Part 1: Background

Inquiry into certain events concerning the New Zealand Tourism Board.

Origins of the New Zealand Tourism Board

The history of the Board began in 1991, when the incoming National Government implemented its election promise to set up a new state and private sector organisation to promote New Zealand tourism overseas. The New Zealand Tourism Board Bill was introduced to the House of Representatives on 9 May 1991 and considered by the Commerce and Marketing Committee. The Bill was duly enacted and came into force on 1 November 1991.

Observations on the Legislative Process

The Hansard debates on the Bill show a consensus about the benefits which private sector involvement could bring to tourism marketing. As the then Minister of Tourism, the Hon John Banks, said during the second reading debate:

The Bill combines the opportunity for enterprise and entrepreneurship with a degree of accountability to the Government that will ensure that tourism benefits New Zealand as a whole.

The question of "who would be responsible to whom" attracted a lot of attention at the Committee’s hearings on the Bill. Some industry submissions urged wider powers and a greater degree of independence for the Board than the Bill (as introduced) allowed. One submission apparently expressed the view that elements of the Bill were weighted too heavily against the Board and created the danger of Government capture. The Select Committee acknowledged the "delicate balance" in this issue but considered it extremely important that … the corporate process is kept under government control. (2)

Three significant amendments were made to the Bill as a result of the Committee’s deliberations:

  • a change to the process for appointing Board members to require the Minister to consult with the tourism industry;
  • insertion of a requirement for the Board to estimate (as part of its section 8 annual statement to the Minister) how its activities would contribute to the outcome of increasing visitor numbers and the amounts of money spent by visitors in New Zealand; and
  • an increase in the detail of what the Board’s annual report to Parliament should contain – including a report on the Board’s performance in respect of the desired outcome mentioned above.

These amendments were said to strengthen the accountability of the Board to the Minister and Parliament, while also enabling it to operate in the best interests of the tourism industry. The Bill’s provisions enabling the Minister to direct the Board in respect of its annual statement, and on matters of Government policy, passed into law without amendment or substantial comment in the House.

The Key Players

The New Zealand Tourism Board

The New Zealand Tourism Board Act 1991 (the Tourism Board Act) abolished the New Zealand Tourism Department and partly replaced it with the Board. The Department had for many decades publicised New Zealand both at home and abroad.

The Board is a body corporate and a Crown entity. Its object is to ensure that New Zealand is so marketed as a visitor destination as to maximise long-term benefits to New Zealand. To that end the Board receives and spends public funds, which are appropriated annually by Parliament through the Vote Minister.

The Board has between five and nine members. The Minister appoints them following consultation with the tourism industry. Members may be appointed for one or more terms, each of up to three years. The Minister designates one member as the Chairperson and another as the Deputy Chairperson.

The Minister can remove a member from office for disability affecting performance of duty, bankruptcy, neglect of duty, or misconduct, proved to the Minister’s satisfaction. The fact of a removal, and the Minister’s reasons, must be published in the Gazette.

Members are remunerated for their services by way of fees, salary, or allowances. Their remuneration is fixed under the Fees and Travelling Allowances Act 1951, a subject that we discuss in more detail in Part 4 (at paragraphs 401-407).

The Minister of Tourism

The Minister is responsible for making available to the Board the public money appropriated by Parliament for tourism marketing purposes. The Board is accountable to the Minister for its performance in spending that money, and the Minister is in turn responsible to Parliament.

The Office of Tourism and Sport

The Tourism Board Act effectively split the functions of the former New Zealand Tourism Department into two. Its marketing functions were allocated to the Board. Its advisory functions were assigned to a policy unit established within the Ministry of Commerce. The policy unit is not mentioned in the Act, but Parliament was clearly aware that it would exist.

In February 1998, the Cabinet decided to transfer the policy unit to the Department of Internal Affairs (DIA) and to combine it with a similar unit already established within the DIA to provide policy advice to the Minister of Sport, Fitness and Leisure. A primary motivation for the change was the wish of the Minister – who held both portfolios – to have an integrated source of advice on tourism and sport. The combined unit was established with the title of Office of Tourism and Sport (OTSp).

The OTSp began operations in July 1998. It has two main functions:

  • To provide advice to the Minister in relation to tourism and sports policy. This function includes providing advice to the Minister about the purchase of outputs from the Board, the Hillary Commission, and other related Crown entities for which the Minister is responsible; and monitoring their performance.
  • To act as the Minister’s agent in negotiating the annual purchase agreements with those bodies.

The OTSp performs a number of other functions and roles. Its organisational statements are reproduced in Appendix 2 on pages 95-101.

The OTSp was established as a semi-autonomous body within the DIA(3). The Director of the OTSp is employed by the Secretary for Internal Affairs and is responsible to the Secretary for budgetary matters. However, in all other respects the OTSp operates as if it is a government department in its own right. The Director has an advisory relationship with the Minister, and there is an annual purchase agreement between them for the provision of services by the OTSp to the Minister.

Few such arrangements exist within the New Zealand public service. Other examples of semi-autonomous bodies are the Ministry of Civil Defence (also under DIA umbrella) and the Office of Treaty Settlements (part of the Ministry of Justice).

A chart showing the key roles of the key players, including the OTSp, as they was originally envisaged by the Secretary for Internal Affairs, is reproduced in Appendix 3 on page 104.

The Tourism and Sport Ministerial Advisory Board

Also established in 1998 – by the Minister – was a body known as the Tourism and Sport Ministerial Advisory Board (TSMAB). We are not aware of any Cabinet decision to establish this body, nor of any Cabinet endorsement of its role.

The TSMAB was the Minister’s own idea. It is modelled on the advisory committees that exist for each of the business units within the Department of Social Welfare. However, the chief executive of the Department appoints the members of those committees. By contrast, the Minister appoints the members of the TSMAB.

