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Statement of Intent 2011-2016

Published 19 May 2011

Presented to the House of Representatives Pursuant to Section 39 of the Public Finance Act 1989.

Note: The Treasury's Statement of Intent 2011-2016 forms part of the Information Supporting the Estimates of Appropriations 2011/12 along with the Treasury's forecast financial statements and a statement of forecast service performance. See Finance and Government Administration Sector - Information Supporting the Estimates of Appropriations 2011/12.

Our Outcomes and Vision

Overview

The Treasury's three outcomes are Improved Economic Performance, a High-Performing State Sector that Supports New Zealand's International Competitiveness and a Stable and Sustainable Macroeconomic Environment. These are interconnected and mutually reinforcing. For example, restraint in spending is one of the strongest levers available to government right now to support growth. This supports rebalancing toward an economy capable of delivering stronger sustained increases in performance. Spending restraint right now also contains macroeconomic risks that could quickly reverse New Zealand's growth prospects.

At the same time State sector spending delivers important services to New Zealanders and influences New Zealand's attractiveness as a place to live and do business. A productive State sector provides quality services within finite resources. At roughly one-third of the economy, the State sector also makes an important contribution to New Zealand's productivity. Over the longer term, to grow the level of services sustainably requires productivity and the finances generated by a growing economy.

Our vision is to be a world class Treasury working towards higher living standards for New Zealanders. All of our work within our three outcomes aims to advance this vision. Further work on the Treasury's living standards vision will help guide how we approach our work within the three outcomes and will be more fully advanced in our next Statement of Intent. We expect further work in this area to highlight trade-offs as well as synergies.

The Relationship Between Socio-economic Background and Educational Performance
The Relationship Between Socio-economic Background and Educational Performance.
Source: OECD

Our concept of living standards includes economic, human, social and environmental dimensions. We take account of both the current and future standard of living, to ensure resources are managed efficiently and sustainably. We also consider how key factors influencing living standards are distributed across the population, and how opportunities can be promoted for those most dis-advantaged. The Treasury tracks growth in real median household wealth and income, levels of reported crime and victimisation, subjective wellbeing, growth in healthy life years and social mobility for children in low-decile households. We track social mobility through the high impact of parents' socio-economic status on children's educational performance in New Zealand.

The factors we track are all key components of living standards, and can all be improved through a well-performing economy, cost-effective government interventions and reduced macroeconomic vulnerability.

Outcome: Improved Economic Performance

What are we seeking to achieve?

Relative Levels of GDP Per Capita, 1975 to 2009 (OECD Average=100)
Relative Levels of GDP Per Capita, 1975 to 2009 (OECD Average=100).
Source: OECD

New Zealand's average gross domestic product (GDP) per capita growth for the last six decades has been poorer than all other Organisation for Economic Co-operation and Development (OECD) countries. The Treasury looks to growth in GDP per capita as the primary indicator of our economic performance.New Zealand's GDP per capita ranked third among OECD countries in 1950 and 22nd in 2009 (of 34 OECD member countries). Closing the gap with Australia within 15 years will require average GDP per capita growth of above 4%, more than twice New Zealand's average rate over the last two decades. For a country of New Zealand's size, much of this growth will need to be driven by strong export performance. For this reason the Treasury also closely considers growth in tradable sector output compared to growth in the non-tradable sector to determine if we are rebalancing to a higher growth economy.

New Zealand's poor performance reflects its labour productivity, associated with relatively low levels of both capital intensity and multi-factor productivity. To reverse this decline requires policy change with the potential to lift productivity across the economy and support a substantial lift in export performance. This will require:

First, continued restraint in government spending to support a reversal of the trend of non-tradable output growth at the expense of tradable sector output. Second, the business environment must provide confidence and certainty to facilitate ongoing foreign and domestic investment, including in effectively utilising our natural capital. Third, tax and other settings must support capital deepening. And finally, to attain average growth rates above 4% requires policy settings that supportstrongincentives for entrepreneurship and innovation, where well-performing firms seek out and develop profitable opportunities and poor-performing firms exit.

Rapid growth in GDP per capita would expose challenges in skill development, which New Zealand will need to prepare to meet. While labour force participation is high in New Zealand, improvements here are still possible which could make a meaningful contribution to sustaining higher growth.

What will we do to achieve this outcome?

All of the Treasury's intermediate outcomes contribute to the improved Economic Performance outcome to varying degrees. Three key structural policy-related intermediate outcomes make important direct contributions to this outcome:

Intermediate outcome: Improved business environment

New Zealand's business environment needs to strongly outperform other countries to overcome the disadvantages of size and distance. The Treasury's work aims to influence the quality of New Zealand's tax, regulatory, infrastructure and other policy settings as demonstrated by international rankings of these. Overall there has been relative slippage in relevant policy settings over recent years reflecting some deterioration in New Zealand and improvements elsewhere.

On key policy settings that influence the business environment, the Treasury will provide advice, develop options for Government and support their leadership and decision-making on advice received from the public sector more broadly. The Treasury will particularly work with the Ministry of Economic Development (MED), with a focus on competition settings, and to develop a well-functioning innovation system, with Inland Revenue (IRD) to jointly develop tax policy advice, and with many others.

Non-residential Investment Per Worker (OECD=100)
Relative Levels of GDP Per Capita, 1975 to 2009 (OECD Average=100).
Source: OECD

Treasury work focuses on regulatory and tax policy settings, because of their pervasive effects on incentives to compete, invest and take risks. As a key indicator the Treasury tracks whether business investment and business research and development (R&D) as a percentage of GDP are lifting to the OECD mean.

The Treasury will promote regulatory reform by providing policy advice on key regulatory sectors that matter for growth and advice on how to improve the regulatory management system. We will support Ministers to improve the flow of regulation through our role in assessing major Regulatory Impact Assessments, and building agency capability. We will also support agencies in their assessments of the stock of regulation based on principles of best practice regulation.

The Treasury's tax policy work will evaluate and present the case for further improvement to the capital taxation regime to address the impact on savings and investment decisions of current tax settings, as raised by the Savings Working Group.

We will also focus on returning economic growth to the Canterbury region. The Treasury will help Ministers frame the broad approach to economic recovery. Secondly, the Treasury will monitor and provide advice on the implications of recovery in Canterbury on the Government's fiscal position. Finally, as a Central Agency we have a role in ensuring that the necessary cross-government co-ordination is occurring, there are appropriate governance and institutional arrangements in place and in monitoring the capability of agencies to respond to this challenge.

We also work on infrastructure because of its contributions both to economic growth and to quality of life. Our work will give effect to the second edition of the National Infrastructure Plan, which aims to give businesses confidence that New Zealand's infrastructure environment is responsive and supports the productive and tradable sector.

We work on issues critical to natural resources because of the significant impact of primary production on the economy. The Treasury advice will assist government to provide certainty regarding constraints to primary production on topics such as water and will review the Resource Management Act 1991. We will also provide advice on New Zealand's international climate change negotiating position to achieve emissions reductions at least economic cost.

Refer to Measures section below to see how we assess the Treasury's contribution.

Intermediate outcome: New Zealand is more integrated and connected into the global economy

New Zealand's small population and extreme remoteness make it more difficult to realise the benefits of economies of scale, agglomeration and competition. In the absence of large internal markets, international integration and connection into the global economy allows New Zealand to access resources that facilitate high productivity, to specialise in areas of comparative advantage and benefit from economies of scale, to access international knowledge and adapt it to domestic circumstances, and to stimulate competition that spurs innovation and moves resources to areas of comparative advantage. As indicators,the Treasurytracks New Zealand's export share of world trade, and flows of foreign and overseas direct investment (FDI & ODI) as a percentage of GDP.

