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Policy - Finance

Scope of Appropriation

This appropriation is limited to the provision of advice (including second opinion advice and contributions to policy advice led by other agencies) to support decision-making by Ministers on government policy matters relating to finance.

Significant Work Completed During 2011/12

Outcome: Improved Economic Performance

The Treasury provided advice on:

  • New Zealand's medium-term economic outlook and the key policy changes that in the Treasury's view would substantially increase both resilience and trend economic growth. This is best encapsulated in the Treasury's BIM
  • a comprehensive range of policy options towards improving New Zealand's economic performance. This fed into the development of the Government's Business Growth Agenda which refreshed the Government's economic growth agenda. The Treasury has an ongoing role in coordinating agencies in delivering and refreshing the agenda
  • the potential for changes to the taxation of savings and investment to improve our long-run economic growth performance, drawing on general equilibrium modelling of the effects of particular tax reform options
  • the Regulatory Standards Bill which seeks to increase the disclosure of information to assist the scrutiny, and improve the quality, of government-initiated legislation
  • the overall impact of medium-term design changes to the Emissions Trading Scheme, including transitional settings, and changes to increase the flexibility of the scheme including the provision for auctioning
  • the potential economic benefits of re-orienting of the Hazardous Substances and New Organisms Act 1996 (HSNO) regime, which manages chemical and biological risks, towards encouraging innovation and economic development, including presentation of a paper to the Biological Risk Management Committee which helped catalyse the Royal Society's call for a review of HSNO
  • the effective recovery of the Canterbury region. Specific issues addressed during the year included the Earthquake Commission (EQC) re-estimates of its liability and the implications of a High Court Judgement on EQC's liability across multiple events; land zoning and the cost of land remediation; and insurance market dynamics. We currently expect remaining non-EQC fiscal costs of the earthquake to remain within the amount ($5.500 billion) provided for in the Canterbury Earthquake Recovery Fund (CERF) in Budget 2011
  • advancement of regional economic integration through the Trans Pacific Partnership (TPP) negotiations throughout the period (and this is ongoing), in particular, analysing proposals regarding SOEs and investment policy; and developing a framework for assessing the overall costs and benefits of the resulting TPP package
  • welfare reform, including the subsequent legislative reform required to enable reform package changes to take effect in July 2012. The programme is expected to continue next year
  • the proposal to integrate the Ministry of Economic Development (MED), Department of Labour (DOL), Department of Building and Housing (DBH) and the Ministry of Science and Innovation (MSI) into a single MBIE
  • education funding, including the relative public/private contributions to tertiary education, drawing on Treasury-commissioned research from the New Zealand Institute of Economic Research (NZIER) and University of Auckland on the private returns to tertiary education, and
  • the medium-term strategy for schooling, the Labour Market and Skills Strategy and the direction and scope of proposals to enhance the quality of teaching.

The Treasury also:

  • updated the revenue strategy to reflect the Government's economic and fiscal priorities, and built this into the forward tax policy work programme
  • engaged in the development of a Government White Paper on Vulnerable Children, with the Ministerial Committee on Poverty, and in development of new funding and data systems for early childhood education
  • continued to run and build the regulatory quality management system, assessing Regulatory Impact Statements, developing an online database to record agencies' regulatory scanning results and running the annual regulatory plans process. We worked closely with key departments and some exemplary regulatory management practices are beginning to emerge
  • finalised our first whole-of-government assessment of regulatory regimes and Cabinet agreed to the release of the Best Practice Regulation assessment
  • supported the Minister's programme of visits in Washington DC at the IMF/World Bank annual meetings, represented New Zealand at the Asia-Pacific Economic Cooperation (APEC) Finance and Leaders' meetings, respectively and hosted senior delegations from IMF, World Bank and Asian Development Bank and delegations from China, the US and India
  • participated in inter-agency climate change work to support Ministers on decisions regarding international and domestic policy settings, given changed international commitments, and
  • advanced a number of tax policy items, including implementing Budget 2011 decisions on bank thin capitalisation; advice on the tax treatment of a range of events (such as earthquakes and the kiwifruit PSA virus); and advice leading to Budget 2012 announcements on tobacco excise, mixed use assets, outdated tax credits and the election of livestock valuations.

