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1 Introducing State Sector Financial Management (continued)

Legislative Structure for the Financial Management System

Five major statutes establish the legislative framework for the financial management system.[4]

State Sector Act 1988

The State Sector Act 1988 establishes the departmental Chief Executive's accountability to the appropriate Minister for the conduct, management, duties and functions of the department, including the provision of advice to Ministers. Chief executives are appointed by the independent State Services Commissioner, with the approval of the Executive Council, for a fixed term.

The State Sector Act effectively devolves responsibility to departmental chief executives for running their departments and for managing the resources allocated to those departments, with minimal input control from central agencies. While a department must obey lawful instructions from the Minister responsible for the agency, the Cabinet Manual strongly advises Ministers not to get involved in a department's day-to-day operations.

Public Finance Act 1989

The Public Finance Act 1989 governs the use of financial resources by the Government (see Appendix A) and, in particular:

  • provides a framework for Parliamentary scrutiny of the Government’s expenditure plans and proposals and the Government’s management of its assets and liabilities
  • specifies principles of responsible fiscal management and requires regular reporting on the extent to which the Government’s fiscal policy is consistent with those principles (see Appendix B)
  • lays out minimum financial and non-financial reporting obligations for Ministers, departments, offices of Parliament and some other state sector organisations
  • provides statutory authority for, and control of, borrowing, investment, bank accounts and use of derivatives, indemnities and guarantees.

Fiscal responsibility provisions included in the Public Finance Act:

  • require the Government to be explicit about its fiscal objectives and to explain any changes to them
  • ensure the provision of comprehensive, aggregate financial information to inform and focus debate on fiscal policy
  • require the Government to specify its intentions for fiscal management for ten or more years, starting from the current year.

Public Audit Act 2001

The Public Audit Act ensures Parliament gets independent assurance about how public resources are being used by the state sector. It establishes the C&AG as an independent Officer of Parliament and appoints the C&AG as the auditor of all public entities. The Public Audit Act gives the C&AG powers to:

  • audit the financial statements of all public entities (including the Government reporting entity and all state sector organisations)
  • by agreement, provide additional audit services to those entities
  • conduct performance audits or inquiries on the use of resources by those entities.

Crown Entities Act 2004

The Crown Entities Act provides a consistent framework for establishing, governing and operating Crown entities, which are legal entities separate from the Crown but nonetheless subject to varying degrees of substantive control by the Crown. The Crown Entities Act defines different categories[5] and types of Crown entity, clarifies the roles of the Minister responsible for the agency and the powers and duties of board members, and sets out reporting requirements. The five categories and three types of Crown entity provide a graduated range of options for separating delivery and regulatory functions from the political domain.

Independence is promoted in several ways. Crown entities are established and disestablished by Parliament, have a board as a primary governance structure, and Ministers have varying abilities to direct them. Boards appoint, direct and review the actions of their chief executives. The Crown Entities Act may also reinforce or limit independence in critical areas, such as the ability of Ministers to demand dividends or the repayment of surpluses.[6]

State-Owned Enterprises Act 1986

Where government services can be run as commercial operations, the State-Owned Enterprises Act allows the Government to provide them in an organisational form equivalent to that used by private sector companies. SOEs are established as Crown companies, expected to deliver a commercial return on the Government’s equity investment, and compete on a level playing field with the private sector.

Standing Orders of the House of Representatives

The Standing Orders set out rules governing the operation of the House that are particularly relevant to the operation of the financial management system. These include:

  • the Government’s power of financial veto (Chapter Nine)
  • rules for the scrutiny and passing of the Government’s budget proposals for the use of public financial resources (Chapter Four)
  • rules for the conduct of financial reviews of government agencies (Chapter Nine).

Conclusion

This chapter outlines the purpose of the financial management system, the context in which it operates and its legislative framework.

Chapter Two explains key concepts that underpin the system.

Notes

  • [4]Additional statutes cover Crown research institutes, establish Crown entities, etc.
  • [5]These are ‘statutory entities’ of three types (Crown agents, autonomous Crown entities and independent Crown entities), Crown entity companies, Crown entity subsidiaries, school boards of trustees, and tertiary education institutions.
  • [6]In most circumstances, boards set dividends. This provision is seldom used.
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