Proposed reform of the State Sector Act 1988

12 October 2018

State Services Commission
[email protected]

SUBMISSION ON REFORM OF THE STATE SECTOR ACT 1988

The State Services Commission (SSC) has issued a discussion document for public feedback proposing reform of the State Sector Act 1988.

The Controller and Auditor-General has a role to play in supporting a high-performing and accountable public sector, which in turn should enable Parliament and New Zealanders to have trust and confidence in the public sector. As a result, we have already had some early discussions with the SSC to understand and comment on the direction and options for reform being proposed. The comments in this submission build on those earlier discussions.

We note that the proposed amendments to the State Sector Act sit alongside other proposed changes in the public service, including a Treasury proposal to amend the Public Finance Act 1989 to embed a wellbeing perspective into government objective setting and reporting. The Treasury is also seeking comments on a proposal to develop an Independent Fiscal Institution to improve New Zealand’s fiscal policy transparency and performance.

It is important that these reforms are considered together, as part of a suite of proposals. All three proposals are focused on improving the performance and accountability of the public service, in order to embed improved services and outcomes for New Zealanders. These aims align closely with the functions of my Office and we have prepared submissions on all three proposals. A copy of our submissions on the other proposals can be found at oag.govt.nz/media.

General comments on proposed reforms

The proposed reforms to the State Sector Act are described as being aimed at ensuring a public service with strong leadership, with clear expectations and accountability, and that can deliver better outcomes and better services to New Zealanders. We support these aims. However, we note that there is still much detail to be determined and it is sometimes difficult to comment on the proposals without that further detail. The discussion document notes that further decisions will need to be made about the level of detail that would appropriately be drafted into the revised Act. We look forward to the opportunity to work closely with the SSC to provide our views as that detailed work develops.

The proposed reforms are also described as intending to break down any silos within the current system and create an environment based on collective responsibility and accountability. Strong vertical lines of accountability, from individual chief executives to individual Ministers, are described as making it hard to work together horizontally when faced with issues that cut across departmental boundaries. Again, we support the intent behind the proposed changes. We agree that new mechanisms can make it easier for government organisations to work together to achieve better outcomes for New Zealanders.

However, we sound a note of caution – it is important to maintain a balance. Strong lines of vertical accountability work well in the majority of instances, where an individual department is charged with delivering results or services. It is important not to lose the strong system of reporting and accountability that has stood the test of time in our system to date. Given this, and the significance of the changes proposed, we consider that there should be a high threshold for change. In some parts of the discussion document, we would welcome a stronger case for the amendments proposed, a more detailed consideration of different options for addressing the perceived need for change, and why the proposed approach is considered the best approach.

Further, the creation of new organisational mechanisms and collective responsibility for shared outcomes will work only if public organisations have appropriate incentives and resources to support that work, and the broader environment supports this.

There is a strong focus throughout the discussion document on the public service engaging with New Zealanders and communities – involving them in the process of designing and delivering outcomes and services, and giving them the information, knowledge, and access to engage in public processes of government. We strongly support this approach because it goes directly to New Zealanders having trust and confidence in government. While New Zealanders can encompass all groups, it may be helpful to specifically include the business community and civil society in this expectation of engagement.

Purpose, principles and values of the New Zealand public service

We support the proposal to include provisions in the State Sector Act 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 the least corrupt in the world. The purpose, principles, and values that are proposed to be embedded in the State Sector Act 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 the public.

The discussion document does not include an articulation of the purpose of the public service, noting that further work is required to be done to draft and include a succinct purpose statement in the State Sector Act. The discussion document does, however, set out some public service “roles” and we support the proposal that a purpose statement be drawn from those roles. In particular, we consider it important to include the requirement for public servants to uphold the rule of law, to act impartially as well as in a politically neutral manner, and to effectively and efficiently support the government of the day to achieve its policy outcomes.

The discussion document proposes five principles of the public service as follows:

• political neutrality;
• free and frank advice;
• merit selection;
• openness; and
• stewardship.

We note that some of these proposed principles are already reflected in the State Sector Act and in other legislation, such as the Official Information Act 1982 and the Local Government Official Information and Meetings Act 1987. They are not, however, situated in one place, which makes them unclear and difficult to identify. We support the inclusion of the proposed principles in the State Sector Act – grouped together and clearly identifiable as principles of the public service.

We also support the proposed values of the public service.

Scope of the New Zealand public service

The discussion document includes a proposal to redefine the scope of the public service as a “collective institution in the executive branch of government comprising a broad array of entities”. It is proposed that the public service comprises the core public service (including departments, departmental agencies, and any proposed new executive boards or interdepartmental joint ventures). The public service would also comprise other entities (such as Crown agents or autonomous Crown entities) that are subject to some level of Ministerial influence through the power to appoint and remove board members and/or the power to direct the agency to have regard to government policy.

We are aware that there is confusion about what currently comprises the “public service” in the State Sector Act, and what entities make up the wider “state services”. Extending the concept of the public service to include Crown entities makes sense in terms of the ordinary New Zealander’s understanding of a sector comprising entities that provide services on behalf of the public. We note that the intent is that the whole State Sector Act will apply to the core public service (government departments and some of the new organisational mechanisms proposed) but that Crown entities (and others included in the wider definition of the public service) would be subject only to the purpose, principles, and values of the public service as well as the expectations set by the proposed Public Services Commissioner on integrity and conduct matters.

