Outcome: Improved State Sector Performance

The Government is committed to delivering better, smarter frontline public services funded primarily from within public agencies' existing operating baselines as part of its commitment to rebalance and strengthen the economy.

The Treasury assists the achievement of this goal by seeking the following changes in the State sector:

• greater effectiveness (by better achieving the outcomes that the Government has prioritised)
• increased efficiencies (by achieving better or equivalent results at lower cost), and
• improved financial performance from the Crown’s portfolio of companies, including SOEs and CFIs.

In the year under review, the Treasury focused its efforts to make progress in five broad areas.

Improving the Effectiveness of the State Sector Model

This model enables Ministers to specify their performance requirements and requires chief executives to deliver and report on these requirements. The model includes an annual cycle of direction setting; allocating and prioritising resources; agreeing price, quantity and qualitative standards; and monitoring the performance of agencies. This cycle has given the Treasury opportunities during the past year to help Ministers achieve the results they are seeking within a focus on driving efficiency, effectiveness, within affordable budgets.

The 2009/10 year was a period of investment work intended to assist Ministers to deliver on the Government's fiscal strategy and to get more traction on overall management of the State sector. To date, our impact has been in giving Ministers a better sense of how current initiatives are working, both individually and as a set, which has led to some changes, such as removing the need for separate reporting on Performance Improvement Actions and increasing our efforts in looking at baseline relativities. In particular, the “toolkit” approach to supporting conversations between Ministers and chief executives to engender better performance information is delivering greater transparency. Advice on ensuring that the model is understood, and that opportunities are taken to give effect to Government's desired objectives, such as increasing contestability in public services, has been well received.

The Treasury expects that the investment work will pay off, in particular through the better aligning of expenditure and priorities work. There is a risk that the focus becomes overly short term, at the expense of continuing to invest time in thinking about the longer-term direction. Keeping the right balance between short-term deliverables and analysis of more fundamental questions about the scope, scale and configuration of public service provision (which is increasingly the focus of policy attention overseas) will be important.

Over the year, the Treasury advanced measures to improve State sector input management, such as through the BASS and MED procurement initiatives. While measurable productivity gains can be achieved through the reconfiguration of back office services, most of the value from State sector reform will lie in the redesign of front line services, reduction in the size of the State sector and the removal of low-value programmes. It will be critical to the success of these efforts to remain clear on the respective roles and responsibilities of chief executives, the three Central Agencies and of Ministers.

On 6 April 2010, the Treasury established a Cross Agency Programme Management Office (CAPMO) to assist Ministers on all-of-government and cross-agency initiatives and to facilitate and encourage all-of-government activity where it provides a greater return on investment than individual action. The CAPMO assisted MED in establishing the funding mechanism for the ongoing operation of the Procurement Reform Programme and released draft guidance on the Cross Agency Initiatives Process, a mechanism to encourage and facilitate greater collaboration across the State sector. The CAPMO also assisted SSC in establishing the Chief Executives' Group to oversee Government Business Reform (CEG GBR) in July 2010. This group, which is chaired by the Chief Executive of the SSC, Iain Rennie, will be key in driving the reform agenda across government.

The purpose of the group is to provide alignment, coherence and strategic leadership for all-of-government and significant sector business reform initiatives. It has a mandate to oversee the full range of business reform initiatives, ensure communication is coherent and consistent, advise on the alignment of new initiatives and provide direction on specific all-of-government initiatives where needed.

Providing Advice on Priority Issues and Sectors

The Treasury initially identified tertiary education and schooling, the justice sector, health funding and defence as key sectors. During the year, Accident Compensation Corporation (ACC), the benefit system, Treaty of Waitangi settlements and housing also emerged as significant areas of focus to improve State sector performance.

Tertiary education

The Treasury assisted Ministers to make decisions about the reprioritisation of expenditure in the tertiary education sector to deal with enrolment and cost pressures, including the growing cost of the student loan scheme and to remove low-value expenditure. It provided Ministers with advice on the financial performance of the polytechnic sector, given the challenges some institutions in the sector have faced with financial viability. The Treasury also worked with MOE, IRD and the Ministry of Social Development (MSD) to develop options for improving the governance of the student loan scheme which involves significant roles for each agency. The Treasury also contributed to the introduction of performance-linked funding and streamlining of the provision of Levels 1-3 courses.