Outcome: A More Effective and Efficient State Sector

The Treasury provided advice on:

  • the Better Public Services programme, which aims to deliver a package of practical State sector reform initiatives that are intended to deliver better public services at a lower cost. The Treasury advised on a suite of legislative reform, including changes to the Public Finance Act 1989, the State Sector Act 1988 and the Crown Entities Act 2004, supported by a stakeholder engagement programme
  • the tradeoffs between ambitions and fiscal constraints involved in social housing reform (this was part of the Government's response to the Housing Shareholders' Advisory Group report)
  • two bills concerning accident compensation; one to introduce competition in the Work Account with Accident Compensation Corporation (ACC) participation and another to expand the Accredited Employer Programme. Advice has been provided on a significant number of complex policy issues that will require resolution
  • the direction of travel for the Inland Revenue Department's (IRD's) business transformation including technological change, and worked closely on the development of strategy through membership of IRD's transformation programme board
  • New Zealand Defence Force funding and plans for achieving the planned savings targets by 2014/15
  • the health system and its performance, including strategy discussions on the possible direction and design of reform, a case study with Nelson Marlborough District Health Board (DHB), increasing the contestability of supply in the system, co-payments for pharmaceuticals, budget strategy and savings advice and working with the Ministry of Health (MOH) on the Vote Health Four-Year Budget Plan, and a review of the DHB model. Also advice on capital issues in the sector, including possible PPPs, and
  • increasing financial flexibility for agencies, allowing the transfer of funding between agencies and across years to enable sectors to better manage within their baselines to 2020. This advice was prepared jointly with the Ministry of Justice (MOJ).

The Treasury also:

  • worked with SSC to complete six PIF assessments this year, and a further six are being finalised. The funding model and the work programme for the next three years were also agreed
  • worked with the justice sector to ensure it can function within the flat nominal baselines set out in their plan. Achieving this will require some difficult decisions about some of the cost pressure issues affecting the sector such as out-dated remuneration agreements and infrastructure, reducing the in-flow to the justice pipeline and shifting the public debate to focus on results and the policy needed to deliver these
  • began work on the economics of social housing, international evidence around reform in other countries and an evidence base for reform in New Zealand (in light of government objectives and the statements in the Housing Shareholders' Advisory Group report and the Productivity Commission report), and
  • worked with the Office of Treaty Settlements to agree standardised comparative analysis on the "special factors" that have been increasing the cost of the Treaty settlements. Specific advice included a long-range scan of upcoming settlements and their likely costs, the medium-term trajectory of settlement costs, a framework for assessing the "special factors" that drive increased costs and options for tackling the legislative bottleneck and advice around the relativity mechanism.

Outcome: A Stable and Sustainable Macroeconomic Environment

The Treasury provided advice on:

  • the fiscal outlook and risks for inclusion in the Budget Policy Statement (BPS) and the preliminary Budget forecasts, and regular reporting on earthquake recovery costs. The 2010/11 Financial Statements published in October 2011 were treated as the authoritative presentation of fiscal position. An unqualified audit opinion was issued on the 30 June 2011 Financial Statements of Government
  • changing the trajectory of government operating and capital spending over the medium term to enable Ministers to reduce longer-term spending pressures, reallocate government spending and reprioritise the balance sheet, and
  • strengthening the fiscal responsibility provisions of the Public Finance Act 1989, which led to the introduction of a bill in August 2012.

The Treasury also:

  • participated in road shows to support the establishment of the new accounting standards by the External Reporting Board (XRB) with its sub-board New Zealand Accounting Standards Board (NZASB)
  • produced tax and economic forecasts; these inform the Treasury's fiscal policy advice and inform the public about the basis of that advice, helping both government and business to make informed decisions about spending and investment
  • launched the Government Economics Network (GEN) in September 2011 to strengthen economic capability across government and to improve the use of economics in public policy analysis
  • began work on the next Long-term Fiscal Statement and public engagement process. This included preparing papers for the New Zealand Association of Economists (NZAE) conference, establishing an external panel of experts to test the Treasury's assumptions and analysis, commissioning independent research on key policy choices and organising a conference to discuss all of the key issues and options, and
  • supported a Trans-Tasman banking crisis exercise to ensure that regulatory and crisis management settings were adequate to manage the risks presented by systemically important institutions. This work drew on a range of approaches being adopted offshore. We also worked with RBNZ on Open Bank Resolution (OBR) policy, in particular, on financial stability.
Performance Measures: Policy - Finance
Performance Dimensions for 2011/12 Target Performance for 2011/12
Policy advice complies with the Treasury's Quality Standards for Policy (refer to the Quality Standards for Policy Advice). Achieved Achieved
Expenditure decisions are in line with fiscal strategy and BPS. Achieved Achieved
Definitions and performance measures for policy appropriations are in place that include reporting on whether cost benefit analysis (CBA) or similar processes have been followed for all significant policy and expenditure proposals. Achieved

