Part 1: Developments in the central government sector

1.1
Public entities in the central government sector are facing a challenging environment, with pressure to reduce operating costs while improving service delivery. The trends we are seeing towards greater collaboration and cross-agency working, supported by clear direction from the centre of government, are encouraging.

1.2
In 2012/13, our work will focus on the theme Our future needs – is the public sector ready? We will be paying close attention to how public entities are working to address important social, environmental, and economic issues and to provide better services to New Zealanders.

1.3
We will also be looking closely at the savings achieved by the extensive ongoing change programme, and monitoring how the changes are leading to improved effectiveness and efficiency. We will seek to identify and report good practice in public sector management to promote learning within and between public entities.

Context for all public entities

1.4
Citizens are expecting improved, easier-to-access public services as people become used to 24-hour access to goods and services, self-service options, and the ability to access services through a wide range of different channels and types of technology. At the same time, the ongoing effects of the global financial crisis are still being felt and public entities continue to operate under fiscal constraint. The Government's financial statements for 2010/11 recorded a deficit for the year of just over $18 billion.¹

1.5
The Canterbury earthquakes have had significant financial implications for many public entities (see Parts 2 and 3). The Government deficit recorded in 2010/11 includes $9.1 billion net costs of the Canterbury earthquakes.² Future costs and liabilities are still uncertain and are likely to be higher than originally expected. These include the Government's share of local authority costs in response to the earthquakes, such as its share of costs for restoring local authority infrastructure, which could be between $348 million and $610 million.

1.6
Consequent effects of the earthquakes include a rise in insurance costs and in the cost of meeting escalating seismic standards for buildings. These will affect all public entities throughout New Zealand, increasing the existing pressures on their finances.

1.7
As well as these factors, the Government is seeking more effective and efficient means of administering and delivering public services, which will require innovative ways of working. Central government entities have focused on streamlining processes to achieve greater efficiency. Some of the main changes include:

• a more streamlined and strengthened centre of government;
• mergers and disestablishment of public entities;
• greater use of partnerships with the non-government sector and more outsourcing;
• more integration and "joined-up" delivery of public services; and
• revisions of governance and accountability frameworks.

A more streamlined, strengthened centre of government

1.8
There is a trend towards a more streamlined, strengthened centre of government with the aim to lead and better co-ordinate activities, save costs, and improve effectiveness. The Treasury, the State Services Commission, and other government departments are leading this trend.

1.9
For example, the central government sector's investment in information communications technology is being overseen and co-ordinated by the Office of the Government Chief Information Officer (now based in the Department of Internal Affairs). The Office of the Government Chief Information Officer is also leading a transformation programme, which seeks to improve service delivery to citizens through "joined-up" service delivery and better use of technology. The aim is to deliver more cohesive responses to the needs of citizens, with a single government brand across a range of different delivery channels (such as face-to-face services, the Internet, and telephone) along with self-service and 24-hour access.

1.10
The ways in which public entities buy goods and services are also being reformed, with greater direction and leadership from the centre of government. For example, the Ministry of Economic Development is leading a whole-of-government programme to drive improvements in procurement across all public entities and achieve savings as a result. The all-of-Government contracts for office consumables, print devices, computers, and passenger vehicles are expected to achieve savings of at least $115 million over five years.³ The Ministry is also working closely with public entities to improve skills and capability in procurement by establishing a procurement academy. The Ministry plans to agree more all-of-government contracts in the current financial year.

1.11
The Better Administrative and Support Services programme, which is administered by the Treasury, seeks to lower the cost of central government sector administrative and support services, and reduce the present significant variation in service cost, effectiveness, and efficiency between agencies. It is now working with public entities to improve efficiency through automating and standardising processes, having more common systems, and sharing some back-office services. The Treasury expects that this work could save more than $236 million a year.⁴

1.12
The Treasury is also addressing concerns that New Zealand's infrastructure network is fragmented in ownership, funding, and policy. The past two years have seen a trend toward a more national, co-ordinated, and strategic approach to infrastructure. This has included a new Ministerial portfolio and the establishment of a dedicated unit within the Treasury, the National Infrastructure Unit, which has developed a National Infrastructure Plan. The Plan outlines the Government's intentions for infrastructure development over a 20-year time frame.

