Attachment 5: Background on the New Zealand Public Sector

Report on the Efficiency and Effectiveness of the Office of the Auditor-General of New Zealand by an International Peer Review Team.

The Public Management Environment

The arrangements that characterise New Zealand’s public management system were set in motion by the major reforms of the late 1980s and 1990s. The State Sector Act of 1988 and the Public Finance Act 1989 initially provided the two principal statutory vehicles for the reforms. Under the State Sector Act:

  • the respective roles of Ministers and chief executives were clarified, with Ministers becoming responsible for what activities departments undertook and chief executives responsible for how these activities were delivered, establishing clear vertical accountability arrangements
  • the employment arrangements for public servants changed, with chief executives of individual departments becoming responsible for employing staff, including setting pay and conditions.

The Public Finance Act 1989 made chief executives responsible for the financial management of their departments and replaced detailed central controls with financial delegations tailored to departmental circumstances. It redefined the appropriation process from control of inputs to purchase of outputs; specified a new set of financial instruments for accounting to Parliament, including aggregated Crown financial statements prepared on an accruals basis; required reporting on the net worth (assets less liabilities) alongside conventional cash flow reporting; and introduced incentives for responsible management of assets and liabilities, notably a capital charge to reflect the opportunity cost of asset holdings.

Other major features of the reforms included the withdrawal of the State from a range of quasi-commercial activities, either by privatising them or contracting them out, and the reorganisation of government departments. These changes altered the configuration of the State sector from a small number of large, multi-functional departments to a larger number of smaller, more specialised departments. The following themes guided the reformers:

  • separation of purchase and ownership responsibilities
  • separation of policy and operational functions
  • separation of funders, purchasers and providers
  • encouragement of competition between service providers.

These major structural and systemic changes were followed by a period of consolidation during the 1990s. In 1994 the Fiscal Responsibility Act built on the public finance framework, establishing a set of medium and long-term fiscal reporting requirements to provide a context for short-term fiscal management and to encourage greater transparency around fiscal policy.

A major change in New Zealand’s operating environment which occurred during the 1990s was the introduction to New Zealand’s electoral system of the mixed member proportional representation system (MMP) in 1996 to replace the first past the post system. This has meant substantial changes to the ways in which government agencies work in supporting Ministers, to respond across party lines in developing policy and service delivery options.

The 1990s saw particular attention paid to the conduct and integrity of State servants, with the SSC publishing the first Public Service Code of Conduct in 1990. The guidance material called Principles, Conventions and Practices was developed in the mid 1990s and this contributed to an updated code of conduct in 2000. This momentum continued into the 2000s with the establishment of the State Sector Standards Board in 2000 which developed the Statement of government Expectations of the State Sector which was endorsed by Ministers and issued in 2001. In 2004 the mandate of the State Services Commissioner was extended to much of the State Services for the setting of minimum standards of integrity and conduct (State Sector Amendment Act (No 2)).

Crown Entities

Over the last 15 years the Crown entities sector has increased in size and importance. Crown entities now classified as groups of Crown Agents, Autonomous Crown Entities, Independent Crown Entities, and Crown Entity Companies. Each group represents relative degrees of distance and independence from government decision-making. They constitute a far from homogenous group of government agencies, both by design and by function. Although they mostly engage in regulatory or operational activities, some have policy functions. Taken together, they constitute an important and substantial service delivery arm of government, accounting for $38 billion of the Crown’s physical assets (over two thirds) and more than 50% of total government expenditure, and employing 55% of the State sector workforce (nearly four times the size of the core Public Service).

As the Crown entity sector has grown in size and complexity, the governance and management challenges have increased too. A programme of work was initiated in 1999 to address this. Given further impetus by the Review of the Centre, this work led to the Crown Entities Act 2004. This statute represents a significant development in the architecture of the New Zealand public management system. It introduced a consistent framework for the establishment, governance and operation of Crown entities and clarified the accountability relationships between Crown entities, their boards and Ministers.

