Outcome: Improved State Sector Performance

The performance of the State sector can enhance or constrain New Zealand's economic performance and the achievement of the Government's wider social objectives. Better health, education and labour market outcomes support improved productivity and living standards. Improved efficiencies mean that resources can be used for other purposes, including reducing debt levels.

Public expenditure currently accounts for 42% of New Zealand's GDP. While this is not high internationally, there is scope to reduce this expenditure without undermining the outcomes the Government is seeking to achieve. The significant increases in public expenditure over the past decade or so have not resulted in commensurate improvements in outcomes.

What are we seeking to achieve?

During the period covered by this SOI, we will be seeking changes in State sector performance to deliver:

• greater effectiveness - better achieving the outcomes the Government has prioritised, and
• increased efficiencies - achieving the same or better results with fewer resources.

In the current economic climate, it is critical that State services are delivered within a sustainable fiscal track.

Our overall goal for this period is:

“Improved effectiveness and efficiency of State sector services, within a sustainable fiscal track.”

What will we do to achieve this?

The Treasury will undertake a range of actions to help bring about the above improvements. These fall into two categories:

• improving the effectiveness of the State sector model, and
• providing advice on priority issues and sectors.

Improving the effectiveness of the State sector model

The State sector model enables Ministers to specify their performance requirements and requires chief executives to deliver and report on these requirements. The model incorporates an annual performance cycle, which provides opportunities for intervention at the following key points:

• setting and clarifying the Government's expectations of agency performance
• allocating and prioritising resources consistent with the Government's expectations, agreeing price, quantity and standards measures and ensuring these are included in the accountability documents to encourage the expected performance, and
• monitoring and assessing the performance of agencies, and their chief executives, at intervals during the year and following the end of the year.

The Treasury will engage at appropriate points to assist Ministers to achieve the results they are seeking, with a focus on helping government agencies to perform more effectively and efficiently. We will do this in conjunction with the other two Central Agencies: the DPMC and the SSC.

More specifically, we will provide guidance, advice and feedback to agencies on how best to give effect to Ministers' decisions and expectations through the information supporting the Estimates, statements of intents and output plans. We will also work with agencies to lift performance in specific areas. Areas for focus in 2009/10 are agencies' abilities in:

• managing capital assets
• undertaking value-for-money reviews as part of an ongoing process of change to deliver better services with fewer resources, and
• managing financial performance.

Again, this work will include providing guidance and advice to agencies and feedback on specific proposals. We will particularly target those agencies that are significant in terms of either their capital assets, the scale of any value-for-money review or the size of the votes that agencies administer. For the former, the agencies we intend to work most closely with are those responsible for state housing, school property and corrections facilities. Large votes include health, social development and education.

The Treasury will assist the Government by monitoring progress on outcomes and outputs, and providing advice on how well agencies, sectors and the State sector overall are performing. Key deliverables for this include:

• six-monthly reporting on the performance of significant Crown entity performance, and
• piloting and further refining the performance improvement framework.

Providing advice on priority sectors and issues

We will put additional focus on priority sectors and issues. This includes actively working alongside the relevant agencies and providing contestable advice to Ministers. We prioritise sectors and issues because of:

• fiscal or economic significance
• challenges they present in respect of policy, implementation or governance, or
• risks or difficulties they present to progressing government objectives.

For 2009/10, we will give particular attention to proposals for new capital purchases and those on industrial relations. Both are key drivers of overall new government expenditure.

Work in specific sectors will be:

• the effectiveness of tertiary education and schooling
• justice sector outcomes
• some aspects of health funding, and
• the defence review.

Our advice will focus on highlighting possible options in terms of price, quantity and standards, alternative forms of implementation and provision, and incentives to ensure ongoing improvements in effectiveness and efficiency.

Sustainable State sector spending

Controlling growth in overall government expenditure is essential to managing within a sustainable fiscal track and achieving a stable and sustainable macroeconomic environment. This objective is even more necessary as the downturn in economic growth is reflected in lower tax revenue and higher government expenditure in some areas, such as benefit payments.

Over the next three years, we will assist the Government to achieve a sustainable fiscal track through:

• constraining the overall level of government expenditure
• managing the long-term fiscal track for critical areas of expenditure, such as health, education and benefits, and
• identifying opportunities for fiscal consolidation, where appropriate.

Working with our Central Agency partners

The Treasury is one of three Central Agencies that are responsible jointly for leading performance improvements within the State sector. Each agency has its own specialty focus in leading change in the State sector. These agencies, and their specialty contributions, are:

• the DPMC, which guides the process of collective decision-making, conveys the Cabinet's decisions to the relevant Ministers and officials and ensures that the Cabinet receives well-conceived and coordinated advice. DPMC also works to ensure that the State sector responds to the Government's priorities
• the SSC, which appoints and manages chief executives within the public service, provides leadership in improving the capability of agencies, sectors and systems and ensures that the Government's priorities are the focus of the State sector, and
• the Treasury, which monitors and manages the financial affairs of the Government and provides economic, fiscal and regulatory policy advice. The Treasury is the key agency for supporting Ministers in balancing priorities through the Budget process. The Treasury provides insight into the efficiency and effectiveness of government agencies and their interventions.

Over the next three years, the Central Agencies will be working to:

• ensure improved services are delivered to New Zealanders and that the State sector delivers on government priorities
• deliver improved State sector performance, and
• deliver more disciplined State sector expenditure.

Working together on these aims will enable us to maximise the impact of our actions through more consistent and reinforcing interventions.

How will we demonstrate success in achieving this?

During the 2009/10 year, the Central Agencies will be working together to pilot and refine a performance improvement framework to enable more comprehensive assessment of agency and sector performance than has been possible to date. The framework will enable assessments of performance and capacity, for the State sector overall, as well as for particular agencies and sectors.

A key indicator of the fiscal impact of State sector performance is the rate of growth of public sector expenditure. Given our current economic challenges, we expect this rate of growth to reduce for the next few years.

Measuring our service performance

Our output performance measures are included in the Estimates. These focus on two categories of work: policy advice and vote analysis. We will be using the Treasury quality standard for ensuring the quality and timeliness of the former and this year have introduced a new measure to monitor our performance in the latter.