Merging and disestablishing public entities

1.13
There have been some important structural changes to the central government sector, particularly through mergers of public entities. Mergers in 2010/11 included bringing the National Library and National Archives into the Department of Internal Affairs, integrating the New Zealand Food Safety Authority and the Ministry of Fisheries with the Ministry of Agriculture, and setting up the Ministry of Science and Innovation, which brought together the Foundation for Research, Science and Technology and the Ministry of Research, Science and Technology. The Government expects these changes to save about $25 million from 2010 to 2013, and about $8 million each year after that.⁵

1.14
In August 2011, the Government started the process for disestablishing the Alcohol Advisory Council of New Zealand and the Health Sponsorship Council, the transfer of their functions to a new single entity, and for disestablishing the Crown Health Financing Agency, the Mental Health Commission, and the Charities Commission.⁶

Greater use of outsourcing and partnerships with the non-government sector

1.15
Services are increasingly being outsourced – delivered by the organisations that are considered to be best placed to work with particular client groups, populations, and projects. For example, Whānau Ora is testing new and innovative types of family and community response models. In the housing sector, the Department of Building and Housing is seeking to work more closely with the community housing sector and iwi in the delivery and management of social housing.

1.16
Greater use of public private partnerships (PPPs) is also being made in national and local infrastructure projects, such as the Waterview Road Project in Auckland and the rollout of high-speed broadband throughout the country.

1.17
In November 2011, we published a discussion paper on PPPs.⁷ We noted that, although the use of PPPs is increasing, a sound platform for an ongoing programme of PPPs still needs to be built. There remain:

• limited understanding in wider stakeholder and community groups about partnerships with government;
• fragmented public sector skills, knowledge, and information flows on managing partnerships effectively;
• limited diversity in the capital markets and funding base; and
• a lack of some domestic private sector expertise and capability to enter into partnerships with government.

More integration and "joined-up" delivery of public services

1.18
Public entities are increasingly working with collaborative models to address social and economic issues, and to work towards improved outcomes for New Zealanders. There are a range of initiatives in place, led by chief executives of government departments, to create more "joined-up" administration and delivery of public services.

1.19
For example, the Ministry of Social Development is leading cross-agency approaches to "most at risk" families, and family health centres are bringing the work of multiple agencies into one place. In the justice sector, the Ministry of Justice has leadership and oversight of the Addressing Drivers of Crime initiative. This initiative brings the work of a wide range of agencies together to tackle some of the main causes of crime. The agencies involved include: the Police, Department of Corrections, Ministry of Justice, Ministry of Education, Ministry of Health, Ministry of Social Development, and Te Puni K kiri. In the health sector, district health boards are now required to plan services and resource management regionally, not just locally.

Governance and accountability changes

1.20
The accountability of the Government to Parliament is one of the cornerstones of New Zealand's system of government. It is important that our accountability system supports the work that agencies do to improve the lives of New Zealanders, and allows them to do so flexibly and efficiently while maintaining transparency.

1.21
The accountability system continues to evolve. Current aims include introducing greater focus on longer-term planning, allowing greater flexibility for agencies to respond to changing demands, reducing compliance costs, and making sure that reporting requirements meet the needs of Parliament and Ministers.

1.22
A new Budget process for 2012 includes four-year budget plans. The use of these plans is intended to encourage strategic and flexible planning and financial management to enable more effective delivery of long-term outcomes. Departments have also been given the option of producing a Statement of Intent every three years, where appropriate, rather than annually. In 2012, we will be publishing a report on the quality and appropriateness of financial management in government entities.

1.23
Since 2006, we have emphasised the importance of good quality performance information in showing public sector effectiveness and to inform better decision-making. In 2010/11, we introduced a new auditing standard for service performance reporting in central government. Performance Improvement Framework reviews (co-ordinated by the State Services Commission) of a range of public entities have also identified that there needs to be a clearer link between expenditure and the value it brings to New Zealanders.

1.24
Annual audits in 2010/11 have shown that the standard of service performance reporting by public entities is improving markedly (see Parts 6, 7, and 9), but there is still some way to go. In looking at the overall system, we consider that some change would be beneficial (see Part 10).

1: The Treasury (2011), Financial Statements of the Government of New Zealand for the year ended 30 June 2011, Wellington.

2: See A Snapshot of the 2011 Financial Statements of the New Zealand Government, on the Treasury's website (www.treasury.govt.nz).

3: See the release Computer panel to deliver further savings, dated 11 October 2010, on the Government's website (www.beehive.govt.nz).

4 See the Treasury's media statement Treasury releases benchmarking report, dated 13 April 2011, on the Treasury's website (www.treasury.govt.nz).

5 See the Cabinet Expenditure Control Committee's amended minute ECC Min (11) 10/1, State Services Amalgamations Agreed in March 2010: July 2011 Report on Financial Implications. It is available on the State Services Commission's website (www.ssc.govt.nz).

6 See the Cabinet minute CAB Min (11) 28/5, Public Services to Meet the Needs of 21st Century New Zealand: Due Diligence Report on Proposals for Structural Change. It is available on the State Services Commission's website (www.ssc.govt.nz).

7: Controller and Auditor-General (2011), Managing the implications of public private partnerships, which is available on our website (www.oag.govt.nz).