Measuring spending: New Zealand model
New Zealand uses a unique accounting system to record and control public spending. This accrual financial management system, while widely used in the private sector, has not been adopted by other countries for use in the government sector. As a consequence, New Zealand records and reports its defence spending in a manner that is not directly comparable with other countries. The New Zealand method does provide perhaps the most accurate record of true public sector spending on defence of any country.
One feature of the accrual accounting regime is capital charge. Capital charge is a levy set at a rate by The Treasury on the value of all assets held by a department, currently at 11%. Capital charge recognises that a department's investment in capital does carry a cost that needs to be serviced through debt repayment charges. It also provides an incentive for departments to reduce their investment in capital investments such as equipment, land and buildings. Capital charge is recorded as expenditure and is not available to the department to spend, for instance, on new equipment, such as armoured vehicles, or to fund operating expenses, such as peacekeeping. Another unique feature of New Zealand's accrual accounting regime is the funding of capital acquisition from depreciation.
New Zealand's defence expenditure using this method is shown in Fig. 1.
Measuring spending: NATO model
New Zealand's unique approach to recording and reporting government spending makes the comparison of defence spending between different countries difficult.
The most widely used approach for measuring and comparing defence spending for different countries is the NATO model. The NATO model is used by the International Institute for Strategic Studies in London in its respected Military Balance. The Military Balance records defence spending for all states and is generally regarded as the international benchmark. Its approach was recently adopted by New Zealand's Parliamentary Select Committee of Foreign Affairs, Defence and Trade in its Interim Report into Defence Beyond 2000.
