Constitutional role
Traditionally, in Westminster-based parliamentary systems, the Crown may tax, borrow or spend only as authorised by Parliament. Parliament’s initial focus was on controlling the right to tax but it subsequently exerted control over spending as well. These constitutional principles developed over a number of centuries and were the subject of much conflict between Parliament and the Crown.[3]
New Zealand has adopted these constitutional principles. Under section 22 of the Constitution Act 1986 it is unlawful for the Crown to spend any public money unless it has been authorised by an Act of Parliament. Annual Appropriation Acts which specify the nature and amount of appropriations are the main way in which Parliament authorises the use of resources by the Executive.
In the past appropriations were cash-based. Progressively since 1989, appropriations have been accrual-based. This means that parliamentary control is exerted at the point at which a financial obligation is entered into, rather than at the point when that obligation is discharged or paid. This makes parliamentary control more effective. The appropriation constraint is applied at the point when the decision to incur a liability is actioned; the constraint doesn’t act as a possible barrier to settling properly incurred liabilities.
Although the primary point of control has shifted from cash to accrual, modern appropriations (as specified in sections 4 to 6 of the Act) are still consistent with the requirements of the Constitution Act.
- Section 4 states that expenses or capital expenditure must not be incurred unless authorised by an appropriation or other statutory authority.
- Section 5 states that public money must not be spent unless in accordance with statutory authority.
- Section 6 authorises the spending of public money to meet expenses or capital expenditure incurred in accordance with appropriations – that is, section 6 links the spending of public money to appropriations.
What is an appropriation?
An appropriation is the means by which Parliament gives legal authority to the Crown and Offices of Parliament to use resources. Appropriation Acts are the primary mechanism by which Parliament authorises Ministers to incur (on the Crown’s behalf) expenses and capital expenditure in the day-to-day administration of government.[4]
Appropriations are a constraining authority only – there is no obligation on the Crown to incur any expense as a result of being granted an appropriation. On the other hand, overspending and transfers between appropriations are strictly governed by the requirements of the Public Finance Act.
An appropriation is a constraint not a promise of funding
Appropriations represent an authority to incur expenses or capital expenditures. They are a constraint rather than a promise to deliver funding for expenditure.
Under the previous system of cash appropriations this distinction was not as important - the appropriation constraint mirrored the amount of cash available to spend.
Under an accrual appropriation regime, the amount of an appropriation is not necessarily the same as the cash disbursed to a department, nor is it necessarily the same as the revenue the department may earn. For example:
- Ministers may decide not to incur expenses or capital expenditure for which appropriations exist. In such cases revenue and funding may be withheld.
- An appropriation may be for an amount which includes a non-cash expense such as the cost of goods and services purchased by a department but not yet paid for.
- Despite having cash available, a department may not incur an expense unless it has an appropriation or other statutory authority (for example, a department that has generated third party revenue in excess of forecasts is generally unable to use the additional revenue without further approval).
The legislative process
The Public Finance Act specifies the appropriation-related documents that are required to be presented to the House of Representatives at the time the Government’s Budget is presented to the House on Budget day.[5] These documents are:
- an Appropriation Bill (section 7(2)), and
- the Estimates and any other supporting information (sections 13-15).
Appropriation Bills
An Appropriation Bill sets out the details of each annual and multi-year appropriation in accordance with the Public Finance Act. In addition to the main Appropriation Bill presented in conjunction with the Budget, there may be additional Appropriation Bills during the financial year (a financial year runs from 1 July to 30 June).
- Authorisations for changes to appropriations are outlined in an Appropriation (Supplementary Estimates) Bill that is introduced and generally passed towards the end of the financial year. There may be more than one Supplementary Estimates Bill but this is rare.
- Subsequent authorisation for spending that has occurred without proper authority is sought by way of the Appropriation (Financial Review) Bill. This Bill is generally presented to the House in the following financial year.
A diagram outlining the possible timing of various Appropriation Bills and Imprest Supply Bills in a typical year is shown at the end of this document.
Estimates
The Estimates is a document that provides information on each appropriation in an Appropriation Bill. For each appropriation the Estimates include details of the Vote, Minister(s) responsible for appropriations, administering department and appropriation type, amount, scope and period. The Estimates also identifies the Responsible Minister for each department and the projected balance of net assets of the department (apart from intelligence and security departments) at the end of the financial year (section 13).
A Supplementary Estimates document is also presented with each Appropriation (Supplementary Estimates) Bill (section 16). Information on all changes to the information provided in the main Estimates as a consequence of the Appropriation (Supplementary Estimates) Bill must be provided (section 17).
Other supporting information
Other supporting information must also be provided to the House. This other supporting information includes explanations of intended impacts, outcomes or objectives for each appropriation, comparative information (individual and aggregate) and information on appropriations conferred by Acts other than an Appropriation Act (section 15). This supporting information may be included in the same document as the Estimates or could be presented separately.
Imprest supply legislation
Imprest supply is a statutory mechanism that allows Parliament to provide the Government with the authority to incur expenses or capital expenditure in advance of appropriation by way of an Appropriation Act.[6] Imprest supply is required for two reasons:
- the first Appropriation Bill for the year is not normally passed before the beginning of the financial year, and
- the changing nature of Government activities and unexpected demands means it is impossible to adequately foresee all future expenses and capital expenditure.
The first Imprest Supply Bill is introduced and passed prior to the beginning of the financial year. It provides the sole financial authority from the start of the financial year until the Appropriation (Estimates) Bill for that year is passed (normally within three months of the Budget being presented).
The second Imprest Supply Bill seeks financial authority additional to that provided in the Appropriation (Estimates) Act. It is introduced on the day of the third reading of the Appropriation (Estimates) Bill is to be taken and is debated simultaneously with that third reading debate. The second Imprest Supply Bill ensures that the Government has sufficient supply to implement decisions taken after the Main Estimates were finalised and to meet any increases in demand-driven expenses or other risks or contingencies in excess of the amounts appropriated in the Appropriation (Estimates) Act. Appropriations for expenses and capital expenditure incurred under the authority of the second Imprest Supply Bill are sought in the Appropriation (Supplementary Estimates) Bill.
Notes
- [3]Readers interested in the development of the Westminster parliamentary system are referred to McGee (forthcoming).
- [4]As discussed later in this Chapter, other statutory authorities for the use of resources exist. For example, imprest supply authority may be used to authorise the incurrence of an expense in advance of an appropriation.
- [5]Unless the House of Representatives agrees otherwise, the Appropriation Bill must be introduced before the end of July each year (i.e. no later than one month after the start of the financial year.
- [6]The authority given by Parliament to Ministers by way of appropriations is sometimes called supply. Parliament’s confidence in the Government is expressed through granting supply.