Owing to the growing importance of Asia-Pacific in the global economy, there are potentially large economic gains to be made from being part of economic integration that develops in the region. There are a number of possible vehicles for economic integration within the region - for example, the East Asian Summit, APEC and the Trans Pacific Partnership - though it is unclear which will eventually be successful. Domestic policy-making in New Zealand and by countries in the region has a pervasive impact on the flows of trade, investment, people and ideas. Similarly, policy making by international institutions - for example, the international financial institutions[1], the G20 and climate change fora - have a significant impact on the flows and New Zealand's policy choices. We will develop and maintain effective international relationships so that the Treasury and the Government can more widely influence policy-making by other countries and by international institutions so that regional integration and international fora effectively include our interests.

In the short term we will rely on an ongoing research programme to clarify how at-the-border and behind-the-border policy can improve the flow of trade, people, investment and ideas between New Zealand and the global economy. We also recognise that public attitudes - for example, toward free trade and foreign investment - have an impact on decision-making. Through our advice and external engagement we aim to encourage a debate with greater recognition of the benefits of openness and the costs of New Zealand's relatively limited connections to the global economy.

We will also continue to provide NZECO products and services to increase exports that otherwise would not have occurred owing to constrained access to trade finance or appropriate risk mitigation techniques.

In addition to the priorities identified above, we will also provide second-opinion policy advice on improving the effectiveness and efficiency of New Zealand's offshore presence.

Refer to Measures section below to see how we assess the Treasury's contribution.

Intermediate outcome: Enhanced human capital and labour supply

Skills influence productivity and growth directly, through their impact on labour productivity and labour utilisation; and indirectly, through their effect on other drivers of growth, such as innovation and international connectedness. Overall, New Zealand performs relatively well in terms of both the utilisation and skill level of its labour force; however, there are some areas of underperformance. Population ageing and the “skill-bias” of technological change, present increasing challenges, as would the demands of a strongly growing economy.

Government's agenda includes integration of the Youth Guarantee and Youth Pipeline, aimed at better identification of at-risk young people; better support and pathways into post-school education and training or career; and the provision of high-quality education and training programmes leading to meaningful qualifications. The Government's Tertiary Education Strategy, which has seven objectives, is also highly relevant. The integration of this Strategy with Youth Guarantee and Youth Pipeline can deliver asystem that provides the right incentives to transition to tertiary study, to complete that study quickly and to move to the labour force.

Government is pursuing a broad and interconnected reform agenda on a complex set of topics relevant to youth achievement, whichthe Treasury will focus on supporting. The Treasury can add to the advice of other agencies by helping senior Ministers and Cabinet to weigh fiscal, economic and social objectives of proposals and helping agencies themselves craft fit-for-purpose advice. Where a broad range of advice is produced by agencies, a coordinated and coherent approach is not guaranteed, and the Treasury can support Government to achieve this objective. The Treasury will work with the Ministries of Education and Social Development to ensure that proposals are consistent, coherent, evidence-based and cost-effective, consistent with the interests of the Minister of Finance. Our support can facilitate effective leadership and decision-making by Government and help it achieve its educational objectives.

To evaluate youth achievement in New Zealand, the Treasury tracks achievement of NCEA Level 2 by young people (which should be near-universal). Conversely, we track the number of young people not in education, training or employment. The Treasury also tracks the number of young people (aged under 25) achieving qualifications at Level 4 and above, particularly degrees.

Realising these and other priorities will require further refinement and reshaping of tertiary education funding and policy settings. Our advice in this area will have a particular emphasis on improving flexibility, performance, price and value for money. We will also undertake research into the reasons for New Zealand's relatively low private returns to tertiary education.

The Government also makes a significant fiscal contribution to this sector through education, and through welfare settings (which influence labour force participation, thus economic performance). These also contribute to a High-Performing State Sector that Supports International Competitiveness, discussed on page 20.

Refer to Measures section below to see how we assess the Treasury's contribution.

Notes

  • [1]The international financial institutions are: the International Monetary Fund; the Asian Development Bank; and the World Bank.

Outcome: Improved Economic Performance (continued)

Tracking the status of our outcomes and intermediate outcomes

Outcome indicators - We will assess economic performance based on:

Growth rates sufficient to deliver high incomes to New Zealanders.   A strong recovery in 2012 is sustained, lifting five-year average real GDP per capita above the OECD average and ultimately reaching 4% per annum.

  • The economy will likely be soft in 2011 owing to a weak global economy and the February 2011 earthquake.
  • After falling further behind for much of the 20th century, New Zealand’s real GDP per capita growth has broadly kept pace with the OECD average over the last two decades, averaging around 1.5 per cent.  For most of this period New Zealand did not converge with high income countries, unlike the UK and Australia.

The economy rebalances to deliver higher growth.  Growth in tradable sector output at least matches that of the non-tradable sector over the next two years, and then significantly exceeds it.

  • In the five-year period 2005 to 2010, tradable sector output fell by 2% per annum on average.  This compared to growth in the non-tradable output of 2.1% over the same period.

Intermediate outcome indicators – We will assess the state of the business environment based on:

Business investment as a percentage of GDP increases substantially to OECD-mean level.
Business expenditure on R&D (BERD) lifts substantially to around 1% to 2% of GDP BERD (2008: 0.51%).

Intermediate outcome indicators – We will assess whether New Zealand is more integrated and connected into the global economy based on:

New Zealand's export share of world trade improves. (This has been roughly constant at around 0.36% since 1990.)
The flow of FDI and ODI increases as a percentage of GDP (ODI to GDP is half OECD average, FDI is 30% of foreign investment).

Intermediate outcome indicators - We will assess the state of human capital and labour supplybased on:

Ninety-five percent to 98% of young people achieve at least NCEA Level 2 or equivalent by the time they complete their schooling or reach the age of 18.

  • Using comparable data sets, 73% of 2009 school leavers achieved NCEA Level 2 or above, compared to 52.6% in 2003 – a 39% increase over six years.

A greater proportion of young people achieve vocational and tertiary qualifications at Level 4 and above by age 25.

  • In 2009, 38% to 41% of 25-year-olds had completed a tertiary qualification at Level 4 or above, compared with 31% in 2003.

There is a reduction to at least the OECD mean in the proportion of 15- to 24-year-olds who are NEET (not engaged in education, training or employment).  More young people are transitioning directly from school into tertiary education, and increased numbers of people under the age of 25 are participating in and completing tertiary and vocational programmes leading to qualifications at Level 4 and above, at 36 months.

  • In 2008, 8.4% of 15- to 19-year-olds and 15.2% of 20- to 24-year-olds were not in employment, education or training (NEET), compared to OECD means of 6.8% and 14.3% respectively.

 

Monitoring the impact of the Treasury's performance on our intermediate outcomes

(Current year performance information is set out in more detail in Information Supporting the Estimates)

Impact measures: How our performance will impact on an improved business environment

Regulatory Impact Statements meet most or all of Regulatory Impact Analysis requirements: 75% by 2012 and 90% by 2013 (in the past year, 60% met the requirements). 

Our regulatory work seeks to achieve a regulatory environment that is world-best as shown in: OECD Product Market Regulation “Barriers to Entrepreneurship” indicator and World Bank's “Ease of Doing Business”.

Our advice helps Government make and announce its decisions on any capital tax reform by Budget 2012.

Our tax work seeks to achieve a tax system that ranks highly in tax-related “Economic Development Indicators”.

The National Infrastructure Plan and annual Infrastructure State of the Nation report provide certainty to business/investors and the public over the performance of New Zealand's infrastructure. Stakeholder analysis confirms the Treasury's impact.

Our infrastructure work aims to lift the perceived quality of New Zealand's infrastructure, as measured in its ranking from World Economic Forum Global Competitiveness report (37th out of 139 countries in 2010).

The Treasury's advice and support assists progress on freshwater limits and allocation mechanisms - National Policy Statement on freshwater management issued in mid-2011; detailed policy direction on freshwater allocation decided in 2012 or 2013; governance mechanisms for freshwater allocation established in 2013.

Our aim is for all regional authorities to have clear use limits and allocation mechanisms for fresh water that promote efficient use.

New Zealand's negotiating position in international meetings on climate change (for example, in South Africa in November-December 2012) is consistent with the final climate change targets imposing economic impacts no greater than those faced by comparator countries.

