make comparatively small adjustments that would be much more easily dealt with outside the appropriation process, without upsetting accountability. The problem, of course, with that multi-output class appropriation is just how far it can be pushed.

I will use an analogy that is nothing to do with the Government’s finances but is to do with the parliamentary process. We have seen the way that flexibility in drafting legislation is being used to create bills with very few parts, so that we do not have long Committee stages. Parliament goes along with that flexibility, except it can be abused—and often is, particularly under the watchful and penetrating eye of the current Leader of the House. It is not hard to imagine at all that this provision could also be manipulated and pushed beyond the boundaries this Parliament has imagined.

Tonight we are taking a pretty benign view of the provision, because I suppose we all believe it will be used in good faith. But when I look at the restrictions on this capacity, they do not seem to me to be very robust. Could the Minister tell us, for the benefit of our information, whether there are restrictions to do with accounting standards, the Standing Orders, or any other process of Parliament that would hedge the way a Minister of Finance is able to use these capacities.

There are quite vague definitions like “similar output classes”. How similar is similar? I can look through the education estimates and see at the moment a long list covering everything from school transport to curriculum support, covering hundreds of millions of dollars in about 50 different categories. Could I, as the next Minister of Education, collapse that into one appropriation? I do not know the answer to that question. It is not evident to me from the bill, which is why I am asking the question.

💬 Hon Dr Michael Cullen: It would have to go to a regulations review, and it would have to be confirmed in an appropriation bill, because it’s a regulation.

Yes, it is a regulation.

💬 Hon Dr Michael Cullen: So you’ve got a double check.

So the answer is yes, subject to any pressure from the Regulations Review Committee.

💬 Hon Dr Michael Cullen: It would be most unlikely.

Well, there could be a purpose in it, because any Minister would love more flexibility than he or she has. Ministers would love to be able to move money around without being subject to too much scrutiny.

💬 Hon Dr Michael Cullen: The 5 percent levy would make that very difficult.

That is probably the most meaningful. The provision refers to the amount transferred not increasing the appropriation by more than 5 percent. I do not quite understand that, because if there are a number of outputs within an appropriation, I could shift them around without making any difference to the total appropriation.

💬 John Key: That was the limit, wasn’t it? Five percent was the previous limit.

But it is a limit on increase.

💬 John Key: I think you could only move up to 5 percent before.

But now I have the capacity to bunch output classes under one appropriation. [Interruption] The question is not so much about the increase in the appropriation—I am not worried about that—but about how far I can go at the start to bunch them up.

💬 Hon Dr Michael Cullen: The one you’re adding to can’t increase by more than 5 percent, so that is actually quite tight.

So when a new Budget cycle starts, I cannot bunch them in a way that adds more than 5 percent to an existing appropriation. If that is the right answer, then I will feel a great deal less concerned about the flexibility.

I move, That the question be now put.