Our Outcome Contribution (continued)

Why improved state sector performance is important

Under the State sector performance outcome, we are primarily concerned with ensuring that State services are delivered in the most efficient and effective way, both to meet the Government’s objectives, and to generate the maximum possible benefit for taxpayers for a given level of expenditure.

The State sector is a significant part of the economy in its own right. Because of its size, improvements in performance, for example through increases in labour and capital productivity or through delivering services in a more cost-effective way, will have an impact on economic growth. Improved performance will also place less stress on fiscal policy, assisting in finding fiscal headroom to progress priority areas, and contributing to the Treasury’s stable and sustainable macroeconomic environment outcome.

Understanding both the current and potential performance of the State sector also directly supports the Government to achieve the goals contained in its three themes of economic transformation, families – young and old and national identity. It helps identify where the Government should focus its expenditure and what level of funding represents value for money. This in turn gives Ministers and taxpayers confidence that the system can deliver the results sought, and supports a sustainable economy and society. It also allows the Government to assess whether or not these results have actually been delivered.

Improved State sector performance requires a combination of policies, regulations, administration and delivery that leads to value for money in each area of government activity. We need a public management system that provides the framework for a high-performing, innovative State sector. We also need to ensure that the Government’s assets and liabilities are efficiently managed. The Treasury, working with other central agencies and departments, is responsible for providing advice in all of these areas.

Current environment and challenges ahead

The wider economic and social context within which the State sector operates is characterised by an international environment where a growing population and higher levels of economic growth are putting pressure on scarce resources such as energy and infrastructure. This increases the importance of finding more efficient, effective and sustainable ways of delivering government services.

New Zealand faces its own challenges, not least of which is an ageing population that places heavier demands on public services and impacts on the skill mix in the economy. At the same time, consumer expectations of State services are rising in relation to quantity, quality and effectiveness. People expect personalised government services and want choice about how these are delivered. They also expect that the Government will solve wider-reaching, longer-term challenges such as climate change.

Balancing the desire for more complex and diverse public services with the imperative of securing a sustainable future means we need to find effective ways to place a clear focus on lifting performance, while also maintaining effective fiscal management.

Central agency contributions to State sector performance

The Treasury’s interest in improving State sector performance arises from its combined roles as an economic and financial advisor and a central agency. As a result of the Stepping Up change programme we have created a specific organisational group to provide, amongst other things, a stronger focus on working across the three central agencies to increase collective leverage on performance issues.

The contribution of the central agencies to improving public sector performance is set out in more detail in the central agency leadership section on page 31.

Our focus 

Over the longer term, we are interested in ensuring we have a sustainable public sector that represents value for money in responding to the challenges set out in the Government’s themes. This means that, in the short- to medium-term, our focus must be on improving our ability to measure performance and advise Ministers on how they can get better results.

The State sector is large and the Treasury’s resources are finite, so we need to focus our efforts on those areas of performance that are most critical to the Government’s objectives, and where we are likely to get the greatest returns for improved performance. Over the next three to five years, we will prioritise our efforts on the following aspects of State sector performance:

Improving overall performance in priority areas

The overall result we will be looking for over three to five years is improved overall performance in the priority areas identified in the table on page 27. The Treasury’s role, in conjunction with other central agencies and government departments, is to:

• identify the elements of performance that we consider to be the most important for achieving the Government’s objectives, and establish a baseline of evidence on current performance and any relevant benchmarks to measure ourselves against
• understand the key drivers of performance and what we need to do to influence these
• develop indicators of success that will help us to measure the impact of our actions over time on the performance improvements we are seeking.

The structural changes we have made within our policy groups, notably the decision to combine the ownership monitoring functions for State-owned enterprises (SOEs) with the relevant policy teams, will support us to provide more “seamless” advice on performance (whilst also having appropriate safeguards to ensure sensitive policy issues are separated where necessary).

In 2007/08, we will undertake in-depth performance analysis in two main areas:

Priority areas that are fiscally or financially significant – focusing on assessing and advising on improving the value for money of expenditure in priority areas of health, education, the benefit system and roading/transport. These areas have been identified because they have the most pervasive impact on the long-term fiscal position.

Priority government agencies that make a key contribution to the growth outcome – focusing on assessing and advising on the performance of agencies operating in areas most important for improving economic growth, and where we can make the greatest immediate gains. The areas of focus are competition, climate change and skills.

Streamlined analysis

To improve the efficiency of our work and allow a greater focus of resource on priority areas, the Treasury’s efforts in other areas will be streamlined. This means that, over the next three to five years, we will maintain an informed overview of streamlined areas to foresee and appropriately manage emerging fiscal, economic and policy risks. Our level of engagement will reflect the level of risk involved.

In 2007/08, we will develop the Treasury’s internal capability and frameworks to deliver streamlined analysis in relevant areas with respect to fiscal management, policy analysis, financial management and probity, and SOEs.

Improving State sector capital and asset management

In addition to managing the Crown’s balance sheet to maximise returns and minimise risk on financial assets and liabilities, the Treasury also helps ensure the Government’s physical assets are efficiently and effectively managed to support its policy objectives. This performance focus complements the macroeconomic focus in this area, also ensuring that material risks and liabilities are managed, and that the Government is getting an optimal return on investments held by SOEs, Crown research institutes, Crown companies and Crown financial institutions. (This is discussed further on pages 43-45.)

Over the next three to five years, we will achieve measurable value-for-money gains both from the operation of existing assets and from new investments, and build stakeholder confidence in the current and future performance of the Crown’s physical assets. To achieve this, the Treasury will adopt a central leadership role – developing, promulgating and maintaining a proposed new framework for State sector capital and asset management, and monitoring and reporting on asset management performance in departments and Crown entities.

In 2007/08, we will ensure agreement is reached between central agencies and other stakeholders on a common framework for improving capital and asset management in the State sector. We will apply this framework in the asset-rich areas of justice, police, corrections and defence.

Developing a consistent and coordinated approach to managing State sector remuneration pressures

State sector wages represent a large proportion of the Government’s total expenditure and are an important lever for supporting the Government’s fiscal and economic strategies.

Over the next three to five years, the Treasury will work with central agencies to take a consistent and coordinated approach to addressing State sector remuneration pressures, based on a sound understanding of State sector labour market dynamics. The overall aim is to ensure a strong correlation between the overall rate of State sector wage growth and associated productivity increases.

In 2007/08, we will develop a shared framework with central agencies for providing advice to Ministers on State sector remuneration pressures.

Measuring progress on our results

As outlined in the Strengthening Our Capability section, over the next year we want to re-orient our business around the concepts of defining the results we are seeking and measuring our progress towards those results.

This work is currently underway in the State sector performance area. For example, we have developed a set of interim results and indicators of success for the Treasury’s advice on the health sector. Here, the Treasury is seeking the overall result that “health decision-makers take into account the long-term fiscal impacts of their current actions on policy and fiscal outcomes, and that their actions are informed by robust cost-effectiveness analysis”. The interim results and measures we have developed help us to prioritise our efforts towards the areas that will yield the greatest benefit for the overall result we are seeking. One such interim result is that “the long-term fiscal perspective is reflected in advice to Ministers on key health policy areas, including the health workforce, the primary care strategy and the health of older people”.

Providing advice to Ministers is one of the ways in which we support their decision-making, and therefore getting the long-term fiscal impact routinely reflected in this advice is vital. One of the ways we will measure our success in this area is by assessing how effective we are at creating opportunities to provide this type of advice to decision-makers.