Impact measures: How our performance will impact on enhanced human capital and labour supply

The Government agrees to and implements a programme of change under Youth Guarantee and Youth Pipeline that is coherent, cost effective and well integrated with changes resulting from the medium-term schooling strategy, benefit reforms and in industry training and tertiary education, by 2013.

Our aim is to see a positive impact on levels of NCEA Level 2 and NEET by 2015.

Government implements changes in the tertiary education sector which further prioritise and support the participation of young people in programmes leading to qualification at Level 4 and above, at 18 months.

Impact measures: How our performance will impact on New Zealand's integration and connection into the global economy

The Treasury's research identifies any trade policy barriers to growth and develops a set of metrics to measure New Zealand's performance in relation to international integration and connection into the global economy and uses these to advise government on potential policy changes.  
Better international linkages and relationships through Memoranda of Understanding for Treasury-to-Treasury dialogues with one or more countries of economic significance to New Zealand.

Outcome: A High-Performing State Sector that Supports New Zealand's International Competitiveness

What are we seeking to achieve?

The quality of expenditure, regulation and other interventions by State sector agencies has a significant impact, both good and bad, on the incomes, opportunities and general wellbeing of individuals. It impacts both directly and indirectly on New Zealand's economic performance, which is a critical dimension of New Zealanders' living standards, particularly through the way it affects individuals' and firms' productivity. Government interventions also have a distributional impact; the Government has an important role to play in protecting the most vulnerable in our society.

The ultimate measure of a high-performing State sector is its success delivering on the economic, social and environmental objectives of the Government in a way that is:

Effective: Focusing on the right issues and identifying the most appropriate form of intervention. The Treasury tracks New Zealand's score and ranking in the OECD Indicators of Product Market Regulation as one measure of how well State sector interventions support rather than constrain the Government's economic growth objective. While they must be interpreted with care, the Treasury tracks Kiwi's Count scores as an indicator of the quality of the public service.

Core Crown Expenses (Excluding Losses) to Nominal GDP
Core Crown Expenses (Excluding Losses) to Nominal GDP.
Source: Treasury

Efficient: Minimising cost, achieving better outcomes with the same level of resource or freeing up resource for other uses. While there are no perfect measures of State sector efficiency, an increasingly efficient State sector would likely lead to State service employees falling as a proportion of the labour force over time, which the Treasury tracks as one key indicator amongst others.

Affordable: Total State sector spending drives tax and debt levels now and in the future. The short-term challenge is to return to fiscal surplus to contain New Zealand's vulnerability to economic shocks and to put the Crown in a strong position to manage future expenditure pressures. The Treasury tracks core Crown expenses as a proportion of GDP. We will work to support a decrease over the next three to five years.

What will we do to achieve this outcome?

Intermediate outcome: State institutions are fit for purpose, promote trust and support good stewardship

High-performing State institutions drive effectiveness and efficiency in government services. They have the capability and incentives to provide quality advice to meet the needs of Ministers and the public through the coordination of policy, regulation and service delivery. They have a strong customer focus (again shown through Kiwis Count scores).

As a Central Agency, the Treasury, along with SSC and DPMC, has a role in ensuring the structural organisation, governance and management of all the State's institutions are efficient and effective.

It is a Treasury key initiative to achieve better institutional settings to support a modern public sector. This will include advice on structural and non-structural options to improve coordination of services, human resources and the quality of advice around key priority areas. This work will be advanced from both a State sector-wide perspective and with a more specific focus on optimal configuration of functions, decision rights and incentives in the major sectors. We will provide support to other agencies to facilitate collaboration, innovation and cross-government investment in more efficient systems.

In addition, the Treasury will conduct a range of contributing work including continued support for agencies as they are reviewed using the PIF. We will provide advice on improving the effectiveness of the performance management system. We will help build and maintain the capabilities to tackle the significant cross-cutting issues facing developed countries, such as population ageing.

Refer to Measures section below to see how we assess the Treasury's contribution.

Intermediate outcome: Resources in the State sector are allocated to where they are most effective and services are delivered in the most efficient way

The State sector maximises the contribution of scarce resources to the Government's objectives through doing the right things in the right way. The Treasury will provide Ministers with a range of advice and options that will assist government to achieve this through the targeting of spending to where there is most need and benefit, through making sure that the benefits outweigh the costs of interventions and through State interventions that meet or exceed the performance of international counterparts. Taken together, this approach will provide practical options to enable the Government to manage within the agreed operating and capital allowances, including through the Crown's Budget process.

The Treasury will provide advice from this perspective, to augment that from lead agencies, on an affordable health system that delivers appropriate health services, and an affordable justice sector that reduces the impact of crime on New Zealanders, and affordable education and welfare sectors that develop and utilise human capital. The Treasury will also support the Ministry of Education and Ministers to develop and adopt a medium-term strategy for schooling that provides a clear and purposeful agenda for change, particularly in the areas of workforce quality and school performance information. Our second-opinion policy advice and support to agencies will aim to build quality of policy analysis and regulatory assessments.

The Treasury will focus in particular on supporting welfare reform. The recent report of the Welfare Working Group highlighted the long-term liability to the Crown associated with the working-age benefit population. The Treasury will work with other agencies to provide joined-up advice to government on the comprehensive reform of the benefits system. Through this advice, we will support agencies and Ministers to adopt reforms based on accurate measures of the Crown's long-term liability, informed by evidence about the cost effectiveness and long-term impact of policies and interventions, and with clear accountability for results.

In addition, the Treasury will provide advice to Ministers about mechanisms to strengthen the Budget process and improve incentives on agencies to improve medium-term planning. This will include advice on medium-term strategies for sectors with the highest levels of government spending - health, education, welfare, justice. We will identify and promote benchmarking of agency activities and opportunities to pursue back office mergers and reduce functional overlaps. The Treasury will continue to run the Crown's Budget process, and provide guidance to agencies to ensure activities comply with the Public Finance Act 1989 and Cabinet. Some of the Treasury's work to this intermediate outcome also contributes to A Stable and Sustainable Macroeconomic Environment and is discussed on page 25.

Refer to Measures section below to see how we assess the Treasury's contribution.

Intermediate outcome: The Crown's balance sheet is managed efficiently and effectively

The New Zealand State sector manages over $220 billion worth of assets - around half of which are physical assets - across three portfolios of social assets (such as roads and schools), commercial assets and financial assets and liabilities. These assets are forecast to grow by $30 billion over the next five years. Sharpening incentives to use existing capital well, introducing private sector capital and disciplines where appropriate and prioritising capital to its highest value use increase State sector productivity and the ability of the Crown to deliver more for less.

We seek to align over time the composition and shape of the Crown's assets and liabilities with the Government's value, performance and risk objectives (for example, choices between the level of investment in State-Owned Enterprises [SOEs] versus debt repayment). Our focus is on improvements to the measurement and understanding of the balance sheet and Crown risks (including through future Investment Statements), and advice on changes to the structure of the balance sheet and the ways in which the balance sheet is managed (such as tools for better aligning capital allocation to government's objectives). The main priority in this area is to undertake preparatory work on commercial transactions to advance mixed ownership of some SOEs and - subject to government agreement after the 2011 general election - progressing those commercial transactions.

We will advance the Treasury's capability to monitor entities (and support other agencies in their monitoring role). Our objective is to obtain appropriate rates of return and dividends from the Crown’s portfolio of financial assets and commercial entities, through high-quality governance, transparently available performance information and entity business strategies maximising long-term value for the Crown.

We will support and evaluate continued development of a capital asset management (CAM) framework across government; strong CAM practices enhance performance and effectively manage risk from Crown infrastructural assets.

In order to minimise debt costs within an appropriate risk profile, we will continue to emphasise marketing to investors, we will support cross-Treasury efforts to achieve a higher credit rating for the New Zealand Government and we will explore funding options across a range of instruments and a range of domestic and foreign markets.

We will also effectively manage the exit from the Retail Deposit Guarantee Scheme (RDGS) and Wholesale Funding Guarantee Facility (WFGF), and the residual issues associated with these schemes.

