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Chapter 2: The Importance of Balance Sheet Management

...Taxpayers make a large investment through the Crown balance sheet.  Efficient and effective balance sheet management supports the delivery of government objectives, economic growth and social outcomes, now and in the future.  This improves living standards...

  • Introduction
  • The Crown balance sheet
  • Importance of the balance sheet in meeting government objectives
  • Balance sheet management
  • Structuring government to meet objectives
  • Looking to the future

Introduction

Governments have a myriad of social and economic policy objectives. These evolve over time as governments respond to ever-changing expectations around the appropriate role of the state in the provision of public goods and services.

From a public policy perspective, there is general agreement that governments should focus on objectives where private sector provision is unlikely to be adequate. It is also accepted that governments have a vital role in policy setting to create an environment that supports economic growth and stability.

All public policy objectives have a number of ways of being delivered on and these have financial implications. Public sector financial reporting was developed to inject transparency and accountability to these activities, and to allow for more informed decision making. The New Zealand public sector has long been a leader in this regard, being the first to produce a comprehensive sovereign balance sheet according to independent accounting standards.

This transparency and accountability has had many benefits. The production of the first balance sheet in the early 1990s acted to highlight the size of the challenge to sustainably manage the Crown's finances. This led to further proactive measures to prudently manage Crown debt and other liabilities. These measures assisted the Crown in achieving a strong financial position from which to respond to subsequent international economic and financial crises, and natural disasters at home.

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