Submission on the Public Service Legislation Bill

31 January 2020

Jian Yang MP
Chairperson
Governance and Administration Committee
Parliament Buildings
WELLINGTON

Dear Mr Yang

SUBMISSION ON THE PUBLIC SERVICE LEGISLATION BILL

1
The Public Service Legislation Bill, like the current State Sector Act, sets out the role of the public service in supporting New Zealand’s system of government. As well as establishing the purpose, principles, and values of an apolitical public service, it also sets into legislation the role of the public service in supporting the Crown in its commitment to Māori and outlines the set of possible organisational arrangements that can be created in the public service. As such, the legislation is constitutionally significant and deserves close attention.

2
The current State Sector Act is more than 30 years old. During that time, New Zealand’s public service has operated successfully to address many challenging and complex issues. It is also consistently ranked highly among many international comparators, including as among the least corrupt on the Transparency International Corruption Perceptions Index. There have, however, been significant changes during that time in the types of issues that the New Zealand public service needs to engage with on behalf of New Zealanders – including issues such as an ageing population, urbanisation, diversification of population, technology developments, and emerging environmental issues. There also continue to be complex social issues that require solutions that operate across departmental boundaries. Together with wider ongoing reforms of the public finance system, the Bill envisages a more unified public service, focused on agencies working together as stewards of New Zealanders’ inter-generational well-being. A comprehensive review of the legislation with these issues in mind is timely.

3
As such, we welcome the opportunity to comment on the Bill. The Controller and Auditor-General is responsible for giving assurance to Parliament and the public that public organisations are operating and accounting for their performance in keeping with Parliament’s intentions. That role gives my Office a unique and independent view across more than 3500 public sector organisations. Fundamental to the role of my Office is ensuring that accountability arrangements work to improve Parliament and New Zealanders’ trust and confidence in the public sector. It is from that particular perspective that many of our comments on the Bill are made.

4
Our comments are set out below. In essence, they focus on three main points:

• Officers of Parliament are not part of the public service or the State services. There are two provisions in the Bill where we recommend amendments to make this clearer.
• Introducing new organisational arrangements will require clarity about accountability arrangements (to Parliament and to the public) at the outset.
• Given the constitutional significance of the issues covered in the Bill, we are concerned at the relatively short consultation period (over the Christmas and New Year holiday period).

Definition of public service and State services

5
The Bill contains a definition of the public service and of State services. Offices of Parliament are not covered (and are not intended to be covered) in either definition. We appreciate that the definition of “State services” in clause 5 of the Bill currently references “all instruments of the Crown in respect of the Executive Government of New Zealand” and therefore Offices of Parliament are not covered. However, clause 5 of the Bill also includes a specific list of agencies that are not included. In our view, given the confusion that often arises about these definitions and which agencies are covered, it would be preferable to include a specific reference in the definition to the fact that Offices of Parliament are not part of the State services.

Purpose, public service principles, values, and spirit of service to the community

6
Part 1 of the Bill sets out the purpose, principles, and values of the public service as well as acknowledging that a fundamental characteristic of the public service is acting with a spirit of service to the community. It puts responsibilities on public service chief executives and boards of Crown agents to ensure that the principles are upheld, and provides for the Public Services Commissioner to set standards and issue guidance on integrity and conduct.

7
We support the proposal to include provisions in legislation that outline the purpose, principles, and values of the public service. New Zealand has a long history of, and strong reputation for, a public service that is politically neutral and is ranked among the least corrupt in the world. The purpose, principles, and values that are proposed to be embedded in the Bill reflect those that have been tried and tested within the Westminster system in New Zealand. They are already part of our constitutional conventions and underpin a system with high integrity and accountability to Parliament and the public. Although it could be argued that it is not strictly necessary to include these in legislation, in our view this gives them visibility and ensures that the whole public service knows and understands their purpose and the values that inform their work.

