Submission on the Public Finance (Wellbeing) Amendment Bill

30 October 2019

Finance and Expenditure Committee

SUBMISSION ON THE PUBLIC FINANCE (WELLBEING) AMENDMENT BILL

The Finance and Expenditure Committee is seeking submissions on the Public Finance (Wellbeing) Amendment Bill. This Bill proposes new requirements for:

• the Government to report annually on its wellbeing objectives in the Budget; and
• the Treasury to report periodically on the state of wellbeing in New Zealand.

These proposed amendments to the Public Finance Act 1989 sit alongside other proposed changes in the public service, including the proposal to repeal and replace the State Sector Act 1988. The proposed new Public Service Act will, among other things, embed a spirit of public service and establish new, more collaborative organisational forms. The proposed Public Service Act will also mean further consequential amendments to the Public Finance Act 1989.

The Controller and Auditor-General has a role in supporting a high-performing and accountable public sector, which in turn helps Parliament and New Zealanders to have trust and confidence in the public sector. All of the proposed reforms focus on improving the performance and accountability of the public service by encouraging greater stewardship of New Zealander’s intergenerational wellbeing.

These aims align closely with the functions of my Office. As we have said in other submissions about the reforms, it is important to consider these reforms together, as part of a suite of proposals. A copy of this submission and submissions on earlier proposals can be found at oag.govt.nz/media.

General comments on proposed Bill

We support the intent of the Bill to include a wellbeing perspective in New Zealand’s public finance system. The Bill refers to wellbeing as including not only social, economic, environmental, and cultural outcomes but also any other matters that the government considers will support long-term wellbeing in New Zealand (“wellbeing”).

Incorporating a wider wellbeing perspective could fill an important information gap in New Zealand’s public accountability system and has the potential to enable a step-change in integrating financial and non-financial information about the performance of the government, supported by the public sector. We consider that this is fundamental to effective public accountability and good decision-making.

If public money is to be spent effectively, it is important to specify the objectives for that spending (that is, what the government intends to achieve with the money). We consider that wellbeing should be an integral element of the overall framework for directing the effort and resources of the public sector and that it should sit alongside, or be encompassed in, the outcomes that government and public sector entities work towards.

An overarching wellbeing framework should help to align decisions about where to direct government spending, public services, and other interventions throughout the public sector and with the overall direction of the government. It should also provide more comprehensive information for Parliament and the public to hold the government of the day to account for progress in improving wellbeing.

More specific comments on each Part of the Bill follows.

Part 1 – Wellbeing objectives

We support the inclusion of a wellbeing perspective, as described in the Bill, into the Budget Policy Statement and the Fiscal Strategy Report. We consider that the provisions of the Bill provide the necessary flexibility for the new requirements to adapt and evolve in practice.

In our 2018 submission on the initial proposal, we commented on the desire for a distinction between long-term indicators of the “state of the nation” and a smaller set of short- to medium-term wellbeing indicators that reflect the priorities of the government of the day. Although there should be a distinction between these, there is also a need to demonstrate the relationship between them.

The amendments in the proposed new section 26M appear to provide a basis for this.

Part 2 – Wellbeing report

We support the intent of Part 2 of the Bill in requiring the presentation of a wellbeing report to Parliament. Alongside the Financial Statements of the Government, a wellbeing report will provide much better information to Parliament and the public about the government’s ambitions for New Zealand and how it is progressing. The Financial Statements of the Government are world leading in providing a cohesive and credible picture of the government’s financial performance. Much of this is built on the information complying with an independently determined set of generally accepted accounting practice and being supported by an independent audit process.

Although we agree that the Treasury should be responsible for preparing the report, we have some concerns about the level and extent of responsibility for the content of the wellbeing report that the proposed legislation places on the Treasury.

In particular, we question the reasonableness and practicality of section 26NB, where the Treasury must select and use “appropriate indicators” of wellbeing, using its “best professional judgements”. Although the Treasury is well placed to coordinate and manage the production of the report, deciding which indicators to select, and asserting their appropriateness, may be beyond (or be seen to be beyond) the Treasury’s expertise.

We believe that other options may be more appropriate for establishing what aspects of wellbeing would be generally acceptable and how these would be measured and reported. For example, Parliament could have a role in determining the focus of the wellbeing report, and government officials (drawing on relevant expertise throughout the sector) could have a role in determining how wellbeing is measured.

Statistics New Zealand’s “Indicators Aotearoa New Zealand” is also intended to provide authoritative and comprehensive measures on New Zealand’s wellbeing. These indicators were developed in consultation with relevant sectors and the community. As such, we consider that they represent an important source for identifying relevant wellbeing indicators.

We also consider that the term “appropriate” in the proposed new section 26NB is open to wide interpretation. Therefore, we consider that it needs to be more specifically defined in relation to the particular qualities the wellbeing indicators need to have. We consider that this would not be difficult to do. For example, the Explanatory Note to the Bill refers to the need for those indicators to provide a “comprehensive, balanced, and accessible” view of the state of wellbeing in New Zealand.

Generally accepted accounting practice already provides a generally accepted framework for the requisite qualities of non-financial performance information, which are relevant to many wellbeing indicators. The Public Finance Act 1989 refers to generally accepted accounting practice to ensure that the Financial Statements of the Government are cohesive and credible. The concepts and principles underlying generally accepted accounting practice could also be usefully applied to the wellbeing report.

Another concern relates to the confidence that Parliament and the public can have in the information presented in the wellbeing report. The Bill does not propose that the wellbeing report be subject to any third-party assurance about its veracity. To achieve general acceptance, the wellbeing report needs to present a relevant and reliable picture of the “state of the nation” to both Parliament and the public.

We consider that general acceptance of the report would be significantly enhanced by independent assurance over its contents, including, for example, the appropriateness and reasonableness of the wellbeing indicators. My Office has the mandate under the Public Audit Act 2001 to examine information found in a wellbeing report, and we would welcome discussion with Treasury officials about how we could best support the accountability objectives set out in the Bill.

The Explanatory Note observes that the wellbeing report may be combined with other Treasury reports, such as the Statement of Long-term Fiscal Position and the Investment Statement, although this is not a stated requirement in the Bill. The intention is to reduce duplication and reinforce the connections between these reports.

We agree that reinforcing the connections between these reports, and others such as the annual Financial Statements of the Government, is fundamental for good short-, medium-, and long-term financial and strategic management.

However, we are not persuaded that combining these reports is the best solution. A single report could obscure and confuse important matters and insights arising from these separate perspectives, each of which will have a different scope and time frame. For example, the wellbeing report covers the “state of the nation” today, while the Investment Statement covers the government’s significant assets and liabilities projected over the medium term.

Another connection that may need to be considered is the relationship between the proposed three-yearly “long term insights briefings” in the Public Service Legislation Bill and the wellbeing report. Although both take a nationwide perspective on what is important to New Zealanders, the insights briefing is forward looking, while the wellbeing report is primarily backward looking.

Concluding comments

We welcome the public consultation on the Public Finance (Wellbeing) Amendment Bill. My Office fully supports the intent of providing a more integrated picture of government performance, as this will in turn strengthen the performance and accountability of the public service. However, more work is needed to ensure that the wellbeing report is generally accepted and provides Parliament and the public with the right information for effective accountability and good decision-making.

If the Finance and Expenditure Committee would like representatives from my Office to present and discuss any aspects of this submission, we would be happy to do so.

Yours sincerely

John Ryan
Controller and Auditor-General