Some of the Treasury's work to this intermediate outcome also contributes to A Stable and Sustainable Macroeconomic Environment and is discussed on page 25.

Refer to Measures section below to see how we assess the Treasury's contribution.

Outcome: A High-Performing State Sector that Supports New Zealand's International Competitiveness (continued)

Tracking the status of our outcomes and intermediate outcomes

Outcome indicators - We will assess a high-performing State sector that supports New Zealand's international competitiveness based on:

Core Crown expenses as a proportion of GDP reduces over the next three to five years.

  • Core Crown expenses were 33.8% of GDP at June 2010. Over the past decade this ratio has ranged between 29% and 34%. More recently, expenses have risen as a proportion of GDP owing to the financial crisis.  

The number of State service[2] employees as a proportion of the labour force is reducing over the next three to five years.

  • At June 2010, State service employees accounted for approximately 225,000 people or about 10% of the total labour force.  While as a proportion of the total labour force this figure has not changed significantly over the past decade, approximately 38,000 more people have been employed in the State service since 2000.

New Zealand's score and ranking in the OECD Indicators of Product Market Regulation improves. The Treasury looks at this indicator as a proxy for the effectiveness of government in supporting economic growth.

  • New Zealand’s product market regulation was rated as one of the least restrictive in the late 1990s and the overall rating has changed little since. Many OECD countries have improved their rating over time. The Product Market Regulation Index is an imperfect proxy for  the State sector’s ability to advance the Government’s economic performance objective.

Public perception of the quality of public services is improving, despite tight fiscal environment. This is reflected in the Kiwis Count quality score for public services rising from 71 in 2011 to 72 in 2013.  (The Treasury's role in State sector management also gives it an influence over the state of this indicator.)

  • The Kiwis Count quality score for public services was 68 in 2007 and 69 in 2009. Perceptions of public service quality are influenced as much by expectations as by experience; higher expectations can lead to lower scores. However, Kiwis Count can provide a useful indication of how well the public sector is meeting the needs of the public and also captures aspects of the level of trust in government, corruption and transparency. 

Intermediate outcome indicators – We will assess whether State institutions are fit for purpose, promote trust and support good stewardship based on:

Agencies are demonstrating continuous performance improvement through the PIF reviews. Follow-up processes are in place and being implemented to monitor progress on PIF action plans. For agencies undergoing the second cycle of PIF reviews from 2013 on, the proportion of ratings of “strong” or “well placed” is above 60% for organisational management and 70% for results.

  • The current proportion of ratings of “strong” or “well placed” is 50% for organisational management and 59% for results.

Intermediate outcome indicators – We will assess whether resources in the State sector are allocated to where they are most effective and services are delivered in the most efficient way based on:

Health, education and income support spending is well targeted, shifting towards low income households

  • Real average spending per household increased over the period 1988/89 to 2006/07. Spending remains weighted towards lower income households; since 1998/99 there has been a gradual increase in the proportion of spending distribution directed to higher deciles.
A selection of indicators shows agencies deliver services efficiently and effectively, meeting or exceeding the performance of their international peers.  
The Treasury's advice and options assist the Government to return earlier to fiscal surplus.
Intermediate outcome indicators - We will assess whether the Crown balance sheet is managed efficiently and effectively based on:
The composition and shape of the Crown's assets and liabilities is aligned with Government's value, performance and risk objectives.

 

Monitoring the impact of the Treasury's performance on our intermediate outcomes

(Current year performance information is set out in more detail in Information Supporting the Estimates)

Impact measures: The Treasury's performance and its impact on whether State institutions are fit for purpose, promote trust and support good stewardship

State sector reform agenda results in a smaller, sharper set of well-focused and coordinated public agencies and greater contestability in the delivery of public services.

Impact measures: How our performance will impact on whether resources in the State sector are allocated to where they are most effective and services are delivered in the most efficient way

The long-term liability to the Crown associated with the working-age benefit population is accurately measured
(by 12 months), used to inform policy (by 24 months) and appropriate targets for reductions in the liability are established and delivery agencies are accountable for the liability (by 36 months).

  • Thirteen percent of the working-age population receiving a benefit; one in five of New Zealand’s children in benefit-dependent families (2010 approximate).  There were 170,000 people on a benefit for most of the past 10 years; vast majority for reasons other than unemployment (2009 approximate).

All new significant spending proposals are subject to cost benefit analysis (or similar).  Over the next 12 months the Treasury will develop a methodology and process for gathering this information.

Progressively, evidence of the costs and benefits of baseline expenditure is built up, with a target set by 2012/13.

  • This information is currently not systematically collected or published. While not always specifically measuring costs and benefits of expenditure, some evidence will flow through into current decisions.

All new regulatory proposals include assessment of costs and benefits. Progressively, the stock of regulation is assessed for its costs and benefits; 60% of stock scanned by 2013; 90% of Regulatory Impact Statements meeting most or all Regulatory Impact Analysis  requirements by 2013.

  • Sixty percent of RISs currently meet most or all RIA requirements. Departments scanned the full stock of regulation in 2010, but at a very high level. They will now move to look at the stock in a more detailed manner to assess whether further work is required, and we expect this to occur over approximately a five-year period.
Over the next year, the Treasury will develop a sample of indicators of efficiency and effectiveness of State sector operations.

Administrative and support services are efficient and effective and they meet or exceed the performance of international peers. Spending on administrative and support services reduces by 15% across the State sector, with equal or improved effectiveness over the next three to five years.

  • Departments and Crown Agents (not including district health boards) currently spend 9.8% of their operating running costs on administrative and support services.

Impact measures: How our performance will impact on whether the Crown's balance sheet is managed efficiently and effectively

A government strategy is in place to guide decision-taking around balance sheet management. As a result, changes are made to the composition of the balance sheet to optimise settings and allocate capital to government priorities.
The Government's mixed-ownership-model objectives are met.
Appropriate rates of return and dividends are achieved from the Crown's portfolio of financial assets and commercial entities.  Financial performance of the Crown's companies being comparable to private sector benchmarks. Long-term returns of the Crown's Crown Financial Institutions (CFIs) meeting or exceeding their fund objectives.  Appropriate benchmarks around Total Shareholder Return and Dividend Yield will be developed by December 2011.
Capital asset management practices are enhancing performance.   All capital-intensive agencies considered best practice.  Measures of asset performance being in place by 2012 for all the capital-intensive agencies. Measures of asset performance improving over time.

Notes

  • [2]State services include public service departments, non-public service departments, Crown entities, the Reserve Bank, district health boards and entities on the new Public Finance Act Fourth Schedule (such as Fish and Game Councils). It excludes tertiary education institutions and SOEs.

Outcome: A Stable and Sustainable Macroeconomic Environment

What are we seeking to achieve?

Net Core Crown Debt to Nominal GDP
Net Core Crown Debt to Nominal GDP.
Source: Treasury

The global financial crisis illustrated that an extended period of strong economic growth is not sufficient to ensure high living standards for current and future generations. The macroeconomic environment and the government policies that lie behind it must be both stable and sustainable to deliver broad and enduring prosperity. High net debt, low national savings and unnecessary variability in the growth of GDP generate vulnerabilities to the economy. Instability can also be driven by external events, and low net debt provides the ability to manage the impact of such events on New Zealand.

Higher national saving will enable investment to occur while allowing room for the vulnerability associated with external financing to fall. We aim to help government lift its contribution to national savings and to achieve a significant lift in gross national saving to avoid triggering significant and abrupt adjustments in the New Zealand economy like those currently being experienced in parts of Europe. Such adjustments can reduce long-term growth prospects. Furthermore, large fluctuations in activity and employment have negative household income and social consequences, and therefore weigh on living standards. The Treasury looks to sovereign credit ratings as one indicator of this vulnerability, and in reference to a suite of other measures.

An improved sovereign credit rating will only be likely if New Zealand's export receipts increase significantly, if the net international liability position shows a sustained downward trend and/or if there was clear evidence that those liabilities were being used to fund investment that would support a significant lift in New Zealand's economic growth. Declining economic vulnerabilities would be diagnosed through a significant lift in gross national savings, which the Treasury tracks as a key indicator.