8
We also support the ongoing ability of the Public Service Commissioner to set minimum standards of, and guidance on, integrity and conduct relating to public service values, principles, and rights and responsibilities. In discussions with the State Services Commission, we understand that it intends to prepare some good practice guidance to provide public service agencies with advice on how the public service principles might apply in practice. Applying the concepts of political neutrality, free and frank advice, merit-based appointments, open government and stewardship in practice can be challenging, and we look forward to providing an independent perspective to the Commission as it prepares this good practice guidance.

Supporting the Crown in its commitment to its relationships with Māori

9
The Bill explicitly states that the role of the public service includes supporting the Crown in its relationships with Māori under Te Tiriti o Waitangi. It also requires public service leaders to develop and maintain the capability of the public service to engage with Māori and to understand Māori perspectives.

10
We support the inclusion of this reference in the Bill, which is not present in the current State Sector Act. In our view, including this reference emphasises the important stewardship role that the public service plays in fostering a strong relationship with Māori, reiterates the importance of consistently applying the concept of partnership, and underscores the need for an appropriate level of responsiveness on issues that affect Māori.

11
The Bill also carries over the provisions in the current State Sector Act requiring public service leaders to be good employers. This is defined to include recognition of the aims and aspirations of Māori, the employment requirements of Māori, and the need for greater involvement of Māori in the public service. We support the continued inclusion of this emphasis, noting the importance of a public sector workforce that values and reflects the community it represents and empowers Māori to succeed in the public service, particularly in leadership and decision-making roles.

A flexible set of options for organisational arrangements

12
Although the Bill retains the government department as the main “building block” of the public service, it also introduces a number of potential additional organisational arrangements. These are designed to introduce flexibility and enable greater collaboration on policy issues and common outcomes across the public service.

13
The Bill makes some changes to the existing departmental agency model to increase its flexibility and enable the model to be more tailored to specific functions. In particular, the relevant Ministers (of the host department and the departmental agency) may decide that the chief executive of the departmental agency can operate outside of the strategic and policy framework for the host department. They can also decide that the chief executive of the departmental agency can manage assets and liabilities. Which “type” of departmental agency option is chosen will, in turn, dictate what planning, reporting, and other accountability provisions of the Public Finance Act 1989 apply to that agency (and its host department).

14
The Bill also provides for two new organisational forms to enable greater collaboration.

15
Interdepartmental executive boards can be established. They consist of a group of chief executives working together towards common outcomes, and who are individually and collectively accountable for the board’s work. The board will have the ability to employ staff, enter into contracts, and administer appropriations. In this way, it is intended to better enable joined-up strategic policy, planning, and budgeting around shared outcomes.

16
Interdepartmental ventures can also be created. These will allow resources to be brought together into a single distinct entity that can hold assets, employ staff, enter into contracts, and administer appropriations.

17
Finally, the Bill also provides for joint operational agreements to be created. These are intended to enable formal structure for co-operative and collaborative working arrangements between existing entities but funding, assets, and staff will stay under the control of the participating agencies.

18
Again, what “type” of organisational arrangement is chosen will dictate what planning, reporting, and other accountability provisions of the Public Finance Act will apply to the agency or agencies in question.

19
This set of options for organisational arrangements has been described as necessary to create a significant shift in the public service, breaking down perceived inflexibility in silos and creating an environment based on collective responsibility and co-ordinated action – in order to tackle some of the more complex problems facing government. The State Sector Act sets out strong vertical lines of accountability from individual chief executives to individual Ministers and has been described as making it hard to work together horizontally when faced with issues that cut across departmental boundaries.

20
We can see that a wider range of new mechanisms might make it easier for government organisations to work together to achieve better outcomes for New Zealanders. However, we also sound a note of caution. Given the Bill is enabling rather than prescriptive, it is difficult to anticipate how many new public service agencies are intended or might be created. Depending on numbers, the creation of new organisational forms will likely introduce additional complexity into the system. This may at times create confusion about what planning, reporting, and accountability obligations apply to those agencies and the relevant Ministers.