Partly achieved

Drawing on existing work programmes, progress was made on:

  • piloting of policy advice benchmarking measures focusing on the cost, efficiency and effectiveness of policy expenditure, and
  • tracking Regulatory Impact Analysis (RIA) performance to gather data on whether CBA or similar processes have been followed for all significant policy proposals.
Regulatory Impact Statements meet most or all of RIA requirements. 75% 75%
Research on the impact of New Zealand's approach to capital taxation on growth and the options for reforming New Zealand's capital taxation system to better support economic growth is completed and meets the Treasury's Quality Standards for Policy Advice. Achieved Achieved
Ministers' decisions on the earthquake recovery are well coordinated, guided by an overall framework, informed by good risk assessment and take into account fiscal implications and risks. Achieved Achieved
Completion of research on barriers to growth in trade and recommended policy changes. Achieved Achieved
Memorandum of Understanding (MOU) in place for Treasury-to-Treasury dialogues with one or more countries of economic significance to New Zealand. Achieved

Not achieved

However, the Treasury did achieve an informal understanding with its counterparts in India, China and the US.

The long-term liability to the Crown associated with the working-age benefit population is accurately measured. Achieved Achieved
Youth Guarantee proposals to Cabinet are cost-effective and likely to deliver high-quality qualifications. Achieved Achieved
Youth Pipeline proposals to Cabinet are evidence-based and cost-effective, well integrated to Youth Guarantee and welfare changes. Achieved Achieved
A welfare reform package is agreed by the end of 2011/12. Achieved Achieved
Follow-up processes are in place and being implemented to monitor progress on PIF action plans. Achieved Achieved
Fewer, but clearer, decision points for key outcome areas are agreed and some of these have been established. Achieved Achieved
Vote analysis: Supporting the Government by pursuing policy priorities and fiscal policy objectives through the analysis and advice provided as part of the annual Budget cycle. Achieved Achieved
A sample of indicators of efficiency and effectiveness of State sector operations is developed. Achieved Achieved
Management and resolution of liabilities and claims within parameters set by Ministers. Achieved Achieved
Tax revenue forecast error on one-year-ahead forecasts.

Less than


0.3% below the 2011 Budget forecast
Advice and processes required as part of the annual Budget process to assist the Government to pursue its policy priorities are in accordance with the principles of responsible fiscal management, and support effective and efficient management of public financial resources. Achieved Achieved
Audit opinion issued by the Controller and Auditor-General on the Financial Statements of Government. Unqualified Unqualified
Production of advice that provides options which allow the Government to deliver a credible fiscal strategy consistent with the fiscal prudence provisions of the Public Finance Act 1989. Where this advice is underpinned by modelling, major models are externally quality assured and, where appropriate, assumptions are tested with suitably qualified external experts. Achieved Achieved
Policy Advice - Finance
Policy Advice - Finance 2012
Main Estimates
Supp. Estimates
- Expenses 43,274 44,897 48,385

Funded by:

- Revenue Crown 42,547 44,135 47,611
- Other revenue 727 762 774

Expenditure is $5.111 million under the Supplementary Estimates budget. Approval has been granted to transfer up to $4.823 million of this under-spend to 2012/13 to complete a range of work programmes. The largest transfer of $3 million is for the development of ideas with the potential to deliver savings or significant improvements in efficiency or effectiveness across the State sector delivered through a range of agencies. While initially in Vote Finance, transfers will be made to the respective agencies that will deliver these projects.

The output expense structure under Vote Finance was rationalised in 2011/12 and therefore comparative figures are not available. Refer to Information Supporting the Estimates 2012/13 Part 1.4 of Vote Finance for the reconciliation of Changes in the Appropriation Structure.

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