Providing the current generation with high-quality services is not sustainable if it raises the risk of future macroeconomic instability or if current spending must be financed by increased debt, taxes and reduced services (the Long-term Fiscal Statement tracks this). A sustainable balance of debt and spending on current and future services prevents inter-generational inequity or the risk of future instability.

Government's conduct of fiscal and other policies can also help maintain an economy with modest variability in GDP growth, low and stable inflation rates and with predictability in tax and spending(the Treasury tracks these as key indicators). These factors allow individuals and businesses to save and invest more effectively for the longer term. Higher and more productive investment is a key factor in achieving higher economic growth.

What will we do to achieve this outcome?

Intermediate outcome: A stable macroeconomic environment

The Treasury's work aims to help Government to reduce the risk of an abrupt negative economic adjustment. Our work will provide advice to help government reduce variability in the typical business cycle(a key indicator) and the ensuing risk of sudden economic shocks by better avoiding pro-cyclical fiscal policy - especially exacerbating the peak of the economic cycle. We will review the Public Finance Act 1989 and undertake research to ensure that the contribution fiscal policy settings make to macroeconomic stability is fit for purpose, and in particular does not contribute inappropriately to economic imbalances and the business cycle. We will also continue to undertake economic and fiscal monitoring/reporting and forecasting, which are critical for identifying emerging risks that could undermine macroeconomic stability and sustainability and through our advice, support timely policy responses. We will also provide options to reduce the negative impacts on household savings behaviour of, e.g. welfare and retirement income settings.

The Treasury will advise the Minister of Finance regarding the impact of government policy on inflation, and as required on the most appropriate monetary policy framework, including his Policy Targets Agreement with the Reserve Bank, which influences the Bank's conduct and the resulting degree of price stability.

Refer to Measures section below to see how we assess the Treasury's contribution.

Intermediate outcome: The State sector allocates resources to where they are most effective and delivers services in the most efficient way

Net Core Crown Debt to Nominal GDP
Net Core Crown Debt to Nominal GDP.
Source: Treasury

New Zealand's net debt and its future fiscal position are driven by current and historical spending decisions. In the most recent Long-term Fiscal Statement (2009), the Treasury outlined the choices and trade-offs that will be needed to meet future cost and demand pressures. It showed that, without policy changes, especially in public spending, New Zealand's ageing population structure will make it increasingly harder to avoid significant fiscal deficits. Either debt will lift, or tax rises will be required to keep debt in check, leading to significant impacts on macro stability and growth whichever occurs. The Treasury will publish another Long-term Fiscal Statement in 2012/13. We will evaluate the extent to which spending is consistent with the long-term fiscal strategy. This will include advice on medium-term strategies for sectors with the highest levels of government spending – health, education, welfare and justice.

We will also advise on the wider economic impact of State sector spending, including its impact through taxes, on economic volatility and on inflation and inflation expectations. The Treasury will work to assist Ministers to bring the operating balance back to surplus as soon as possible (discussed in more detail on page 20, contributing to the outcome of a High-Performing State Sector that Supports New Zealand's International Competitiveness).

Refer to Measures section below to see how we assess the Treasury's contribution.

Intermediate outcome: The Crown's balance sheet is managed efficiently and effectively

The Crown's approach to effectively and efficiently managing its balance sheet revolves around rebuilding the Government's buffer against future shocks; reducing risk exposures; managing debt and non-debt liabilities to sustainable levels consistent with long-term fiscal solvency; and minimising borrowing costs subject to an acceptable level of risk.

Enhancing performance and containing risk across the Crown's assets and liabilities contributes to our high-level outcomes by assisting net debt objectives, reducing core Crown expenses and minimising negative impacts on the Crown's fiscal position arising from economic downturns and other events.

This intermediate outcome also contributes to a High-Performing State Sector that Supports New Zealand’s International Competitiveness and is discussed on page 21.

Refer to Measures section below to see how we assess the Treasury's contribution.

Outcome: A Stable and Sustainable Macroeconomic Environment (continued)

Tracking the status of our outcomes and intermediate outcomes

Outcome indicators - How will we know if there is a Stable and Sustainable Macroeconomic Environment?

Reduced concerns about New Zealand's external vulnerabilities.  This would be reflected in Fitch and Standard and Poors reaffirming New Zealand's sovereign credit rating at AA+ and removing it from negative outlook in 2011.  By 2015/16 these are increased to AAA with stable outlook.

  • Moody’s has had New Zealand’s foreign currency credit rating at Aaa since 2002. Fitch and Standard and Poors have had the rating at AA+ for much of the last 10 years, although both currently have it on negative outlook.

Improved fiscal outlook.  Crown net debt projections trend down to between 10% and 20% of GDP, and indicators of long-term fiscal sustainability show improvement in successive fiscal statements. 

  • Crown net debt is currently around 20% of GDP, and is projected to increase to 29% in 2013/14, before trending down to under 20% by 2020.  Based on historic spending trends, net debt is projected to increase to unsustainable levels in the long term, with too great a risk of net debt rising above 80% of GDP by 2050.
Gross national saving is trending toward 25% of GDP over the next five years and remains elevated.

Inflation and inflation expectations remain anchored within 1% to 3%. Rolling five-year average of inflation outturns remains in the target band, and no higher than the average for the past decade.

  • Although annual CPI inflation has fluctuated between 1.5% and 5.1% over the past 10 years, it has averaged 2.7% over this period and medium-term inflation expectations have remained within the top half of the inflation target range.

Intermediate outcome indicators - How will we assess a Stable macroeconomic environment?

Financial stability risks related to New Zealand are either generally falling or are within the normal range (as indicated by the domestic components of the cobweb model published in the Reserve Bank of New Zealand's Financial Stability Report).

Variability in GDP growth is minimised and absolute falls in annual real GDP are avoided. Variability is in the lowest third of OECD countries, and below that recorded in the past three decades.

  • The standard deviation of New Zealand’s annual real GDP growth was around 2.2 percentage points in the 10 years to 2009 (10th out of 30 OECD economies), compared to 2.1 (13th out of 28) and 2.6 (19th out of 34) in the 1980s and 1990s respectively.
  • Over the past two decades New Zealand recorded sustained falls in real GDP on three occasions (1990/91, 1997/98 and 2008/09). Over the same period, Australia avoided outright falls in output.
Intermediate outcome indicators - How will we assess whether resources in the State sector are allocated to where they are most effective and services are delivered in the most efficient way?
The Treasury's advice and options assist the Government to return earlier to fiscal surplus.

 

Monitoring the impact of the Treasury's performance on our intermediate outcomes

(Current year performance information is set out in more detail in Information Supporting the Estimates)

Impact measures: The Treasury's performance and its impact on whether resources in the State sector are allocated to where they are most effective and services are delivered in the most efficient way

The Treasury's advice helps government to reduce the long-term fiscal gap, starting with a reduction in the projected peak in net debt during 2013/14. 

Impact measures: The Treasury's performance and its impact on a stable macroeconomic environment

Effective and timely Treasury advice allows government to operate fiscal policy that is not excessively pro-cyclical (as measured by a range of indicators), especially during the upswing in the business cycle, and does not contribute to build-up and continuation of imbalances.  One test is that revenue surprises are used to pay off debt.

First, we will contribute to this by providing advice on options to strengthen the fiscal framework based on a review of part 2 of the Public Finance Act 1989 - with a focus on macro stability as well as fiscal sustainability objectives. 

Second, through providing the Government with high-quality timely advice on which to make fiscal decisions.  Tax revenue forecast error on one-year-ahead forecasts is less than 3%.  The Treasury remains amongst the top two forecasters of the New Zealand economy, measured at the time its Economic and Fiscal Update forecasts are produced, in forecasting GDP and the consumer price index (CPI) over a rolling 10-year period.