Recent Developments

There have been a range of measures and actions taken to improve performance in the State sector in recent years. In 2002 the report of the Advisory Group on the Review of the Centre sought to evaluate and refresh New Zealand’s public management system to ensure that it remained fit for purpose to deal with challenges. The outcome of the review was an extensive work programme that involved:

  • setting up cross-agency “Circuit Breaker”8 teams designed to solve complex problems
  • a project to provide Ministers with a stronger way of shaping departmental priorities which became known as the Managing for Outcomes initiative
  • a series of human resource reforms including the development of an overarching HR framework; enhanced investment in training and development that lead to the establishment of the Senior Leadership and Management Development Programme, the establishment of the Victoria University of Wellington School of Government and New Zealand members of the Australian and New Zealand School of Government (this change was also reflected in the State Sector Amendment Act (No 2) 2004).

In 2004 the Public Finance Amendment Act integrated the Public Finance and Fiscal Responsibility Acts into a single statute. Other changes in the Act removed unnecessary restrictions to collaboration among agencies, and paid more attention to outcomes and capability.

There has been a move to strengthen the performance of some agencies by placing them within larger departments or ministries and to bring policy and operations closer together in some sectors, e.g. education, justice and social development. Some functions have been returned to public ownership (such as elements of transport infrastructure), or moved closer to Ministers (for example aspects of broadcasting and social housing).

Other initiatives include identification of the need for sectors to work more deliberately and effectively together, with one agency to take the lead in ensuring this happens. For example the Education Sector Review in 2005 suggested the Ministry of Education be designated the lead agency for the sector to implement the recommendations of the report.

The introduction of three themes (economic transformation, families young and old and building national identity) for collective action by the State sector represents an initiative by Ministers to focus the whole State sector on specific priorities. These require collaborative action on multiple work streams by multiple agencies and sector leaders have been appointed for each theme to help facilitate this work. More recently Ministers have decided that budget cycle processes for the 2007 Budget should give more weight to results, building on the themes initiative.

Another systemic initiative to improve performance was the introduction of Development Goals by the State Services Commission in 2005. The overall goal - “a system of world class professional State Services serving the government of the day and meeting the needs of New Zealanders” is intended to address how the State sector is arranged and performs. Six goals are identified to give effect to this aim. They are: Employer of Choice, Excellent State servants, and Networked, Coordinated, Accessible and Trusted State Services.

Particularly pressing challenges driving change include:

  • increased emphasis on the distinct position of metropolitan Auckland
  • the ongoing need for infrastructure renewal and reinvestment, partly but not only related to Auckland’s demand
  • a requirement for better interaction between central government, local government and third sector organisations.

Partly in response to these challenges, several initiatives have been introduced to improve State sector performance at sector and system levels. These initiatives include the following new institutional arrangements as a pragmatic response to performance problems:

  • new arrangements to coordinate policy and delivery in some regions (e.g. Government Economic and Urban Development Office - joined up Auckland office for Ministry of Economic Development, Ministry for the Environment, Department of Labour and Transport), or to drive critical strategic work that cuts across sectors and agencies (such as work on climate change)
  • creating new agencies with both regulatory and operational functions such as the Electricity Commission
  • a series of sector, baseline and expenditure reviews (this review is one in this series).

Emerging Challenges

New Zealand is more diverse than ever before, across a range of dimensions - ethnicity, culture, family structures, levels of assets and incomes. An important dimension of State sector performance is having the capability to respond effectively to this diversity, especially the effects over time of changing demographics, and global trends and developments including in technology.

There are increasing expectations that governments can solve, or substantially contribute to solving, a range of complex problems which require the collaboration of other actors, e.g. reducing violence within families, dealing with the low attainment tail in education and reducing obesity among children.

As in similar jurisdictions, people in New Zealand have more control and autonomy over their lives now. They expect more say in the factors that affect their choices of where to invest and what to consume, and in decisions about what services they receive from government. They also have higher expectations about the quality of services and, because government services are compared with the best of the private sector, the bar for State provision is set higher. Users and consumers of services are quicker to assert their rights. Targeting and customisation to user needs and preferences is increasingly replacing “one size fits all” service provision based on assumptions of homogeneity.

