Chief Executive's Introduction

In 2009/10, the Treasury was focused on assisting the Government to manage New Zealand's recovery out of recession and to building the foundations necessary for a stronger, more balanced economy in the future.

Meeting these challenges required a step-up in performance from across the economic, financial and regulatory teams and organisational changes within the Treasury designed to strengthen the way that we conduct our work and deliver value to the Ministers whom we serve.

Recovery is under way, but at a slower pace than in previous upturns.

Supporting a Stable and Sustainable Macroeconomic Environment

The Government is committed to rebalancing the economy towards more sustainable growth and the Treasury assisted the achievement of this goal by providing timely fiscal and macroeconomic advice and by maintaining best practice debt management and Crown financial reporting standards.

Highlights of the year included the work that went into ensuring the successful launch of the Government's fiscal strategy to set the annual operating allowance within a lower maximum cap of $1.1 billion starting in Budget 2010 and thereafter.

This involved ongoing engagement with departments and ministries to ensure the public sector was assisting the Government to achieve its priorities within a significantly more constrained fiscal operating environment. It also involved working across the public sector to ensure the smooth introduction of the Baseline Alignment Proposal (BAP) process. Our cross-agency work also assisted the Government to redirect $1.8 billion over four years to frontline services. Reducing the costs of providing public services helps to limit the amount the Government needs to borrow.

Improving New Zealand's Overall Economic Performance

The Government is committed to narrowing the income gap between New Zealand and other rich developed economies and the Treasury provided policy advice on how to raise New Zealand's productivity performance.

This involved advancing policy options designed to strengthen the drivers of higher per capita economic growth.

Highlights of the work in this area included the analytical work provided to the Government and to the Tax Working Group ahead of the decisions that were announced in Budget 2010. The most significant tax reform package in over a generation, Budget 2010's changes to the tax system aim to improve incentives to work, invest and save, reduce tax biases in favour of property investment and strengthen the coherence and integrity of the taxation system.

The National Infrastructure Unit (NIU) was responsible during the year for driving improvements in New Zealand's infrastructure planning and investment and for leading a strengthening in the public sector's management of its infrastructure assets. The work of the Unit forms a critical part of efforts to assist New Zealand to gain bigger economic dividends from its capital investments in the years ahead. The Unit published the first National Infrastructure Plan in March 2010[1].

During the year, the Government closed the Crown Wholesale Guarantee Facility while the Crown Deposit Guarantee Scheme was extended on tighter terms and conditions until 31 December 2011. The original scheme (which will close on 12 October 2010) was amended with regard to controls from 1 January 2010.

Improving State Sector Performance

The Government is committed to delivering better, smarter frontline public services funded primarily from within public agencies' existing operating baselines.

The Treasury assisted the achievement of this goal by working across the public sector to achieve greater efficiencies and improved financial performance, including from State-Owned Enterprises (SOEs) and Crown Financial Institutions (CFIs).

The Treasury, working closely with the Department of Prime Minister and Cabinet (DPMC) and the State Services Commission (SSC), made progress on implementing the Performance Improvement Framework (PIF), setting the context for State sector pay negotiations consistent with the Government's fiscal and economic strategy and supporting the creation of much stronger financial and operational performance information.

Enhancing Organisational Efficiency

A new leadership structure, with implementation beginning in November, included the establishment of a smaller, tighter Executive Leadership Team (ELT) with the appointment of two new Deputy Chief Executives – one primarily responsible for the quality and coherence of our policy advice and one primarily responsible for the quality and coherence of our operational functions, but both with a collective cross-Treasury mandate as well. The new structure included the creation of the new positions of Chief Economist and Chief Accountant to drive the strengthening in the quality of our analytical work and our external leadership, and the appointment of Result Leaders.

The purpose of the leadership changes is to ensure that our organisation is positioned effectively to meet the fiscal and economic challenges in which the public sector operates and the rising performance expectations that Ministers have of us. The aim is also to ensure that we have the flexible mechanisms in place to encourage strategic thinking across the Treasury’s outcome and result priority areas.

We have a responsibility to ensure that Ministers receive joined-up, forward-looking and solutions-focused advice at all times.

In September 2010, three non-executive directors were appointed to join the three ELT members on an expanded Board. The Board's role is to provide additional scrutiny, challenge and discipline to strategic choices - where our organisation should be heading and how it is going to get there. Having non-executive members on the Board will bring an external perspective and create a stronger performance discipline on senior management. The Chief Executive remains fully accountable for all Board decisions and retains his role and responsibilities under the State Sector and Public Finance Acts. The Treasury was careful to consult with the SSC in establishing the Board to ensure consistency with public sector legislative requirements. The Board will meet the Minister of Finance periodically with a focus on understanding the Minister's priorities and ensuring the Treasury's priorities are aligned with them.

Another significant structural change was that the former Crown Company Monitoring Advisory Unit (CCMAU) ceased to be a semi-autonomous body. All Treasury and CCMAU ownership monitoring, appointments and governance functions were brought together into a consolidated, separately branded, unit of the Treasury called the Crown Ownership Monitoring Unit (COMU).

This change will raise the bar in the monitoring of all Crown-owned entities, both through direct monitoring of some entities and via indirect levers for other entities, and it has also allowed us to better incorporate commercial expertise and capability within other parts of our business. These moves will strengthen the quality of advice to Ministers while also providing savings in the way the new group is supported.

During the year, the Treasury led and participated in the benchmarking work under the Better Administration and Support Services (BASS) programme and the all-of-government procurement reform. Assessments arising out of these processes have assisted, and will continue to assist, us to measure ourselves against best practices.

The Treasury's Budget 2010 BAP reprioritised expenditure within its core programmes as a continuation of changes commenced in Budget 2009 to ensure we are well placed to advise Ministers on medium-term and longer-term challenges and priorities.

Work also began on developing a People Capability Strategy and a Medium-term Financial Strategy for the Treasury. Steps completed include agreement to move towards a new remuneration framework and the implementation of detailed out-year budgets, identification of key future costs pressures and identification of options on rationalisation. A number of other management initiatives are also underway and the Treasury is looking forward to participating in the second tranche of assessments under the PIF. I anticipate this will provide further information to help us raise our performance as we build on the contributions that the Treasury's talented and committed staff are making.

John Whitehead
Secretary to the Treasury