  • Tax revenue forecast root mean square error and mean error over the five years to June 2010 were 3.6% and 0.3% respectively.
  • Measures of the fiscal stance are subject to significant uncertainty. The Treasury’s fiscal impulse indicator suggests that over the 2005/6, 2006/7 and 2007/8 fiscal years, there was discretionary fiscal stimulus of 0.8%, 0.0% and 1.5% of GDP per annum, at a time when the level of output was above potential. Core Crown expenses as a share of GDP increased from 29.1% to 31.2%, adding directly to demand pressures in the economy.
Treasury research identifies the main sources of economic fluctuations and build-up of imbalances, including the respective roles of micro and macro policy settings.  Our advice on fiscal and other settings will assist government accordingly.

Performance measures: How will we demonstrate the Treasury's impact - Balance sheet?

Cost of borrowing is minimised subject to an acceptable level of risk. The average cost of new core Crown borrowing is less than the long run of borrowing rate of 6%. The nearest bond maturity will be fully funded from NZDMO’s holdings of cash and short-term liquid assets within three months of maturity.

Enabling and Supporting a Higher Performing Treasury

Maintaining our organisational health and capability

To achieve the Treasury's three outcomes requires an ongoing programme to develop the capability of our systems and staff. We will be bringing a greater level of attention to measuring and assessing the impact we are having on our outcomes. An effective Treasury also needs to have line of sight between these outcomes and the work each of us carries out.

Specifically we have three objectives that reinforce each other:

  • We are an adaptable and productive workforce.
  • We strengthen our leadership role and improve our performance.
  • We are a well-managed public sector organisation focused on continuous improvement.

Impact: We are an adaptable and productive workforce

We need a workforce that can adapt quickly and act to meet changing demands within the limited financial resources available to us. We must all be clear about our contribution to our outcomes, deepen our capability to influence and improve our ability to assist other agencies to align their work with the Government's economic agenda through effective, ongoing, two-way working relationships.

Our focus will be on embedding a number of significant initiatives that aim to lift the productivity of our people, including establishing a clearer line of sight between the outcomes we are aiming to achieve and individual work plans, and several specific initiatives that will improve our people management (workforce planning, reward and recognition, performance management, talent management and leadership development).

We expect these initiatives to lead to greater levels of staff productivity as they provide a better working environment. We also expect people to move more quickly to where their talents are most advantageous for the Treasury.

We will measure our progress by:

The impact the Treasury is having on intermediate outcomes: We achieve the performance measures in the remainder of this document.

Employee engagement survey results continue to track upwards and place us in the top quartile of the public sector by 2012/13.

Impact: We have a shared understanding of what it will take to lift our performance and we are demonstrating both those attributes and the lift in performance

Senior leadership needs effective coordination of the initiatives critical to lifting the Treasury's performance. Leaders across the organisation need support to better understand the impact of their behaviour on others and how to lead in a way that lifts productivity.

A major initiative supporting leadership and performance is the Treasury Change Programme, which brings together the change initiatives underway in the Treasury (including those initiatives identified under adaptable and productive workforce). The Change Programme enables senior leaders to prioritise the key areas for change initiatives over the coming year. For example, in 2011/12 key areas of focus will be external engagement (including a repeated stakeholder survey), performance measurement and embedding line of sight from outcomes to work programmes. These areas of focus are consistent with the key recommendations of the PIF assessment of the Treasury in 2010/11.

Our focus will be to develop an organisation-wide understanding of what it will take to achieve our ambition for the Treasury, as set out in the Chief Executive's introduction to this document.

We will measure our progress by:

Staff engagement ratings of leadership, through surveys such as the Gallup employee engagement survey, show an upward trend with significant improvements[3] in results at each repeat of the survey. The current rating on the Gallup question of “I have confidence in the leadership of the Treasury to successfully manage emerging challenges” is 3.5.

The Treasury's Leadership and Culture measures demonstrate a lift on constructive leadership styles with associated improvements in staff engagement.

The Treasury stakeholder survey reflects a view that the Treasury is leading, and raising the quality of, critical policy debates.

Impact: We are an exemplar of a well-managed State sector organisation focused on continuous improvement

As a Central Agency, the Treasury has a role in lifting the performance of the public sector. Our objective is to be recognised by our peers and through independent review as an example of how a well-managed organisation operates. We will continue streamlining our structure, and will integrate our internal service delivery to allow maximum resources to go to the priorities identified in the Statement of Intent.

Over the next year the Treasury will work with the other Central Agencies to improve the quality of its management information systems and to develop a single model of supply for integrated corporate services (see Additional information - Integrated corporate services). The Treasury will also be strengthening its management and governance by bringing more systematic approaches to project, process and risk management. These will provide better information for managers, senior managers and the Treasury Board in making decisions about resourcing, priorities and management of risks.

Our focus is to have management information, planning and reporting systems in place that enable the Treasury to measure its impact and to support decisions about efficiency and effectiveness, and to have a risk management framework in place that is embedded in everyone's day-to-day work.

Notes

  • [3]Gallup reports movement of 0.1 as a meaningful change to a result (ie, a statistically significant).

Enabling and Supporting a Higher Performing Treasury (continued)

We will measure our progress by:

PIF: The majority of the organisational management ratings move to “strong” at the next PIF assessment of the Treasury.

BASS: Costs of supplying administrative and support services as a proportion of the Treasury's running costs decrease from 17.13% to 16% by end of 2012/13.

BASS: The average of the Treasury's management practices indicators improve from 62.86% to 70% by June 2012.

DICE: The rating improves from 4.39 to 4.5 by end of 2012/13.

EEO

The Treasury believes that diversity is essential to performing our roles effectively. Diversity is a core part of the way we do business rather than part of any particular initiative. As a result, the Treasury places strong emphasis on fostering a diverse workplace and inclusive culture and we are committed to the principle and practice of equality and diversity.

As part of its broader organisational strategy, the Treasury is currently re-energising a Diversity and Equality Plan with the following objectives in mind:

Culture

We want all Treasury staff regardless of race, gender, disability status, age, religion or sexual orientation to feel valued for who they are and what they bring to their work.

Leadership

We want to see diversity in leadership and leadership in diversity. This includes being purposeful when making decisions about recruitment, development and promotion. It means leaders role modelling inclusive behaviours, creating an inclusive working environment and creating opportunities to engage with people from different backgrounds. We expect people in leadership and management roles to take responsibility for tackling discrimination and harassment, identifying unacceptable behaviour and challenging it.

Talent management

We need to be systematic about the way we attract and manage talented people from different backgrounds, so that we can achieve a diverse Treasury at all levels with sustainable diverse talent pipelines for the future. This means using our employment data and gathering more qualitative evidence. This will help us understand and address barriers to promotion for different groups and identify the most effective actions to take.

Better measuring our effectiveness

We want to be confident that we understand the diversity of our workforce, to enable us to accurately measure whether we are on track to achieve our aims and to understand better the kind of interventions we need to make for different groups. We want to work with our partners (other Central Agencies, broader public sector, EEO Trust) to improve our data on diversity.

Additional information and additional statutory requirements

Cost effectiveness

The Treasury is committed to improving measurement of its performance, including the cost effectiveness of the services we deliver. For a large proportion of the work the Treasury does - our policy advice functions - there are no clear-cut measures of cost effectiveness. For this reason the Treasury is focusing on bringing a greater level of attention to measuring and assessing the impact we are having. In addition we will look to the Government's response to the Review of Policy Expenditure for guidance on measuring the cost effectiveness of policy advice and we will seek to be an early adopter of any recommended measures.

In our operational areas we will measure our cost effectiveness using the following measures:

Debt Management Office:

  • The average cost of new core Crown borrowing is less than the long run of borrowing rate of 6%.
  • Cost per DMO transaction over time.

NZECO:

  • Operating cost per $ of new exports supported.
  • Operating Expense/Earned Premium plus Applications fees ratio is less than or equal to 60%.

As noted above we will be monitoring the cost effectiveness of our administrative and support services using the BASS metrics.