21
The consequential amendments to the Public Finance Act set out a menu of planning, reporting, and accountability obligations based on the characteristics of the new organisational forms. This approach will require an organisation to work through the applicable provisions in the Public Finance Act to determine what obligations apply to it. Similarly, an appointed external auditor will need to work through and understand the obligations that apply to the entity that they are auditing. This often requires legal advice.

22
More importantly, if members of the public are interested to understand what accountability requirements apply to a particular public organisation, they can only do that by reference to the Public Finance Act.

23
We understand that the Treasury intends to provide more guidance on the application of the Public Finance Act on its website. We encourage and support this. In our view, it would also be preferable if the Order-in-Council establishing a new public service organisation clearly set out what type of entity it is and what its accountability obligations are under the Public Finance Act. This would then have the benefit of setting out in one place, at the time an organisation is created, what its accountability obligations are for all to see. Fundamentally, accountability to Parliament and the public must be clear at the outset.

Waiver from requirement to include financial statements in specified agency’s annual report

24
The consequential amendments to the Public Finance Act in the Bill include a discretion for the Treasurer (Minister of Finance) to waive the requirement to include financial statements in an annual report of a specified agency (being a departmental agency, an interdepartmental agency board, or an interdepartmental venture). In order to grant such a waiver, the Minister must consider it to be appropriate, having regard to the functions and operations of the specified agency and must also be satisfied that other reporting required under the Public Finance Act or any other enactment will provide adequate accountability for the specified agency.

25
It is not clear to us what “other reporting” is intended to cover – that is, reporting that is not the financial statements in the specified agency’s annual report. Our concern is that the legislation must be sufficiently clear – from an accountability perspective – that a specified agency’s financial and performance information must still be reported somewhere (for example, in the annual report of a department rather than of the specified agency). We would not want to see a situation arise where there were no public financial statements anywhere for a specified agency or that the financial or operational performance of the specified agency was not transparent. We suggest that this could be remedied by amending the drafting to provide a strong presumption that full reporting of both financial and performance information is the default position, and include a much clearer set of criteria or set of circumstances rather than an undefined use of the terms “other reporting” or “adequate accountability”.

Public Service chief executives

26
The Bill requires the Public Service Commissioner to appoint departmental and departmental agency chief executives. It also enables the appointment of a functional chief executive (who is not a departmental or departmental agency chief executive) who has particular functions hosted within a department and is accountable directly to a relevant Minister. Finally, the Bill also enables an existing chief executive (whether of a department or departmental agency or a functional chief executive) to be appointed as a system leader to lead and co-ordinate best practice in a particular subject matter across the whole or part of the State services.

27
Again, we note that the Bill sets out a range of options, enabling flexibility to tailor leadership arrangements to particular functions or systems. We do not disagree with the intent behind these enabling provisions, but once again sound a note of caution. Creating competing lines of accountability at chief executive level or within agencies (and to different Ministers) comes with additional complexity and can be difficult to make work in practice. Care must be taken to set out as clearly as possible at the start of an arrangement how it is intended to work, what support arrangements will be put in place, and who is accountable for what and to who.

28
We have seen, for example, through our work on current functional leadership arrangements, that unclear mandates can create confusion and limit the ability for functional leaders to deliver on their mandate. There is potential for considerable blurring of accountability despite the intent of the Bill to improve this.

Senior leadership and management capability

29
The Bill enables some flexibility in shifting senior leaders around the public service. There is a provision that would allow a public service employee to be seconded to another role in the public service (with the agreement of the employee and relevant chief executive) for the purpose of developing senior leadership and management capability in the public service. This ability to second does not require the appointing chief executive or board to give preference to the person who is best suited to the role.