Schooling

The Treasury worked with Ministers and the MOE to make system and policy changes to deliver improved education outcomes within a sustainable fiscal track. Changes to the budget treatment of Vote Education (including forecast changes) mean that the Ministry is managing cost pressures within a clearer funding envelope. This has driven an explicit process of reprioritisation to better reflect government priorities and policy decisions to address key cost drivers - Cabinet's Expenditure Control Committee and the Ministry's Performance Improvement Actions - and in particular to align funding with the Government's target for 80% qualified teachers in early childhood education.

The Treasury and the NIU continued to work with Ministers and the Ministry on a PPP for a new school which offers significant opportunities to improve value for money (eg, through improvements to the procurement model) and also education outcomes.

Health sector

During the year, the Treasury influenced health sector performance in four related ways:

• The Treasury led initial advice on how the Government should respond to the Ministerial Review Group’s July 2009 recommendations, and worked with the Ministry of Health (MOH) on more detailed implementation issues. Through this work, the Treasury assisted Ministers to redesign the system of leadership for the health sector. The changes included establishing the National Health Board and other new advisory bodies to oversee health sector capital planning, workforce, information technology and quality and safety; and restructuring within the MOH, including the creation of a National Health Board business unit.
• The Treasury’s advice assisted Ministers to implement a budget package that delivered on the Government’s health priorities while constraining new spending at significantly lower levels than in previous years and reprioritising within baselines to manage within fiscal constraints.
• The Treasury’s October 2009 Long-term Fiscal Statement included an analysis of health sector challenges and choices including the need to lift productivity and adopt more cost-effective models of care. The impact of this on front-line health services will take time to assess. However, initial sector response to budget signals and the longer-term analysis has included an increased focus by District Health Boards (DHBs) on achieving sustainable financial performance, and greater collaboration between DHBs and other health providers in planning and delivering health services.
• The Treasury also helped the MOH to establish a new health capital process that will include higher-quality analysis of capital expenditure proposals and a more consistent whole-of-government approach to capital asset management.

Justice sector

Initiatives to explore and design a new approach to justice sector performance management undertaken in 2009/10 have the potential todrive significant change across the sector. Maintaining the momentum of this effort will require clear focus in coming years.

The Treasury also supported the general direction of the Policing Excellence work. This work has the capacity to generate enduring performance improvements, provided that the planned changes are implemented at an adequate pace and scale.

The Treasury continued towork with the Department of Corrections on a PPP for a new prison at Wiri, which offers significant opportunities to improve value for money and also prison outcomes.

Defence

The Treasury worked with the Ministry of Defence and other Central Agencies on the Defence assessment, reflecting the strong commitment from agencies to expedite the completion of the Defence White Paper process. This process is likely to generate key choices and decisions for Ministers over the next three to four months, particularly once the Defence value-for-money review is completed. The work in 2009/10 means that the Treasury is well placed to advise Ministers in this area.

Accident Compensation

The Treasury was involved in the stock-take of ACC accounts established by the Government, which included consideration of the introduction of competition into aspects of the scheme, a value-for-money project run by the Corporation, advice on levy setting, budget proposals and analytical work into better understanding what has driven increases in the size of the ACC liability in recent years.

Benefit system

The Treasury worked closely with Ministers and the MSD on proposals to reform the benefit system which led to legislative changes and to the establishment of the Welfare Working Group, to which the Treasury has also made a significant contribution.

Progressing Treaty of Waitangi settlements

This area emerged as a priority sector during the year and our focus was on large settlements with the potential to set precedents. We expect a number of settlements to meet major milestones in 2010/11.

Housing

Housing was another area where we provided in-depth advice during the year. The Treasury worked closely with Ministers, Central Agencies, the Department of Building and Housing and Housing New Zealand Corporation to drive better value for money in social housing. This has been reflected through the Corporation's letter of expectations and statement of intent and is being pursued further through the work of the Housing Shareholders' Advisory Group.