Integrated corporate services

Over the next 12 months the Central Agencies' corporate services will be focused towards developing “a single model of supply across the three Central Agencies with shared governance” through an Integrated Corporate Services Project. The purpose of the project is for the three Central Agencies to become more efficient and effective through providing smarter, better corporate services for less ensuring they meet the three agencies' front line business needs for the future. The Central Agencies have adopted the following Critical Success Factors:

  • To show value for money.
  • To maintain or reduce their corporate spend baselines.
  • To make better use of their capital budget.
  • To enable better and more resilient services.
  • To be creative and innovative in finding solutions.
  • To show collectively thinking – joint planning, opportunities for collaboration across projects.
  • To have identified every opportunity to integrate and work collectively.
  • To maintain or improve the quality of services.
  • To mitigate risks in specialist skill sets and provide broader career opportunities for staff.
  • To ensure these services meet their customers’ needs.

Central Agencies' corporate services are recognised exemplars to other public sector agencies.

Additional information and additional statutory requirements (continued)

Departmental capital and asset management intentions

The Treasury's forecast capital expenditure reflects the three- to four-year cycle of replacement or upgrading assets to maintain and develop our capability. Our capital asset strategy ensures we invest in a work environment that supports flexibility, mobility and efficiency, which also assists in attracting high-performing staff.

The most significant component of our capital programme relates to maintaining our computing environment and internally generated software, including the ongoing development of the NZDMO in-house system.

We will continue to review our capital expenditure requirements at least annually.

The Treasury's Forecast Capital Expenditure
Forecast Capital Expenditure 2010/11
Budget
$0
2011/12
Forecast
$0
2012/13
Estimated
$0
2013/14
Estimated
$0
2014/15
Estimated
$0
Furniture and Fittings 140 21 83 55 80
Leasehold Improvements 448 25 124 530 10
Computer Hardware 801 668 575 893 760
Office Machinery 48 104 30 42 42
Total Plant, Property and Equipment 1,437 818 812 1,520 892
Internally Generated Software - 630 340 215 90
Other Software 20 770 550 - -
Total Intangibles 20 1400 890 215 90

Our changeable operating environment

The ability to adapt quickly and to assist government in dealing with changes in circumstance are core capabilities of the Treasury. In the aftermath of the recent Canterbury earthquakes our resources have joined with others in the public sector to facilitate a coordinated and effective government response. In the past we have devoted significant resource to other matters of urgency, most recently in response to the global financial crisis. We may not be able to predict where the Treasury will be drawn in the future in response to issues of particular national importance, but we maintain a flexible and capable range of abilities when such issues arise. A challenge for the Treasury is to continue to invest in issues of longer term importance during uncertain times, and to ensure that we are equally effective in reducing our commitment on issues where it is no longer critical.

The Treasury's ability to manage in an uncertain and changeable operating environment is enhanced by the quality of our risk management (risk is defined as “the effect of uncertainty on objectives”[4]). The Treasury has a range of approaches to risk management. This is led by our senior leaders regularly identifying and assessing our biggest strategic and emerging risks, and ensuring we are taking appropriate actions to manage these. We manage risks relating to our various change initiatives and projects, as well as day-to-day operational risks, to ensure that we anticipate and deal with uncertainty as effectively as we can.

As an organisation the Treasury could face significant change this year through the introduction of a new chief executive. One of the Treasury's priorities is to continue its internal change programme, making continuous improvement a part of business as usual in the Treasury. Like the public sector more generally, the Treasury will also continue to prioritise its expenditure to meet the Government's objectives while managing cost pressures associated with a reducing and then flat baseline (primarily because fixed-term projects, such as the RDGS, wind down). Managing these pressures will include a reduction in staff over the medium term.

Notes

  • [4]NZ Risk Management Standard – AS/NZ ISO 31000:2009.

Monitoring of Crown Agencies

The Treasury has monitoring responsibility for the following:

State-Owned Enterprises:

  • Airways Corporation of New Zealand Ltd (Airways)
  • Animal Control Products Ltd (ACP)
  • AsureQuality Ltd (AsureQuality)
  • Electricity Corporation of New Zealand Ltd (ECNZ) (the residual company)
  • Genesis Power Ltd (Genesis)
  • Kordia Group Ltd (Kordia)
  • Landcorp Farming Ltd (Landcorp)
  • Learning Media Ltd (LML)
  • Meridian Energy Ltd (Meridian)
  • Meteorological Service of New Zealand Ltd (MetService)
  • Mighty River Power Ltd (Mighty River Power)
  • New Zealand Post Ltd (NZ Post)
  • New Zealand Railways Corporation (KiwiRail Group)
  • Quotable Value Ltd (Quotable Value)
  • Solid Energy New Zealand Ltd (Solid Energy)
  • Timberlands West Coast Ltd (Timberlands)
  • Transpower New Zealand Ltd (Transpower)

Crown Research Institutes:

Monitoring responsibility for Crown Research Institutes rests with the Ministry of Science and Innovation but the Treasury maintains a second-opinion function.

Other Crown entity companies:

  • New Zealand Venture Investment Fund Ltd (NZVIF)
  • Radio New Zealand Ltd (RNZ)
  • Television New Zealand Ltd (TVNZ)

PFA Schedule 4 companies:

  • Crown Fibre Holdings Ltd (CFH)
  • Health Benefits Limited (HBL)
  • Research and Education Advanced Network
    New Zealand Ltd (REANNZ)

Other companies in which the Crown holds shares:

  • Air New Zealand Ltd
  • Christchurch International Airport Ltd (CIAL)
  • Dunedin International Airport Ltd (DIAL)
  • Hawke’s Bay Airport Ltd (HBA)
  • Invercargill Airport Ltd (IAL)
  • Pacific Forum Line Ltd (PFL)

Statutory Crown entities:

  • Earthquake Commission (EQC)
  • Government Superannuation Fund Authority (GSF)
  • Guardians of New Zealand Superannuation (NZSF)
  • New Zealand Lotteries Commission (Lotteries)
  • Public Trust (Public Trust)

Other Statutory entities:

  • Board of Trustees of the National Provident Fund (NPF)

Foreword: Minister of Finance

Over the next five years the Government will continue to rebuild from the shocks that have buffeted the economy in recent years, including the global financial crisis and the Canterbury earthquakes. We will also seek to leverage the many positive factors for growth - such as buoyant prices for our commodity exports and strong trading partner growth - to move the economy onto a faster medium term growth track.

Helping support and rebuild Christchurch is one of the most important things the Government will do over the next several years but it is important that we don't allow responses to these disasters to dominate long-term policy. The basic issues that New Zealand faces and the imbalances that affect the economy are just as relevant now as they were before the disasters.

The Government will press on with its broader economic programme to reduce vulnerability to changes in the sentiment of foreign lenders, get the Government's finances in order and build a faster growing economy that is based on export earnings and higher national savings.

Long-term policy and spending decisions must be made on their own merits, not on short-term expediency. The Government is still borrowing large sums to pay for the public services and welfare entitlements that New Zealanders need and expect. Our ongoing challenge is to achieve higher, sustainable economic growth so New Zealanders can enjoy opportunities, jobs and higher incomes in this country.

The Government expects the Treasury to help it design and implement policies to ensure that recovery leads to an improvement in long-term economic performance. The Government also expects the Treasury to support effective decision-making and management of the State sector and carry out those operations entrusted to it with the highest standards of professionalism.

This Statement of Intent sets out what the Treasury will do to help the Government achieve its objectives of making progress on its near-term objectives and long-term goal of growing the country's economic performance.

I am satisfied that the information on future operating intentions provided by the Treasury in this Statement of Intent and the Information Supporting the Estimates is in accordance with sections 38, 40 and 41 of the Public Finance Act 1989 and is consistent with the policies and performance expectations of the Government.

