Key John: Public Finance (State Sector Management) Bill — First Reading 
Key John: Public Finance (State Sector Management) Bill — First Reading 
[Volume:615;Page:11021] 
JOHN KEY (National—Helensville) 
: 
 I rise this afternoon to address the bill and to tell the House that National will support this legislation going to the select committee but with some reservations. The bill cuts to the heart of the State sector: the way it is run the way its business is carried out and the way it is reviewed. If the Government is to secure National’s long-term support for the Public Finance Act we will demand that the bill ends up achieving its goal of building integrity efficiency and accountability for the State sector. 
This bill is timely—in fact it is overdue in some respects—and there are a number of things over the last decade such as the Crown entity accountability regime that have needed review. I should caution also that the bill looks to incorporate one of the landmark pieces of New Zealand legislation the Fiscal Responsibility Act into the Public Finance Act. The Fiscal Responsibility Act should be updated in light of 10 years of experience but National would caution its consolidation into the Public Finance Act. Any moves to water down the importance or significance of the Fiscal Responsibility Act could have a dramatic impact on the financial resilience of the Crown. 
It is worth reflecting just for a moment on the history of the Public Finance Act. It is a piece of legislation that was passed into law in 1989 and was internationally unique in the way it balanced managerial freedom with accountability for finance and performance. Even today it remains on the frontier of best practice in seeking that balance. But we need to stand back and ask what the purposes are of the bill before us today and whether they have a great chance of achieving those goals. 
The Public Finance Act set out to locate financial management in the centre of an integrated performance-based public sector management system. That vision I would contend is as appropriate today as it was then in 1989. Over the past 15 years a few leading departments have made progress in performance management and an overdue effort has been made by central agencies in articulating policies and methods for managing outcomes. Therefore the revisions to the Public Finance Act should cement in what is best about the Act tidy up loose ends and promote and facilitate the leading practices in policy development performance management and accountability. As the law is unlikely to be revised for some time—we suggest maybe another 15 years—this is a rare opportunity to extend the boundaries again and make New Zealand once more a global leader in public sector management to the benefit of its citizens. If we look just for a moment beyond the integration of the Fiscal Responsibility Act there are a number of elements that National will be seeking assurances about at the Finance and Expenditure Committee including performance specifications classes for Crown entities and forecasting. 
I want however to spend my time today discussing potentially the most important element of the Public Finance Act—the appropriation structure. This bill allows the Government to aggregate classes of outputs into one appropriation. That has the aim and the potential to assist greatly in allowing the State sector to manage by outcomes as opposed to inputs. Equally it poses great risks. By permitting the aggregation of all output classes for any ministry into as few as one appropriation it could mean the combination of very dissimilar types of services within an appropriation. That could be disastrous if implemented inappropriately. 
Parliament has a duty to ensure via its members its select committees and indeed the Auditor-General that public spending is professionally carried out and appropriately accounted for and that value for money is achieved. Such an amalgamation of appropriations threatens that very process. What is being proposed could trigger an unwinding of the system of financial management back to the situation before the reforms of the 1980s. National will support this change only if it is accompanied by conditions that are both necessary and sufficient to ensure that it leads to a superior format for managing outcomes. Currently the bill does not provide that insurance but it could be modified to do so which is why National will support its going to the select committee. 
Under the present Public Finance Act the transfer of funds between output classes is restricted as each is a separate appropriation. Transfers up to 5 percent are permitted through an Order in Council. This detail and process allows for rigorous scrutiny not only by Ministers but also by the Auditor-General the select committee and interested parties. Indeed when such a scandal is unveiled it takes up much of question time. Currently the bill as proposed would allow the transfer of resources at an administrative level—that means without ministerial approval—in one huge lump sum which even the most terrier-like of an Opposition MP would struggle to dig into. 
The removal of the requirement for each output class to be an appropriation weakens the concept of authority and the concepts of information and audit. Therefore some of the questions National will raise at the Finance and Expenditure Committee will include: is it really necessary to aggregate output classes in order to achieve the goals the bill seeks? If the proposal goes ahead are there other measures capable of preserving the quality and availability of the information even though its role as an appropriation is diminished? Will the new system produce information for budgeting performance management and accountability that is superior to output classes that will be no longer needed? 
National believes that several steps are needed to move forward the agenda of outcome-focused management and the proposed easing of the appropriation constraints at the output-class level. These would include but are not limited to a much stronger base of knowledge research and experience from which to build evidence-based policies and interventions linking what Government actions take to outcomes with results; outcomes that are expressed in practical and accessible terms and not in the grandiose woofterish statements sometimes in evidence in Government documents which make no sense to anybody; management plans and resources that are clearly linked to the services being provided in pursuit of the outcomes; a Budget system that allocates the resources on the basis of those plans and that responds to performance information and detail about the Government’s actions; and a reorganisation of ministerial portfolios that reflects their responsibilities. 
Further we would contend that the aggregation of output classes is done without considering the more comprehensive package noted by my good self which is likely to result in weaker performance and a weakening of the State sector which may be at the heart of some of the architects of this bill. It is likely to have a reverse of the very plan for this bill and the very methodology behind it and it risks threatening a move back to the situation prior to the Public Finance Act of 1989. 
Parliament has a very very important role indeed in scrutinising Government departments to ensure that appropriations are spent on what they are intended for and that accountability can take place within Government departments and ministries. The Public Finance Act is critical legislation for driving the State sector. We must ensure that integrity and the ability to audit those Government departments are held paramount. Therefore we will support the bill going to the select committee but not without some great reservations.