Further changes are afoot in the Public Finance space-including not only changes to the fiscal regime and accountability and reporting structures, but also the creation of a number of new entities and entity types.
This year four new companies (Crown Asset Management Limited, Southern Response Earthquake Services Limited, Tamaki Redevelopment Company Limited and The Network for Learning Limited) have been created and added to schedule 4 of the Public Finance Act. “Schedule 4” companies are something of a hybrid creation. Those requirements of the Crown Entities Act specified in sections 45M and 45N of the Public Finance Act apply to them as if they were a Crown entity.
Following on from the Public Finance (Mixed Ownership Model) Amendment Act 2012 (which came into force on 30 June this year), the government has introduced not only the State Sector and Public Finance Reform Bill (see my post of 13 September), but at the same time has introduced the Public Finance (Fiscal Responsibility) Amendment Bill.
The mixed ownership legislation allows companies to be taken out of the SOE Act (which requires the government to own 100% of the shares in any SOE) and to be put into a new schedule 5 to the Public Finance Act, with a different regime applicable to them, including that the government’s shareholding in those companies be no less than 51%.
Amongst other things the State Sector and Public Finance Reform Bill establishes a further new type of organisational arrangement, the departmental agency, again, with some differences to the accountability regime that applies to departments.
The Public Finance (Fiscal Responsibility) Amendment Bill proposes a number of changes to the Government’s fiscal management regime and the associated fiscal responsibility provisions of the Public Finance Act 1989 (which were previously contained in the Fiscal Responsibility Act 1994).
The Bill amends an existing principle of responsible fiscal management set out in section 26G of the Public Finance Act relating to the level and stability of tax rates to require revenue strategy to be formulated with regards to efficiency and fairness as well as the predictability and stability of tax rates. It also proposes three additional new principles, which would require governments to:
• formulate fiscal strategy having regard to its interaction with monetary policy;
• formulate fiscal strategy having regard to its likely impact on current and future generations; and
• ensure that the Crown’s resources are managed effectively and efficiently.
In addition, the fiscal strategy report, which is currently required under the Public Finance Act, must not only be forward-looking, but will be required to include an assessment of the extent to which the fiscal performance of the government has been consistent with its fiscal strategy for that period.
This Bill also entrenches the publication by Treasury of an investment statement at no less than four yearly intervals, describing the significant assets and liabilities on the Crown’s balance sheet. The rationale behind the first such published statement in 2010 was that the report would enable greater scrutiny of the government’s management of its assets and liabilities and strengthen the transparency of the government’s accounts. Such transparency would enable more informed choices to be made about the use of resources within the economy as a whole.
New Zealand is still one of the few countries in the world to prepare sovereign balance sheets according to independent accountancy standards. Undoubtedly, that transparency aids decision-making and policy choices and we are something of a world leader in this regard. In comparison, Joseph Stiglitz, the Nobel prize-winning economist, has suggested in his book “The Three Trillion Dollar War” that it is time for government accounting in the US to properly recognise both the current and future financial and economic impact of its policies.
Amendments to the Public Finance Act may not stop here. Legislation to impose a spending limit (based on increases in population growth and inflation) based on the National-ACT confidence and supply agreement, is also expected to be introduced later this term. It is expected that this will be done by further amendments to the Public Finance Act.