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3  Planning and Budgeting

Negotiating and decision-making processes that comprise the budget cycle

Introduction

Budgeting and performance planning is a multi-year process that projects revenues and expenses, establishes priorities and performance goals, gives government agencies and financial institutions some certainty about expenditure, and authorises spending for the coming financial year.

The budget process allows the Government to:

  • plan for the years ahead
  • refresh policy priorities and set spending tracks
  • allocate resources in line with priorities, and reallocate spending that is under-delivering against priorities and performance expectations
  • set performance expectations for the period ahead
  • seek authority from Parliament for spending.

The Government's financial year begins on 1 July. The Budget is usually presented to Parliament in May, allowing Ministers to advise agencies of their budget allocations well before the beginning of the financial year. Allocations to Votes are contained in 'The Estimates' (see box below).

The Estimates

The Government's request for appropriations is presented to Parliament in a formal document known as the main Estimates (the 'Estimates of Annual Appropriations for the Government of New Zealand').

The Estimates detail appropriations sought from Parliament by Ministers for expenses and capital expenditure for a number of purposes, including classes of outputs. Information on the price, quantity and standards of, eg, outputs, is laid out in the Information Supporting the Estimates. The Information Supporting the Estimates also set out how appropriations are linked to the Government's priorities and intended outcomes.

Appropriation

An appropriation is a Parliamentary authorisation allowing a Minister to use resources for a specified purpose. Appropriations are limited by scope, by timeframe and to a maximum level of spending.

There are six appropriation types. The Government requests an appropriation for classes of outputs, capital expenditure (investment in agencies, and the purchase or development of Crown capital assets) and borrowing expenses. The other three types of appropriation are for benefits or other unrequited expenses, ‘other expenses', and the expenditures of intelligence and security departments.

The annual budget process progresses through a number of steps:

  • the strategic phase, when government priorities, intentions and spending limits are decided
  • the budget decisions phase, which starts with Ministers submitting budget plans to deliver on the Government’s priorities and intentions to live within spending limits over the coming years
  • production and presentation of budget documents on Budget Day
  • passing the Appropriation Bill.

A group of Budget Ministers, usually including the Prime Minister, and the Minister and Associate Ministers of Finance, meet through the budget process to make decisions and take their recommendations to Cabinet.

Figure 3: Phases of the Budget Cycle
Figure 3: Phases of the Budget Cycle.

Throughout the Budget process, departments advise their Ministers on:

  • outcomes the Government may want to pursue in the medium term and their relative priority under the budget strategy
  • how to make output mixes more efficient and effective
  • whether the right capabilities are in place to deliver outputs
  • the main risks facing the Vote and how these will be managed.
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