What will we do to achieve this outcome? (continued)
Intermediate outcome: The Crown's balance sheet is managed efficiently and effectively
The New Zealand State sector manages over $240 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.
The Treasury's roles with respect to these assets include ensuring there are incentives to use existing capital well, introducing private sector capital and commercial disciplines where this is appropriate and advising on the allocation of capital to its highest value use. These activities and interventions are designed to increase State sector productivity and the ability of the Crown to deliver more for less.
Over time, we seek to align the composition and shape of the Crown's assets and liabilities with the Government's value, performance and risk objectives (eg, through advising on choices about the scale of new investment in social infrastructure assets versus reducing Crown debt). We also provide advice on changes to the structure of the balance sheet and how elements of the balance sheet can be more effectively governed or managed to meet government objectives.
Social assets
We will enhance visibility over the performance of the existing portfolio of assets and liabilities associated with the delivery of social services, particularly in terms of asset utilisation, condition and fitness for purpose. Cost-effective disposal of surplus Crown assets will be a priority. During the period of this Statement of Intent we will publish information on government's future capital intentions under the auspices of the National Infrastructure Plan.
We will continue to play a lead role in influencing the quality of investment analysis, accountability and performance through the Budget process and we will work with agencies to support the application of good practice guidance and advice based on published Better Business Cases and Public Private Partnership material. The scope of this work covers projects that involve both central and local government agencies. At the same time we will help capital-intensive agencies bring their asset management capability to appropriate levels to better manage service delivery risks.
Commercial assets
We seek 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.
The immediate priority is the proposed Initial Public Offering (IPO) of up to 49% of Mighty River Power in 2012/13. Thereafter, our main priority is to apply the mixed ownership model to Genesis Power Ltd, Meridian Energy Ltd and Solid Energy NZ Ltd.
Financial assets and liabilities
Rising finance costs limit the Government's ability to pursue more worthwhile initiatives. In order to minimise debt costs within an appropriate risk profile, NZDMO will continue to market New Zealand Crown debt instruments to investors and will explore funding options across a range of instruments and a range of domestic and foreign markets.
We will also manage any residual issues arising from the expired Deposit Guarantee Scheme as required.
Refer to Measures section below to see how we assess the Treasury's contribution.
| Intermediate outcomes (and outcome indicators) | Current situation | Impact measures | Core activities and services |
|---|---|---|---|
| What will medium-term success look like? | How are we currently placed against our outcome indicators? | How will we demonstrate our success? | What will we do to have an impact on our intermediate outcomes? |
State institutions deliver sustained improvement in results and capability: |
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This requires: New Zealand's public management system to be world leading (as judged by international commentators, such as the OECD). Robust performance and value measurement that supports and demonstrates effectiveness and efficiency in resource use (as judged by Office of the Auditor General [OAG] reports, PIF, quality of Four-year Budget Plans and Workforce Strategies). The Treasury and other agencies to demonstrate ongoing improvement in financial management capability (measured by direct assessments and by PIF against a rising expectations target).
