Controller update on Government spending on Covid-19

Key points

• On 25 March 2020, in response to the coronavirus (COVID-19) pandemic, Parliament passed legislation authorising the Government to spend up to $52 billion in addition to that already authorised for 2019/20.
• The Government also invoked emergency legislation allowing it to approve emergency expenditure for a four-week period, if required, without needing any further authority from Parliament.
• These are the established and appropriate legislative provisions to use, as the Government acts to minimise the harm to New Zealand and New Zealanders from the pandemic.
• Given the scale of this event, the substantial funding available for the COVID-19 crisis, the pace of the Government’s emergency response, and the extraordinary conditions under which the public sector is operating, we will be giving special attention to the COVID-19 expenditure.

Our role

The Controller and Auditor-General is often referred to as the public “watchdog” on government spending. An important part of the watchdog role is the Controller function.

In this Controller role, we provide assurance to Parliament and New Zealanders that the Government has spent public money in line with the authority it has from Parliament.

Government’s spending of public money

Our constitutional arrangements require that the Government must not spend public money unless it is authorised by Parliament.

COVID-19 expenditure

The funding authorised in the 2019/20 Budget is inadequate for the Government’s COVID-19 response. Besides the Budget legislation, there are two other pieces of legislation that provide the Government with Parliamentary authority to incur COVID-19-related expenditure:

• Imprest Supply (Third for 2019/20) Act 2020 (passed on 25 March); and
• section 25 of the Public Finance Act 1989 (permanent legislative authority for emergencies).

Parliament’s control over the considerable amount of additional expenditure available is at a high level. That is why we will be looking closely at how Government, the Treasury, and government departments are managing it.

The Treasury has issued strict rules about how the additional expenditure can be accessed, with a requirement that the expenditure is “tagged” so it can be identified, tracked, and reported on.

Spending authority under imprest supply

On 25 March, Parliament authorised the Government to spend up to $52 billion when it passed the third Imprest Supply Act. That’s slightly less than half of the funding authorised through the entire Budget in 2019 ($110.786 billion).¹

Parliament passed this Act to authorise expenditure on the COVID-19 measures that the Government had announced and to cover any further measures the Government might wish to take.

The only restrictions on the $52 billion expenditure are the limits on expenses ($40 billion maximum), capital expenditure ($10 billion maximum), and capital injections ($2 billion maximum); this level of specification is normal for an Imprest Supply Act (although the sums involved are not). However, Cabinet has imposed some controls of its own before government departments can incur any of this expenditure.

Spending authority in a state of emergency under section 25

Separate from the imprest supply authority, the Minister of Finance may approve expenditure to meet an emergency or disaster, whether or not there is any other authority available for the purpose, under section 25 of the Public Finance Act 1989.² A state of national emergency was declared on 25 March and, on 27 March, the Government exercised its ability to use section 25.

Although Parliament does not specify the amount or type of expenditure that can be incurred under this provision, it may be used only to meet the emergency. Given the nature of this authority, we (and the Treasury) expect it to be used only as a last resort for emergency expenditure needed immediately (that is, when government departments cannot wait for Cabinet approval to use imprest supply).

We will be monitoring the use of section 25 closely. In addition, details of all expenditure under section 25 must be reported publicly and to Parliament in the Financial Statements of the Government, and those reports are audited by the Controller and Auditor-General.

Need for sound financial management

Through the mechanisms discussed above , Parliament has given Government a rare and considerable degree of flexibility to fund its response to the COVID-19 crisis. The prospect of incurring such a large amount of expenditure (largely unspecified by Parliament), together with the challenge of Cabinet and government departments working remotely in the lockdown environment, means that sound financial management, governance, and accountability are more critical than ever.

To assist with the financial management of the additional COVID-19 expenditure, the Treasury is playing a central role in managing the process for requesting and approving access to it. It has issued government departments with guidance on the rules and processes for accessing and reporting on any additional COVID-related funding. We have been supporting the Treasury in these actions.

The Treasury is also planning to continue reporting monthly on the Government’s accounts over the following months and is looking at enhanced reporting of COVID-19 spending.

Importance of the independent “watchdog”

As an independent watchdog on Government expenditure, we will monitor the COVID-19 spending and provide assurance to the public and Parliament about how the Government is accounting for it.

What have we given attention to so far?

We have been working with the Treasury as it manages the challenges to the public finance management system posed by the COVID-19 crisis. From the information we have been provided, we have seen that Treasury is concerned to ensure good process is followed in managing this expenditure.

Over the next few months, we will be looking at the Government’s systems and controls for authorising, tracking, and reporting on the additional COVID-19-related expenditure. Through this work, we will confirm whether good systems are in place for the Government to give an account to the public and Parliament on the authorising and use of the COVID-19 expenditure.

We will monitor the expenditure incurred, with a particular interest in any expenditure incurred under the emergency provisions of section 25 of the Public Finance Act. This will enable us to confirm whether the COVID-19 expenditure has been incurred in line with the necessary authorities.

We will report publicly on this work at least monthly, as well as more formally later in the year as part of our annual audit work.

1: See the Budget summary tables, page 2.

2: Specific conditions must be met before section 25 may be invoked.