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A Guide to the Public Finance Act (2005)


This Guide provides an overview of the requirements of the Public Finance Act 1989 as amended in 2004 (the Act). Its primary audience is likely to be staff in Government departments, Offices of Parliament and others who need a working understanding of the Act. In addition it should be a useful reference for Crown entities, Members of Parliament and interested members of the public, including students and readers from other jurisdictions with an interest in public financial management in New Zealand.

The Guide focuses on the legislative requirements of the Act in relation to departments, Offices of Parliament and the Government as a whole. The more detailed requirements and expectations associated with the Act’s implementation are set out in more specific documents such as Treasury Instructions, Budget guidance or Cabinet and Treasury circulars, many of which can be found on the Treasury website.

The information in this Guide is provided for general information only and should not be treated nor relied on as a substitute for proper legal or professional advice on the interpretation of particular legislative provisions or their application to particular circumstances or entities.

Using this Guide

This introductory chapter explains some general points or ideas that are central to interpreting and understanding the Act, starting with the principle of parliamentary control over public finances, and including the roles played by accrual accounting and independent audits. It also includes a list of web sites containing information on aspects of public financial management in New Zealand.

The remaining chapters of this Guide follow the structure of the Act.

Chapter 2 discusses the purpose of appropriations (parliamentary authorisation for the incurrence of expenses and capital expenditure) and the nature of the appropriation system. It focuses on the requirements of Part 1 of the Act.

Chapter 3 outlines the principles of responsible fiscal management and describes the fiscal reports and statements prepared in accordance with Part 2 of the Act.

Chapter 4 outlines the requirements for consolidated financial statements of the Government reporting entity set out in Part 3 of the Act.

Chapter 5 describes a departmental chief executive’s financial management responsibilities and explains the role of external departmental reports in giving an account of a department’s projected and actual financial and non-financial performance. The requirements of the Act in relation to departmental reports are set out in Part 4 of the Act while Part 5 deals with special reporting requirements for newly established and disestablished departments.

Chapter 6 outlines the principle of ultra vires and the requirements of Parts 6 and 7 of the Act. These parts deal with the borrowing of money, issuing of securities, use of derivative transactions, investment of funds, operation of bank accounts, giving of guarantees and indemnities, and the management of trust money.

Charts are also provided to show how the key phases in the preparation of the budget by the Government relate to the parliamentary process, and to provide an indication of the timing of the budget.

The nature of parliamentary control of public finances

In New Zealand’s system of government, Parliament is the supreme law-making authority and ultimately provides authority for all governmental activity.

One of the prime means by which it is able to scrutinise and control the Government is through the regular process of granting financial authority to the Government. Section 22 of the Constitution Act 1986 makes this point explicitly, stating that it is not lawful for the Crown (the legal person in whose name the Government acts) to levy a tax, borrow money, or spend public money except by or under an Act of Parliament.

The Public Finance Act provides the core legislative framework within which the Government can borrow money or spend public money. This framework provides for both the rights of Parliament to give informed authority for, and scrutiny of, government borrowing and activity, and the need for the Executive to have sufficient ability to effectively and responsively manage the affairs of the Government.

Legislation governing the use of public financial resources

The Public Finance Act exists to govern the use of public financial resources, notably to:

  • provide a framework for parliamentary authorisation and scrutiny of the Government’s expenditure proposals and management of the Government’s assets and liabilities
  • establish lines of responsibility for effective and efficient management and use of public financial resources
  • specify the principles for responsible fiscal management in the conduct of fiscal policy and require regular reporting on the extent to which the Government’s fiscal policy is consistent with those principles
  • specify the minimum financial and non-financial reporting obligations of Ministers, departments, Offices of Parliament and certain other agencies
  • provide for the application of financial management incentives and for the accountability of specified central government organisations, and
  • safeguard public assets by providing statutory authority and control for the borrowing of money, issuing of securities, use of derivative transactions, investment of funds, operation of bank accounts and giving of guarantees and indemnities.

The Public Finance Act is not the only Act that establishes requirements for the use of public resources.

  • The State Sector Act 1988 sets out general administrative and oversight arrangements for (mainly) core government public services designed to maintain appropriate standards of integrity and conduct and support efficient and responsible management within the state sector.
  • The Public Audit Act 2001 provides for the Controller and Auditor-General (the Auditor-General) to be an officer of Parliament and sets out the law relating to the audit of public sector organisations. The Auditor-General provides independent assurance to Parliament and the public that public sector organisations are operating and accounting for their performance in accordance with Parliament’s intentions.
  • The Crown Entities Act 2004 reformed the law relating to Crown entities to provide a consistent framework for the establishment, governance, and operation of Crown entities and to clarify accountability relationships between Crown entities, their board members, their responsible Ministers on behalf of the Crown, and the House of Representatives. The Act provides for different categories of Crown entities with each category having its own framework for governance, clarifies the powers and duties of board members in respect of the governance and operation of Crown entities and sets out reporting and accountability requirements for Crown entities.
  • The State-Owned Enterprises Act 1986 (SOE Act) outlines the principles governing the operation of state enterprises and establishes requirements for the accountability of state enterprises and the responsibility of Ministers.
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