Finance Minister Grant Robertson ordered a review of the Public Finance Act earlier this year. Photo / Mark Mitchell
Ministers are thinking about overhauling the Public Finance Act, one of New Zealand’s most important pieces of legislation.
This dry-titled piece of legislation sets the rules for how the Crown spends its money - about $160 billion a year or 40 per cent of GDP.
Documents released to the Herald under the Official Information Act show Finance Minister Grant Robertson greenlit a review of the PFA this year, looking at ways to make sure the public sector better matched spending decisions to actual outcomes, improved transparency of where money was going, and took account of te ao Māori viewpoints.
Robertson told the Herald that since he became the minister he had been “working on ways to modernise the public finance system and make it more responsive to the complex challenges that we face”.
But National’s finance spokeswoman Nicola Willis said it “shouldn’t require mandatory requirements in the Public Finance Act for a government to demonstrate how it’s been contributing to outcomes”.
While she thought the current government should have done more to link spending with outcomes she was “sympathetic to the ongoing and escalating concerns from the Auditor-General about the inadequacy of the reporting on large amounts of Government spending”.
“Certainly this is an area where we think there’s a case for reform,” she said.
The PFA, as it is known, sits at the heart of some of the most important decisions that are made in Wellington.
It sets the rules for how the Government spends money, tries to enforce accountability on ministers for their spending, and makes sure the Government has an eye to keeping debt low and ensuring what it spends generally does not exceed its revenue.
It has done these jobs extraordinarily well. It cleaned up the fiscal mess of the 1980s and ushered New Zealand’s broken public finances into an age of fiscal responsibility. New Zealand now has some of the lowest public debt in the developed world.
Officials in the briefing released to the Herald put it like this: “The public finance system’s overall story is one of comparative success. The reforms of the 1980s and early 1990s corrected an unsustainable fiscal position, and resilient public finances have since been maintained. We rank highly among advanced economies in indexes of trust in public services, perceptions of corruption and ease of doing business.”
But things are not perfect. The Auditor-General and the Parliamentary Commissioner for the Environment warned in a series of letters and reports that the PFA isn’t doing what it should be to link spending decisions with actual outcomes.
Last November, Auditor-General John Ryan wrote to Speaker Adrian Rurawhe in his capacity as chairman of the Officers of Parliament Committee recommending legislative changes to the PFA to improve accountability.
Ryan said he shared the concerns of some MPs about the “lack of transparency and accountability over the spending of public money on new initiatives”.
He said the reporting on new spending initiatives was not “currently adequate in providing Parliament and the public with the information needed to hold the Government to account for the spending of public money” - although the Government had voluntarily been boosting the detail of its reporting.
“In my view, enhanced reporting is needed more generally about government spending and what is being achieved with that spending. Parliament and the public need better visibility of the outcomes that the Government is seeking to achieve and the progress it is making,” Ryan wrote.
He complained it was often not possible to track “how and where government spending is directed”: he highlighted in particular spending from the Provincial Growth Fund and the Covid-19 fund, which had been difficult to track.
Ryan was backed by a separate report by the Parliamentary Commissioner for the Environment, Simon Upton, who also warned that it was difficult to track outcomes achieved by government spending.
The report noted that while budgets set out how much money will be spent, what it can be spent on, what it is meant to achieve, and how the spending will be assessed, this is often too general and does not always force agencies spending that money to really deliver for the environment.
The report said very clear “outcomes” were needed and very clear linking of spending to achieve those outcomes and regular monitoring of how that spending was going.
Treasury officials in the paper released to the Herald warned change could be difficult.
Officials noted there is a tension in the way public accounting works.
Budgets, by necessity, are quite broad. They authorise the public service to spend a certain amount of money to do a certain task but do not go into hyper-specific details such as how many staff should be hired and what they should be paid.
But that vagueness can come at the cost of accountability. Generally, the more specific spending is, the more accountable the Government is for making sure it delivers what it promised.
The current Government has introduced changes that allow a greater level of collaboration between agencies to deliver outcomes through “clusters”. Previously, even if it made sense for some agencies to work together, spending rules often prohibited them from doing so.
The current review, happening inside Treasury, will look at some of these changes.
“A significant issue to my mind remains creating a system that encourages collaboration and a focus on collectively resolving the big challenges of our age,” Robertson said.
“There are also more technical matters, such as how we best reflect the wellbeing approach, including how to measure the value of investment, that we are working through,” he said.
“The quality of information and reporting remains another issue that we are looking to make further progress on, and where both the Auditor General and the Parliamentary Commissioner for the Environment have made contributions, which we are considering,” he said.
Willis said that while she was open to reform, she thought better accountability could be achieved by reviving the “better public service targets” of the previous National Government “setting out the specific measurable targets for the delivery of public services, reporting against those and holding ministers and agencies accountable for delivery”.
National has also promised to require Treasury to report on the performance of major spending initiatives alongside every budget.
Willis said she shared concerns that adding too many requirements to the PFA could mean it was less effective at doing the things it was actually required to do: promote high standards of accountability and keep the Government’s finances in good shape.
“I think it’s important that we keep its focus on those basic fiscal standards and don’t ask it to be a thousand things to a thousand people,” Willis said.
One example was a proposal to lincorporate Te ao Māori viewpoints into the Public Finance Act, which Willis said would not be her priority.
“I’ve never had a taxpayer nor an economist for that matter raise that as an issue of concern with me,” Willis said.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
The Treaty Principles Bill was introduced at Parliament today.