The Minister described to us the main role of the TSMAB as being to provide strategic focus and support for the OTSp’s Director. The Director confirmed the role and told us that he meets regularly with the TSMAB. It is a source of advice to him, not only on policy matters but also on matters concerning the performance of the Crown entities for which the OTSp has delegated governance responsibilities. Indeed, the Director (in his interview with us) referred to the TSMAB as his board and the Chairperson of the TSMAB as his mentor.

We are unaware of any similar arrangement in the public service involving a committee appointed by a Minister working in a close relationship with a department. The organisational chart provided to us by the Secretary for Internal Affairs (Appendix 3, pages 104) envisages the role of the TSMAB as being to advise the Minister. This is not really consistent with the terms of reference of the TSMAB, which were subsequently developed by the OTSp and approved by the Minister (see Appendix 2, page 101).

The Minister confirmed to us that the TSMAB does not in fact advise him directly, and that he does not meet regularly with members in any formal setting.

The Governance Framework

In our 1996 report we defined the term "governance" as the processes by which organisations are directed, controlled and held to account. In the following paragraphs we summarise the governance arrangements for the Board.

The New Zealand Tourism Board Act 1991

The original governance framework for the Board was relatively simple. The statutory duties of the Board in respect of its accountability were set out in the Tourism Board Act. They were:

  • under section 8, a duty to give the Minister an annual statement of its projected outputs, liabilities and outcomes (which we refer to from here on as "the section 8 annual statement"), and to amend it if the Minister so directed;
  • under section 9, to have regard to the Government’s general policy in relation to tourism, and to comply with all written policy directions given by the Minister; and
  • under section 10, to give the Minister an annual report containing its audited financial statements, a report in relation to the section 8 annual statement, and certain other matters.

Figure 1 opposite sets out these arrangements in diagrammatic form.

Sections 8 and 9 of the Tourism Board Act are of central importance to this report, and we reproduce them in full in Appendix 4 on pages 105-106. We discuss them further in Part 8 and they are also referred to in Appendix 10 on pages 135-149.

The Public Finance Amendment Act 1992

In 1992 Parliament re-wrote Part V of the Public Finance Act 1989, expanding considerably the array of reporting mechanisms for the statutory and other bodies now called Crown entities(4). Bodies such as the Board were reclassified into groups of Crown entities, with a range of new reporting requirements depending on how each entity was classified.

Figure 1
The Board’s Statutory Duties of Accountability Before 1992

Figure 1.

The Board was included in the Fourth, Fifth and Sixth Schedules to the Public Finance Act 1989 (5), which require it to produce:

  • annual financial statements with prescribed contents;
  • an annual statement of intent (6), covering the ensuing financial year and the following two financial years; and
  • as part of its annual financial statements presented for audit and tabled in the House, a statement of service performance reporting the classes of outputs produced during the financial year as compared to those established at the start of the year.

These requirements are in addition to sections 8 and 10 of the Tourism Board Act. Aspects of the relationship between these various accountability documents are considered in Part 8 (paragraphs 856-865) and Appendix 10 on pages 135-149.

The Board claims that since 1994-95 the annual statement of intent has incorporated the section 8 annual statement.

The Annual Purchase Agreement

Also in 1992, Cabinet directed that each output supplier (including Crown entities) have a purchase agreement with the Crown for outputs which are paid for by the Crown. This development was later reflected in the Public Finance Amendment Act 1994, which characterised the provision of funding by a Minister to a Crown entity as a "purchase" of outputs from the entity. (7)

In 1996 and 1997, the Crown Law Office produced a series of legal opinions which said that before any funds appropriated by Parliament for the purchase of Crown entity outputs can lawfully be released to the entity a formal purchase contract must exist between the Minister and the Crown entity. (8)

Figure 2 on the next page sets out the arrangements as they existed after the 1992 amendment.

The Board and the Minister have negotiated an annual purchase agreement since 1995-96.

Figure 2
The Board’s Current Statutory Duties of Accountability

Figure 2.

2: (1991) 517 NZPD 3196, 3231.

3: The 1998-99 estimates for Vote Tourism include the statement that An Office of Tourism and Sport will be established alongside [our emphasis] the Department of Internal Affairs... Refer Estimates of Appropriations, parliamentary paper B.5, 1998, Vol III, page 429.

4: The original Part V actually came into force on 1 July 1992, but its application was effectively overtaken by the 1992 revision.

5: The Board is also mentioned in the Seventh Schedule, which requires it to pay any part of its profit to the Crown if so directed: section 16.

6: A statement of intent is a strategic document, submitted annually in draft to the responsible Minister and, in due course, presented to the House of Representatives.

7: In other words, when Parliament appropriates money to a Minister to be spend by a third party (including a Crown entity), the nature of the relationship between the Minister and the third party is one of purchaser of outputs (i.e. the Minister, who in this capacity is incurring expenses on behalf of the Crown) and vendor (i.e. the Crown entity or other third party, which spends the appropriated money on outputs which it sells to the Minister). See Public Finance Act 1989, sections 4(2) and (3A) and 9(2A)(d), inserted by the Public Finance Amendment Act 1994. See also the report of the Working Party on Output Definition (June 1992).

8: See Treasury circular 1997/5 (30 April 1997), which required written purchase agreements for all Crown entities for the 1997/98 year, and stated that “the Treasury will be obliged to withhold payments under non-departmental output class appropriations until it is assured that a purchase agreement is in place.” This has prompted a further amendment to the Public Finance Act 1989, which defines the term “purchased” to include, “in relation to a class of outputs to be purchased by the Crown, purchased under an agreement that is not legally enforceable.” This provision is currently being enacted.

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