30
At the chief executive level, the Public Service Commissioner would have the ability to transfer an existing chief executive to fill a vacancy or impending vacancy in a chief executive position. In that situation, the Commissioner is not required to notify the vacancy, examine other applicants, or establish an appointment panel.

31
We understand that these provisions enable flexibility, as well as the ability for the Public Service Commissioner to play a more deliberate role in building leadership capability within the public service. At the same time, the Bill creates the possibility that all significant senior roles in the public service could be filled without going to open market and enabling an open and competitive recruitment process for all potential candidates. Given the principle of merit-based appointments in the public service, it is important that a balance be struck. The system must enable continual development of senior leaders and managers in the public service, but also ensure that senior positions are made available to others outside the pool of existing public service senior employees. Without that balance, it is difficult to see how assurance can be given that the best candidates are being appointed to leadership roles in the public service. Rotation can also create issues for incoming chief executives in terms of ensuring that they feel they have a competitively acquired mandate for their role and have had time to consider and plan for how they will undertake it.

Government Workforce Policy Statements

32
Part 4 of the Bill carries over certain provisions from the State Sector Act, enabling the Commissioner to address workforce issues in the state sector. In particular, the Commissioner could draft Government Workforce Policy Statements, which are to be approved at ministerial level. Various state sector agencies are then required to implement the statement or respond to any request by the Commissioner for information made under it. The degree to which an agency is required to give effect to the Statement, and to comply with information requests, depends on the nature of the agency.

33
Clause 97(4)(f) provides that a Government Workforce Policy Statements may apply to an Office of Parliament, being the Office of the Ombudsman, the Office of the Auditor-General, and the Office of the Parliamentary Commissioner for the Environment.

34
Clause 101(4)(a) provides that the Offices of Parliament “must have regard to a Government Workforce Policy Statement and consider any request for information made under it, if the Speaker of the House, entirely at the Speaker’s discretion, invites it to do so.”

35
I am deeply concerned about the proposal in the Bill to extend these Government Workforce Policy Statements to apply to Offices of Parliament. In my view, this change amounts to an inappropriate intrusion by the Executive into the operations of independent Offices of Parliament.

36
It is clear that some consideration has been given to independence through reference to the role of the Speaker. Similarly, a requirement to “have regard to” a policy is not the same as being required to “give effect to” it. However, in my view, imposing a legislative requirement on Offices of Parliament to “have regard to” government policy after an “invitation” (effectively a direction) from the Speaker, compromises our autonomy and independence. If Parliament considers that it is appropriate to require Offices of Parliament to have specific workforce policies, the appropriate mechanism is through each agency’s governing legislation.

37
In my view, these provisions in the Bill are not appropriate and, as a result, clauses 97(4)(f) and 101(4)(c) should be removed. I have raised this issue with the Office of the Ombudsman and the Parliamentary Commissioner for the Environment, both of whom share my view on this matter. We have also collectively raised our concerns with the State Services Commissioner who has informed us that he “agrees that it is inappropriate for the Bill, which is not specifically concerned with the agencies of the Legislative Branch, to address matters relating to the operations of the Officers of Parliament.” We have been informed that the Minister of State Services agrees that these clauses should be removed from the Bill and that this will be included in the State Services Commission’s advice to the select committee.

Consultation time frame

38
As we have outlined above, the Public Service Legislation Bill is a rewrite of the existing State Sector Act and provides an important framework for the operation of New Zealand’s public service in the future. It is a significant piece of legislation, with potentially deep constitutional implications. In light of that, we are concerned that the relatively short consultation period for the Bill – encompassing the Christmas close-down period – will likely have curtailed the ability of submitters to consider and put forward their views to the Committee. It is not clear to us, given the significance of the changes proposed, why a more extended consultation period could not have been allowed.

39
Thank you for the opportunity to make a submission on the Bill. As we do with our other submissions, we intend to publish this on our website.

Yours sincerely

John Ryan
Controller and Auditor-General