Budget announcement on infrastructure spending

Mr Andrew Bayly MP

Tēnā koe Mr Bayly

BUDGET ANNOUNCEMENT ON INFRASTRUCTURE SPENDING

Thank you for your letter dated 18 November 2021.

In your letter, you raise concerns about a lack of supporting information for Budget 2021 announcements regarding $57.3 billion for forecast spending on infrastructure over the five years 2020/21 to 2024/25.

Included in your concerns are that:

• there is public interest in transparency around the projects included in the $57.3 billion and how they are being funded;  
• details of the forecast expenditure have not been provided to you despite requests for this information; and
• without information on funding sources, there can be no analysis of the impact of this infrastructure spending on the Crown fiscal position or long-term debt track.

You have sought my view as to whether “this lack of detail around such a large Budget announcement” accords with an appropriate level of public transparency and accountability. You have asked whether my concerns about transparency expressed in my letter to you and Hon Michael Woodhouse of 2 November 2021 extend to this matter.

It is not appropriate for me to comment on what level of detail should be included in Budget announcements or similar documents. However, I do have a role in assisting members of Parliament in interpreting financial management and accountability matters.

What the $57.3 billion of forecast infrastructure expenditure represents

To gain a better understanding of the information available to support the $57.3 billion forecast spending announcement, my Office has discussed with the Treasury its response to your information request. We asked the Treasury to explain how the $57.3 billion was derived.

The Treasury advised us that the $57.3 billion represents forecast net expenditure on property, plant, and equipment (PPE) by government departments, Crown entities, and KiwiRail Limited. The figure is based on the forecast financial statements of those agencies and is the aggregate of the forecast net cash outflow on PPE (that is, the forecast cash disbursements for investing in PPE minus the forecast cash receipts from divesting PPE) and forecast movements in public private partnerships (PPPs). The Treasury tells us that the purpose of deriving the figure is to estimate the net capital investment the Government is putting into the economy through these agencies over the five-year period.

Budget Estimates disclosure requirements

Based on the above explanation, the $57.3 billion refers to forecast capital expenditure rather than new funding by the Crown or expenditure requiring additional Parliamentary appropriation.

Given that the announcement does not directly relate to the completeness or understandability of the required Vote information in the Budget Estimates, I consider this matter to be different in nature from the specific matters covered in our previous correspondence.¹

Seeking more information about the forecast infrastructure expenditure

You have sought details about how the projects making up the $57.3 billion of forecast spending are being funded, including through an Official Information Act (OIA) request of 31 May 2021, which the Treasury replied to on 12 July 2021.

As set out above, the $57.3 billion figure was derived from forecast cash flow statements and forecast movements in PPPs. The Treasury did not request additional information from individual agencies about how the $57.3 billion is to be funded.

We understand that funding will come from a range of potential sources, including from existing reserves on agency balance sheets, borrowing, and equity injections from the Crown.

Regarding the effect on the Crown fiscal position and long-term debt track, our understanding is that the Government’s forecast financial statements incorporate any agreed forecast funding requirements for government agencies to carry out their operations, including their investments in PPE of $57.3 billion.

It appears that the most direct route to obtaining information about how the infrastructure projects will be funded will be to request it from the agencies identified in the Treasury response to your OIA request.

The accountability system and my role within it

You have sought my view as to whether “this lack of detail around such a large Budget announcement” accords with an appropriate level of public transparency and accountability. As mentioned above, details of the composition of the $57.3 billion in forecast spending are not required to be included in the formal Budget documents. As such, I consider the matter to be outside the ambit of my assurance work on the formal accountability system.

My Office’s assistance to select committees centres on scrutiny of the individual Votes included in the Estimates of Appropriation. We do not audit nor provide briefings to committees on the higher-level documents, such as the Budget Policy Statement, the Fiscal Strategy Report, the Budget Economic and Fiscal Update (BEFU), the Budget Speech, the Wellbeing Budget document, or Budget Day press releases (although these documents may provide important context for our briefings on the Votes).

Nevertheless, your concern regarding the need for more information about the announced $57.3 billion of forecast infrastructure spend is of interest to me in my Office’s role in assisting select committees and individual members of Parliament² in their role of holding the Government to account for its use of public resources. It is also relevant to my general interest in seeing greater transparency of, and accountability for, government spending.

As you have noted, the statements relating to the $57.3 billion were made as part of the Budget 2021 process, within the Budget speech, the Wellbeing Budget document, and Budget day press releases. In my view, the signalling of this forecast capital spending is a significant matter given:

• the quantum involved;
• the prominence given to it in the Budget 2021 material; and
• the importance to New Zealanders of infrastructure provision and/or maintenance.

I consider that Parliament and the public should reasonably expect any government to provide information to support an announcement of this scale and significance. In my view, it would be appropriate for any further information to be sought by means of Parliamentary scrutiny,³ such as those you have taken.

As your letter raises matters of broader public interest, I will also publish this response on our website.

Nāku noa, nā

John Ryan
Controller and Auditor-General

1: That is, your and Mr Woodhouse’s letter to me of 27 August 2021 and my reply of 2 November 2021.

2: Under the Code of Practice.

3: For example, select committee examination and questions in the House.