Hon Bill English

Minister of Finance

Our Ambition for the Treasury

Introduction from the Chief Executive

All of the Treasury's work aims to improve the living standards of New Zealanders through our three outcomes: ‘improved economic performance', ‘a higher performing State sector that supports our international competitiveness' and ‘a stable and sustainable macroeconomic environment'. To help realise this, the Treasury must be an organisation that actively leads the state sector and aspires for excellence. Our ambition is to lead by being:

  • A Navigator – shaping debates and being looked to by the Government, public and private sectors, and the wider community to help New Zealand navigate through challenging times, creating and maximising opportunities;
  • An Expert – providing expert commentary and advice on economic, fiscal, public sector management and regulatory issues, as well as using and integrating the expertise of others;
  • A Problem-solver – working collaboratively with stakeholders and other government agencies to deliver innovative solutions to problems; and
  • An Exemplar – leading with exemplary performance and exhibiting a culture of continually striving to improve in everything we do.

These are roles that cannot be claimed, they must be earned. We currently play these roles but not consistently and not as well as we could. In the past we have tried to improve our performance, but have not been clear enough about what success will look like. Clarifying the four roles we aspire to play is a way of being clear about where we're going as an organisation and what we are trying to become.

How the Treasury will continue to strive for excellence

As well as being clear about the roles we play, we also need to be clear about how we will perform them. In our 2009/10 Leadership Review, the Treasury outlined three behaviours it values as an organisation: influence, accountability, and one Treasury. These are central to where we want to go. We cannot become the organisation we want to be - navigator, expert, problem-solver and exemplar - without practicing those behaviours.

The Treasury has a number of initiatives underway to improve our influence, accountability, and the way we work as one. This is our Change Programme. It will help us prioritise where we want to improve, pace our efforts over time to avoid crowding out other work, and draw out lessons from successful initiatives that can be applied across the organisation. Overall, it allows us to take a more thorough, targeted, timely, and transparent approach to improving our performance.

The Change Programme will focus on delivering and landing projects that are underway before beginning new initiatives. When new initiatives begin, they will contribute to annual themes which help progress the three behaviours of influence, accountability and one Treasury.

In 2011/12, the focus of our Change Programme will be on the following themes for improving our performance:

  • Influence - we have our finger on the pulse and make a difference where it counts
    • Theme for improvement: Ensuring external engagement is two-way and the role the Treasury will play in an issue is made clear to stakeholders. Often the Treasury may not have expertise in a particular area, and will play a role integrating the advice or expertise of other parties. Improving how we engage with external stakeholders will improve the quality of our work and improve the impact it has on outcomes for New Zealand.
  • Accountability - we take personal responsibility for our impact
    • Theme for improvement: Demonstrating our effectiveness and efficiency through high quality performance measures. This will allow us to know with more certainty where our performance needs improving, target our efforts and lead the State sector by example.
  • One Treasury - we are at our most powerful when we work as one
    • Theme for improvement: Having a clear line of sight between our outcomes and individuals’ work, and a common understanding of the contribution each team and discipline makes to the organisation and its outcomes. This will help us to coordinate our efforts, take advantage of different skills in the organisation and make links across our different areas of work.

The Treasury will also place a focus on completing and implementing work that began in 2010/11, in particular work on our performance management system, leadership, and workforce planning.

Prioritising our efforts

The Treasury is not and cannot be an expert in every field, nor can we be a problem-solver for all of government. Often our role is one of listening to others' expertise and integrating their advice into our own. We must focus our efforts on where we can add the most value, and acknowledge and encourage others to problem-solve where our expertise is limited.

How we will know we have achieved our organisational vision

We will measure our success at becoming an organisation that is a navigator, expert, problem-solver and exemplar by:

  • Navigator - our advice and operational work achieves our intermediate outcomes for New Zealand as identified in our 2011 Statement of Intent.
  • Expert - practical experience and feedback from stakeholder surveys indicate the Treasury is looked to for up to date, evidence-based advice in our areas of expertise, and that we are using and integrating the expertise of other stakeholders where appropriate.
  • Problem-solver -the solutions that we deliver succeed in achieving their goals, and feedback from Ministers indicates the Treasury is trusted to provide solutions to difficult problems.
  • Exemplar - the Treasury rates strongly in key cross-government performance indicators (eg. PIF, BASS and policy advice measures).

We will measure how we are demonstrating the three behaviours through improvements in our results in staff engagement surveys and stakeholder surveys.

What this means for us now

Ultimately, improving our performance as an agency relies on the efforts of each individual staff member. I have no doubt that the Treasury staff will rise to the challenge.

The coming year will be one filled with challenges and opportunities for New Zealand. The aftermath of the earthquakes in Canterbury will echo across the next few years, with economic and fiscal repercussions. The Treasury will play a key role in helping the Government meet this and other challenges and capitalise on upcoming opportunities. For these reasons and for our own integrity as an organisation, we must continue to plan and strive for excellence.

Chief Executive's statement of responsibility

In signing this statement, I acknowledge that I am responsible for the information contained in the Statement of Intent for the Treasury. This information has been prepared in accordance with the Public Finance Act 1989. It is also consistent with the proposed appropriations set out in the Appropriation (2011/12 Estimates) Bill, as presented to the House of Representatives in accordance with section 13 of the Public Finance Act 1989, and with existing appropriations and financial authorities.

John Whitehead

Chief Executive

 

Counter-signed: Fergus Welsh

Chief Financial Officer

 

Simplified Strategic Direction Diagram

Treasury's work programme spans a wide range of inter-connected topics.  This diagram highlights some of these topics and connections to illustrate key factors that Treasury's work aims to influence.  Viewing these connections provides context for the subsequent discussion of Treasury's outcomes, intermediate outcomes and the outputs we produce.

Government can directly affect or strongly influence those aspects of our intermediate outcomes shown below.  Treasury's advice and operations improve Government's ability to act on these effectively.  This diagram covers only part of the span of Treasury's outcomes and intermediate outcomes, and only some of the connections that exist in practice.

Simplified Strategic Direction Diagram
Simplified Strategic Direction Diagram.
Source: Treasury

Nature and Scope of Functions

Our purpose

The Treasury is government's leading economic, financial and regulatory advisor. Our core job is to help the Government improve New Zealand's overall economic performance, and increase the living standards of New Zealanders, through the provision of high-quality advice and services. Our advice contributes to improved performance by making challenging issues more tractable to effective government decision-making. The Treasury supports effective delivery of services by the State sector through its policy advice, and delivers some services directly where it is best placed to do so.

The scope of our work

The Treasury provides advice and services to Ministers, primarily the Minister of Finance, through Vote Finance.

We perform three roles through these portfolios:

  • providing services directly, such as monitoring and managing the financial affairs of the Crown, including managing the Crown’s debt through the New Zealand Debt Management Office (NZDMO), and supporting New Zealand’s economic performance through the provision of services through the New Zealand Export Credit Office (NZECO), Crown Wholesale Guarantee Facility and the Retail Deposit Guarantee Scheme
  • raising the quality of advice and service delivery in the State sector, by leading improvements in State sector management and performance through a shared work programme involving the three Central Agencies – the Treasury, the Department of Prime Minister and Cabinet (DPMC) and the State Services Commission (SSC) – and providing second-opinion advice on the economic and financial implications of other government agencies’ proposals, and
  • providing policy advice direct to Ministers to facilitate government decisions on changes and initiatives that support better economic performance and higher living standards.

These outputs are funded through 10 specific departmental output appropriations. These are detailed in the Estimates of Appropriations 2011/12.

Legislation we administer 

The Treasury currently administers 36 pieces of legislation plus the Appropriation and Imprest Supply Acts relating to each financial year, and various Finance Acts. The most significant of these are the Public Finance Act 1989 and the State-Owned Enterprises Act 1986. The Public Finance Act 1989 provides the platform for the advisory roles expected of us by the Government. The Treasury's scope includes an interest in institutions, macroeconomic performance and structural policy issues and financial advice to the Government.

To view an up-to-date list, visit: http://www.treasury.govt.nz/abouttreasury/legislation

An Overview of the Treasury's Strategic Direction 2011-2016

An Overview of the Treasury's Strategic Direction 2011-2016
An Overview of the Treasury's Strategic Direction 2011-2016.
Source: Treasury