The public in general, and special interest groups within that, have much greater and faster access to information than ever before. ICT also assists new organisational structures and networks to become established and sustained. Many interest groups now have better organising ability and information sources than government itself.

Changes in these areas have profound implications for how the State sector engages with New Zealanders now and in the future.

International Better Practice

New Zealand is not alone in looking for ways to improve the performance across the State sector. New Zealand ranks well internationally in terms of financial management and integrity and ethical standards of its State servants, and this helps create trust in government. It has been slower, however, than some other jurisdictions to adopt a comprehensive results focus and to engage citizens and consumers in its systems and processes. Like other jurisdictions, New Zealand has wrestled with the challenge of embedding innovation and ongoing learning as standard processes within the public management system.

International practice points to three areas where central agencies can take a stronger role in performance management. These are a strong results focus (UK, Canada and Australia); engagement with citizens (Canada) and focus on consumer “voice and choice” (UK); and realistic experimentation and learning to improve service delivery (UK and Canada).

The UK has used a range of measures to focus the system better on results, notably through the use of targets and taskforces (called Policy Action Teams) to deal with “wicked issues” and the use of citizens’ charters. While targets have been useful in the UK system, it has been acknowledged that they have their limitations, largely because they are narrowly based and this distorts provision away from non-targeted services, which in turn leads to over-complex bureaucratic processes to try and counter balance this effect. The UK Strategy Unit9 has recently put forward a comprehensive approach to achieve better performance. This includes a systems approach with four dimensions, each of which is intended to help counterbalance the other three dimensions. The four dimensions are:

  • more rigorous top down performance management measures
  • the introduction of competition and contestability into the provision of public services
  • greater opportunity for consumer “choice and voice” to shape services
  • strengthening the capability and capacity of civil servants to deliver through a variety of leadership initiatives10.

What is clear from this and related initiatives is that the UK is moving towards more emphasis on incorporating the perspectives of service users and the public generally in strategy and service design, which includes collecting information about service quality (e.g. fairness, timeliness and accessibility). The UK has also recently announced a partnership model between public, private and third sectors to deliver services in order to be more responsive to the needs of individuals and communities. It is noted that the strong business and other engagement of the UK civil service creates effective external linkages.

The review team also explored the concept of public value originally proposed by Harvard Professor Mark Moore11, which has permeated the thinking around performance of the State. Public value reflects, in broad terms, the kind of “good government” goals and expectations that are usually established in most Commonwealth countries. In particular the public value concept lies behind much of the UK work on consumer voice and choice.

Similarly, Canada has introduced a strong citizens focus to their public service as part of a results package. Interestingly, Canada has demonstrated through empirical evidence that customer/client success is directly related to employee job satisfaction. Canada is also moving towards more rigorous performance measurement12.

Experience in other countries, notably the UK and Singapore, shows that development of a capability to integrate long term thinking into policy and service delivery is an important part of learning and innovation. There are different ways to develop the capability for this. In the UK, the Strategy Unit has experimented with two approaches: a central pool of futures practitioners within the Unit and embedding practitioners in a variety of other agencies. In Singapore, futures’ thinking has become so integral to the way in which the business of government is conducted that single agencies are required to take a 1-20 years perspective in their planning and the centrally located Scenarios Unit takes a 20-50 year perspective.

A challenge for the New Zealand Office of the Auditor-General is to contribute to the better performance of the New Zealand Public Sector without undermining the independence of the Auditor-General. This includes bringing to attention observed good practice that is relevant from national and international experience in either or both the public and private sectors. The relevance and applicability of such good practice depends to a considerable extent on the Office’s knowledge and understanding of the issues and the public sector environment.

8: “Circuit Breakers” involved three teams to look at ways of delivering better results on family violence, truancy and skilled refugee and migrant settlement.

9: Announced at a conference entitled “21st century Public Services - Putting People First” held in June 2006.

10: Details can be found on:

11: Mark H. Moore (1995) Creating Public Value: Strategic Management in Government, Harvard University Press

12: This approach is set out in Management Accountability Framework developed by The Treasury Board of Canada Secretariat. Details can be found at

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