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New Zealand consistently ranks at or near the top on international and domestic surveys that measure public trust in government. Previous efforts to reform the State sector have gained New Zealand a reputation as a leader in State sector reform. However, we have not always been keeping pace with other countries in recent years. We have a very strong treasury function and are one of only a few countries in the world that routinely produces accounts that are fully compliant with International Financial Reporting Standards. Where there is scope for improvement, and where we will be focusing our efforts over the next few years, is to better measure the value created by spending the public dollar, or better information on the effectiveness and efficiency of expenditure. The current proportion of PIF ratings of "strong" or "well placed" is 50% for organisational management and 59% for results. PIF results suggest that there is real scope for improvement in leadership, strategic capability and delivery. Fifteen of 17 (88%) are "strong" or "well placed" for financial management. Four of 17 (24%) are "strong" or "well placed" for efficiency and 9 of 17 (52%) for review and evaluation. |
Improvements in PIF measures of sector collaboration, leadership and the effectiveness and efficiency of core business. Central Agencies draw together indicators of agency performance in agency "dashboards". Efficiency indicators (eg, Better Administrative and Support Services [BASS], policy advice measures) show improvements over time. Health, education and income support spending is well targeted, shifting towards low-income households. Improved cross- and within-sector prioritisation and risk management (measured by Four-year Budget Plans and Workforce Strategies, PIF, ministerial feedback and reviewing external and independent assessments). Agencies' Four-year Budget Plans, supported by Workforce Strategies, outline a credible medium-term plan for living within baselines and delivering on the Government's priorities (measured by assessing the quality of Four-year Budget Plans through peer review processes). More effective Treasury contribution to improved financial capability of other agencies (measured by external engagement surveys, examples of sharing of good practice and examples of innovation and collaboration). Departments meet all their statutory requirements of the Public Finance Act 1989 (as measured by internal control ratings, avoiding unappropriated expenditure, audits). All new significant spending and government intervention proposals are subject to cost benefit analysis (or similar). |
First opinion policy advice (with SSC and DPMC) on institutional settings and the public management system. Implementation of the Better Public Services reforms. Second opinion policy advice on agency interventions. Guidance and support to agencies to enable them to fulfil their Public Finance Act 1989 and Cabinet requirements and to lift performance. Monitoring advice on the performance of key departments and key areas of expenditure. |
The Crown balance sheet is managed efficiently and effectively |
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The composition and shape of the Crown's assets and liabilities are aligned with Government's value, performance and risk objectives. The overall level and performance of assets in the Crown's social, financial and commercial portfolios are consistent with the Government's medium-term directions. Agencies have the appropriate level of management capability to deliver required services in the most cost-effective way. New investments deliver expected value for money. Asset portfolios are performing to optimal levels. |
Overall composition and shape appears reasonable but there is no objective measure to support this conclusion. Asset performance benchmarks are under development. Nine of 13 (69%) capital-intensive agencies surveyed are showing intermediate asset management maturity. Economic profit analysis suggests the Crown's portfolio of commercial entities has generally met its cost of invested capital. A five-year trend capturing the negative impact of the global financial crisis sees average CFI fund returns of 5.1% per annum in the period from 2007 to 2011. This was 0.5% per annum ahead of the aggregate benchmark but 2.1% behind the aggregate performance objective for the CFI portfolio.
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A government strategy is in place to guide decision-taking around balance sheet management. As a result, changes are made to the composition of the balance sheet to optimise settings and allocate capital to government priorities. SocialThe level of asset management maturity in capital-intensive agencies improves over time relative to 2011 benchmarks. Asset performance indicators improve over time relative to 2011 benchmarks. Long-term capital planning provides government with key policy choices that can improve the cost effectiveness of social services over time. All major new social spending proposals are based on rigorous strategic, economic, financial, commercial and management analysis. CommercialThe Government's mixed-ownership-model objectives are met. Appropriate rates of return and dividends are achieved from the Crown's portfolio of financial assets and commercial entities. Financial performance of the Crown's companies is comparable to private sector benchmarks. FinancialLong-term returns of the CFIs meet or exceed their respective fund objectives and benchmark reference portfolios. The average cost of new core Crown borrowing is less than the long-run borrowing rate of 5.5%. |
First opinion policy advice on balance sheet management, Crown ownership (including a Mixed Ownership Model), SOE governance and policy settings, public private partnerships, capital asset management framework. Implementing the Mixed Ownership Model. Monitoring advice on SOEs, CFIs and CRIs. Board appointments to achieve high-quality governance of our assets. Managing New Zealand's debt. Managing any residual issues arising from the expired Deposit Guarantee Scheme. Guidance and support to agencies to enable them to fulfil their Public Finance Act 1989 and Cabinet requirements. |
