Outcome: A High-Performing State Sector that Supports New Zealand's International Competitiveness

What are we seeking to achieve?

The quality of expenditure, regulation and other interventions by State sector agencies has a significant impact, both good and bad, on the incomes, opportunities and general wellbeing of individuals. It impacts both directly and indirectly on New Zealand's economic performance, which is a critical dimension of New Zealanders' living standards, particularly through the way it affects individuals' and firms' productivity. Government interventions also have a distributional impact; the Government has an important role to play in protecting the most vulnerable in our society.

The ultimate measure of a high-performing State sector is its success delivering on the economic, social and environmental objectives of the Government in a way that is:

Effective: Focusing on the right issues and identifying the most appropriate form of intervention. The Treasury tracks New Zealand's score and ranking in the OECD Indicators of Product Market Regulation as one measure of how well State sector interventions support rather than constrain the Government's economic growth objective. While they must be interpreted with care, the Treasury tracks Kiwi's Count scores as an indicator of the quality of the public service.

Core Crown Expenses (Excluding Losses) to Nominal GDP

Source: Treasury

Efficient: Minimising cost, achieving better outcomes with the same level of resource or freeing up resource for other uses. While there are no perfect measures of State sector efficiency, an increasingly efficient State sector would likely lead to State service employees falling as a proportion of the labour force over time, which the Treasury tracks as one key indicator amongst others.

Affordable: Total State sector spending drives tax and debt levels now and in the future. The short-term challenge is to return to fiscal surplus to contain New Zealand's vulnerability to economic shocks and to put the Crown in a strong position to manage future expenditure pressures. The Treasury tracks core Crown expenses as a proportion of GDP. We will work to support a decrease over the next three to five years.

What will we do to achieve this outcome?

Intermediate outcome: State institutions are fit for purpose, promote trust and support good stewardship

High-performing State institutions drive effectiveness and efficiency in government services. They have the capability and incentives to provide quality advice to meet the needs of Ministers and the public through the coordination of policy, regulation and service delivery. They have a strong customer focus (again shown through Kiwis Count scores).

As a Central Agency, the Treasury, along with SSC and DPMC, has a role in ensuring the structural organisation, governance and management of all the State's institutions are efficient and effective.

It is a Treasury key initiative to achieve better institutional settings to support a modern public sector. This will include advice on structural and non-structural options to improve coordination of services, human resources and the quality of advice around key priority areas. This work will be advanced from both a State sector-wide perspective and with a more specific focus on optimal configuration of functions, decision rights and incentives in the major sectors. We will provide support to other agencies to facilitate collaboration, innovation and cross-government investment in more efficient systems.

In addition, the Treasury will conduct a range of contributing work including continued support for agencies as they are reviewed using the PIF. We will provide advice on improving the effectiveness of the performance management system. We will help build and maintain the capabilities to tackle the significant cross-cutting issues facing developed countries, such as population ageing.

Refer to Measures section below to see how we assess the Treasury's contribution.

The State sector maximises the contribution of scarce resources to the Government's objectives through doing the right things in the right way. The Treasury will provide Ministers with a range of advice and options that will assist government to achieve this through the targeting of spending to where there is most need and benefit, through making sure that the benefits outweigh the costs of interventions and through State interventions that meet or exceed the performance of international counterparts. Taken together, this approach will provide practical options to enable the Government to manage within the agreed operating and capital allowances, including through the Crown's Budget process.

The Treasury will provide advice from this perspective, to augment that from lead agencies, on an affordable health system that delivers appropriate health services, and an affordable justice sector that reduces the impact of crime on New Zealanders, and affordable education and welfare sectors that develop and utilise human capital. The Treasury will also support the Ministry of Education and Ministers to develop and adopt a medium-term strategy for schooling that provides a clear and purposeful agenda for change, particularly in the areas of workforce quality and school performance information. Our second-opinion policy advice and support to agencies will aim to build quality of policy analysis and regulatory assessments.

The Treasury will focus in particular on supporting welfare reform. The recent report of the Welfare Working Group highlighted the long-term liability to the Crown associated with the working-age benefit population. The Treasury will work with other agencies to provide joined-up advice to government on the comprehensive reform of the benefits system. Through this advice, we will support agencies and Ministers to adopt reforms based on accurate measures of the Crown's long-term liability, informed by evidence about the cost effectiveness and long-term impact of policies and interventions, and with clear accountability for results.

In addition, the Treasury will provide advice to Ministers about mechanisms to strengthen the Budget process and improve incentives on agencies to improve medium-term planning. This will include advice on medium-term strategies for sectors with the highest levels of government spending - health, education, welfare, justice. We will identify and promote benchmarking of agency activities and opportunities to pursue back office mergers and reduce functional overlaps. The Treasury will continue to run the Crown's Budget process, and provide guidance to agencies to ensure activities comply with the Public Finance Act 1989 and Cabinet. Some of the Treasury's work to this intermediate outcome also contributes to A Stable and Sustainable Macroeconomic Environment and is discussed on page 25.

Refer to Measures section below to see how we assess the Treasury's contribution.

The New Zealand State sector manages over $220 billion worth of assets - around half of which are physical assets - across three portfolios of social assets (such as roads and schools), commercial assets and financial assets and liabilities. These assets are forecast to grow by $30 billion over the next five years. Sharpening incentives to use existing capital well, introducing private sector capital and disciplines where appropriate and prioritising capital to its highest value use increase State sector productivity and the ability of the Crown to deliver more for less.

We seek to align over time the composition and shape of the Crown's assets and liabilities with the Government's value, performance and risk objectives (for example, choices between the level of investment in State-Owned Enterprises [SOEs] versus debt repayment). Our focus is on improvements to the measurement and understanding of the balance sheet and Crown risks (including through future Investment Statements), and advice on changes to the structure of the balance sheet and the ways in which the balance sheet is managed (such as tools for better aligning capital allocation to government's objectives). The main priority in this area is to undertake preparatory work on commercial transactions to advance mixed ownership of some SOEs and - subject to government agreement after the 2011 general election - progressing those commercial transactions.

We will advance the Treasury's capability to monitor entities (and support other agencies in their monitoring role). Our objective is to obtain appropriate rates of return and dividends from the Crown’s portfolio of financial assets and commercial entities, through high-quality governance, transparently available performance information and entity business strategies maximising long-term value for the Crown.

We will support and evaluate continued development of a capital asset management (CAM) framework across government; strong CAM practices enhance performance and effectively manage risk from Crown infrastructural assets.

In order to minimise debt costs within an appropriate risk profile, we will continue to emphasise marketing to investors, we will support cross-Treasury efforts to achieve a higher credit rating for the New Zealand Government and we will explore funding options across a range of instruments and a range of domestic and foreign markets.

We will also effectively manage the exit from the Retail Deposit Guarantee Scheme (RDGS) and Wholesale Funding Guarantee Facility (WFGF), and the residual issues associated with these schemes.

Some of the Treasury's work to this intermediate outcome also contributes to A Stable and Sustainable Macroeconomic Environment and is discussed on page 25.

Refer to Measures section below to see how we assess the Treasury's contribution.