Again, however, we sound a note of caution. As the discussion document notes, our system distinguishes between entities that operate under the direction of Ministers and those that are “arms-length” from ministerial control. It is important that any changes to the scope of the public service continue to protect (and be seen to protect) the independence of entities that are intentionally “arms-length” from government because they have a quasi-judicial function, commercial objective, or a duty to monitor, review, mediate, or investigate.

Responding to the needs and aspirations of Māori

The discussion document emphasises the important stewardship role that the public service plays in fostering a strong relationship with Māori. It is stated that the reforms provide an opportunity to shift the public service’s relationship with Māori further, to ensure that the concept of partnership is applied consistently and that there is an appropriate level of responsiveness on issues that affect Māori.

We strongly support the proposal to include a stand-alone clause within an amended State Sector Act, with provisions relating to engagement and partnership with Māori, delivery of services that are responsive and accessible to Māori, and a workforce that values and reflects the community it represents and empowers Māori to succeed in the public services, particularly in leadership and decision-making roles.

People

We support the idea of imposing a duty on the proposed Public Services Commissioner to promote diversity and inclusion across the public service, with a corresponding duty on chief executives within their organisations. We note that such a duty is already inherent in the State Sector Act, which includes a requirement for appointments to be merit-based and for the SSC to develop, promote, and monitor equal employment opportunity policies. A legislative duty will make those obligations more explicit.

The discussion document also proposes that amended legislation could enable the establishment of standard terms and conditions for some functions and professions in the public service. We agree that there may be some advantages to taking such an approach, for example to address pay equity issues or to avoid competition due to wage pressures throughout the system. However, there are potential disadvantages as well. In particular, we note that different public entities often have widely varied levels of complexity of functions and a corresponding need for different levels of expertise or capability (for example, financial analysis or complex legal advice) within those functions. In some circumstances, those agencies may be competing with the private sector market rather than within the public service. It will be important to ensure that there is flexibility for chief executives to build and maintain the capability needed to deliver the particular functions of their agency.

We would like to see more detailed analysis of the problems within the current system and further consideration about whether the proposed changes will address those problems.

Organisational arrangements

The discussion document proposes a more flexible range of organisational arrangements in the public service to join up the resources and operations of departments and to support better outcomes or improved public services. The proposals include public service executive boards, public service “joint ventures”, executive agencies, and statutory officers.

The proposals also introduce the concept of “collective accountability”, whereby accountability for a particular policy outcome or services is shared by a smaller group of chief executives.

In principle, we support the concept of enabling (and encouraging) different ways for government departments to work together. However, these proposals have implications for the current financial management and accountability settings in the public service. At present, chief executives are held accountable and must report on financial and non-financial performance at an individual departmental level. It appears that some of the proposed organisational arrangements will form new reporting entities with a designated responsible Minister and a specific dedicated appropriation. Others may strengthen joint working arrangements but chief executives will remain accountable to their respective Ministers for performance.

From our perspective, it will be essential to work through the reporting and accountability implications of the proposed new arrangements to ensure that there is appropriate Parliamentary scrutiny over any new organisational arrangements. It is important to be clear about who would be held accountable, what they would be held accountable for, who they would be accountable to, and what assurance would be required over any reporting. Any audit requirements should also be clearly identified.

We are happy to work closely with SSC and the Treasury on these financial management and accountability settings as the organisational arrangement proposals are described in more detail.

Leadership of the public service

We agree with the assertion in the discussion document that senior level leadership is the single most critical driver of successful change in the public service. The discussion document notes that there are still difficulties in ensuring a sufficient level of flexible deployment between roles and agencies to develop the leadership capability of the public service. However, there is little detail provided about why this flexibility is not achievable within the current system. We do not yet see a strong case for change.

There are arguments made about succession planning for key roles in the public service, for developing future chief executives by influencing second-tier appointments in agencies, or shifting people to development opportunities (all options that appear to be available at present). However, we note that it is essential that the ability to develop leaders in the public sector is carefully balanced with the need for open, transparent, and contestable processes to allow new talent and to support and encourage diversity in public service leadership positions.

Further, the need for flexible deployment throughout the public service at a senior leadership level (which appears to cover positions at different tiers, depending on organisation and job size) must be balanced with the need for agencies to maintain a core of leaders with experience and expertise. The discussion document notes that it will be important to get the balance right. In our view, it will be important to ensure that the balance does not swing too far back the other way – resulting in constantly moving staff around and losing experience and institutional knowledge. This has the potential to adversely affect the performance of agencies.

There is also a question about how the proposed Public Services Commissioner will work with chief executives in implementing the flexible deployment of senior leaders. The ability of the Commissioner to shift people around the system without the “voluntary co-operation of chief executives” (as expressed in the discussion document) creates the potential to adversely affect the role of individual chief executives and, in particular, their responsibility and accountability for the performance of their own departments.

Concluding comments

We welcome the discussion document and the issues raised for consideration, as well as the ambition which underpins the proposals. My office fully supports any changes that strengthen the performance and accountability of the public service and a thorough review of how our current systems can be improved. As we have outlined in our submission, there are many respects in which the current system has and continues to perform well. The threshold for system change should therefore be set high, and carefully considered to avoid the risk of unintended negative consequences.

We look forward to working closely with SSC as this work progresses and when there are opportunities to respond to more detailed proposals.

Yours sincerely

John Ryan
Controller and Auditor-General