Intermediate outcome: The Crown's balance sheet is managed efficiently and effectively
The New Zealand State sector manages just over $240 billion worth of assets across three portfolios: social assets (such as roads and schools); commercial assets; and financial assets and liabilities. These assets are forecast to grow by more than $30 billion over the next five years. The Government is committed to more active management of the Crown's ownership interest in order to enhance performance and better manage risk. This involves reducing risk exposures, sharpening incentives on the use of capital, introducing private sector capital and disciplines, and actively reprioritising capital to its highest value use.
The Treasury will 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. Over time, we will provide advice on how 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 will ensure there are incentives to use existing capital well, introduce private sector capital and commercial disciplines where this is appropriate and advise on the allocation of capital to its highest value use.
Financial assets and liabilities
Financial assets and liabilities form a significant portion of the Crown's balance sheet and can give rise to financial risk. It is important to maximise performance of the Crown's financial assets, whilst higher levels of sovereign issued debt mean minimising finance costs is of high importance. Overall management of financial assets and liabilities on the balance sheet in a portfolio context should also reduce volatility and risk. Achieving these goals will improve the Crown's net worth, maximise the Government's ability to pursue worthwhile initiatives and improve outcomes for New Zealanders. To achieve these goals the Treasury is implementing a more operational approach to managing the Crown's balance sheet, including more closely aligning asset and liability management responsibilities within the Treasury.
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 Budget and monitoring processes. We will work with agencies to adopt and apply good practice guidance and advice (eg, 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 commercial entities, through high-quality governance, transparency of performance information and entity business strategies maximising long-term value for the Crown. The Treasury is introducing more active ownership monitoring of these assets which will include increased use of specialist external expertise to supplement in-house capability when advising Ministers on the strategic choices facing commercial entities and more consistent use of financial and market information to assess commercial entities’ performance, capital structure and dividend policies. In addition, a priority is the introduction of the MOM.
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: | |||
This requires:
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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, and produce better information on the effectiveness and efficiency of expenditure. The current proportion of PIF ratings of “strong” or “well placed” is 58% for results, 49% for strategy and role and 49% for working with others. PIF results suggest that there is real scope for improvement in leadership, strategic capability and delivery. 71% are “strong” or “well placed” for financial management. |
Improvements in PIF dimensions of working with others, strategy and role, and results. 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 Plans, PIF, ministerial feedback and reviewing external and independent assessments). Four-year Plans submitted by agencies demonstrate credible intentions around the operating models, organisational capability and financial and workforce strategies required to deliver on government priorities and organisational strategy. All new significant operating expenditure proposals are subject to cost benefit analysis (or similar). Efficiency indicators (eg, Better Administrative and Support Services [BASS], policy advice measures) show improvements over time. 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). |
Provide policy advice (with SSC and DPMC) on institutional settings and the public management system. Implement the Better Public Services reforms. Monitor, assess and provide advice on the performance of agencies, sectors and the overall State sector system. Deliver capability building and performance improvement initiatives. Provide guidance and support to agencies to enable them to fulfil their Public Finance Act 1989 and Cabinet requirements and to lift performance. Provide advice on agency interventions. |
| The Crown balance sheet is managed efficiently and effectively | |||
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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. The composition and shape of the Crown's assets and liabilities are aligned with the Government's value, performance and risk objectives. 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. Social Asset performance benchmarks are under development. Eleven of 14 (79%) capital-intensive agencies surveyed are showing at least an intermediate level of asset management maturity. Commercial An economic profit analysis completed in 2011 suggested the Crown's portfolio of commercial entities has generally met its cost of invested capital. Financial The two largest CFIs (New Zealand Superannuation Fund [NZSF] and ACC) are ahead of their longer-term performance objectives (NZSF since September 2003 and ACC over the past 10 years). |
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. Social The 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 timely information on key policy choices that can improve the cost effectiveness of social services over time. All significant capital expenditure decisions are based on rigorous analysis that meet the Government's value, performance and risk objectives. Commercial The Government's MOM objectives are met. Appropriate rates of return and dividends are achieved from the Crown's portfolio of commercial entities. Financial performance of the Crown's companies is comparable to private sector benchmarks. Financial Appropriate rates of return and dividends are achieved from the Crown's portfolio of financial assets. Long-term returns of the CFIs meet or exceed their respective fund objectives and benchmark reference portfolios. New core borrowing is less than 25 basis points over the benchmark. |
Provide advice on key aspects of the balance sheet, based on the systematic use of risk management frameworks, and performance information. Provide advice on Crown ownership, SOE governance and policy settings, public private partnerships and capital asset management framework. Implement the MOM. Monitor and report on the performance of SOEs, CFIs, CRIs, ACC, HNZC. Recommend Board appointments to achieve high-quality governance of our assets. Manage New Zealand's debt within agreed parameters. Manage any residual issues arising from the expired Deposit Guarantee Scheme. Provide guidance and support to agencies to enable them to fulfil their Public Finance Act 1989 and Cabinet requirements. |
