Managing Assets

The Crown manages assets valued at over $570 billion. Around $120 billion of this is invested in physical assets. A well managed asset base plays a valuable role in the economy. It:

• boosts New Zealand's financial, economic and operational ability to respond to adverse events in a timely manner
• protects New Zealand's credit rating and lowers the cost of capital
• keeps capital and operating costs balanced, and at appropriate levels
• builds and maintains long-term value for taxpayers
• allows ongoing supply of high quality economic and social services.

Financial assets are managed only by a small number of agencies with the required skills and management practices. Most of these agencies are monitored by the Treasury (see 'Investments' in the next chapter).

Recent governments have placed growing emphasis on ensuring that physical assets are also managed well, delivering appropriate financial and/or social returns, and ensuring that capital investment is aligned with objectives and priorities.

All departments and Crown entities are expected to manage infrastructure assets effectively over the whole of their expected lifespans. In particular, capital-intensive agencies must demonstrate levels of asset management practice and performance appropriate to the high value of the assets being managed, and how critical the assets are in delivering key public services.

Chief executives and boards have primary responsibility for managing assets as part of their overall responsibility to provide sound governance and financial management. They are responsible for preparing business cases, capital budgeting, risk management, asset maintenance, reporting, and compliance with Cabinet's expectations[28].

All capital proposals requiring additional capital, and disposals that have significant policy implications, must be approved by Cabinet. These two requirements apply to both departmental and Crown entity transactions. All proposals considered by Cabinet must comply with the Treasury's business case guidance. Unless otherwise agreed by the Treasury[29], projects assessed as high risk go through a two-step approval process involving indicative and detailed business cases.

Departmental chief executives and Ministers can authorise the sale of departmental assets with a fair value below limits stated in their delegation. Limits also apply to the whole-of-life-costs of capital purchases and leases. Proposals of higher value must be considered by Cabinet. The Cabinet Office Circular CO (10) 2 lays out requirements of departments and Crown entities in more detail.

Agencies may use working capital and any proceeds from selling agency controlled assets to buy or develop a new capital asset, provided the agency's total net asset value is not increased as a result and purchases fit within its delegated authority.

All proposals requiring new funding, and any disposals that noticeably change the price, quantity or standards of output production (departments and all Crown entities) must be approved by Cabinet. Every effort is made to process new spending proposals as part of the annual budget process.

Typically, only assets controlled by agencies and used in the production of their outputs are included on an agency's balance sheet. An agency may also manage 'Crown assets' that are not on its own balance sheet.

Crown assets tend to be physical assets that could not readily be sold or otherwise converted into cash, or assets in respect of which the Crown wants to retain control of ownership decisions. A chief executive or board managing a Crown asset has no authority to sell or otherwise dispose of that asset.

Examples of Crown assets are conservation and heritage assets, such as national parks, the National Archives collections, and forests set aside to meet Treaty settlements.

Devolved control of most assets is balanced by transparency requirements that help ensure assets are managed well and allow the Minister of Finance to manage aggregate demand for capital within the Budget.

Ministers can request additional capital from the Crown if, for example, depreciation funding will not meet their perceived needs to replace or purchase assets. There is, however, a high threshold for Crown funding. Most agencies should not expect any new capital injections and all are expected to make better use of existing assets and capital funding.

Capital injections require Cabinet approval and appropriation by Parliament. When a Minister seeks a capital injection, the relevant agency must show how the request supports its overall strategy and submit a solid business case. Evaluation processes normally focus on the business case itself and how proposals sit with government priorities, the Vote's multi-year budget plan and the relevant agency's strategy.

This helps governments determine the appropriate level of investment.

The Government may also withdraw capital from an agency if it has more resources than it needs into the future or because the Government wants to use under-performing capital in an area of higher priority. An agency may voluntarily return surplus capital to reduce its capital charge.[30]

The Government has processes in place that look across its many functions and agencies to assess demand for, and get best use of, capital. Major capital decisions are made looking across government and informed by:

• the business case itself, including why the Crown must own an asset
• policy and service priorities
• long-term (10 year) intentions and aggregate demand for capital
• fiscal constraints and appropriation limits
• a national plan for infrastructure development (over 10 - 20 years)
• an Investment Statement. For example, the 2010 Investment Statement of the Government of New Zealand provides an overview of the significant assets and liabilities on the Crown's balance sheet, how they have changed over time, and how what the Crown owns and owes is forecast to change over the next five years. The main objective of the new report is to enable greater scrutiny of the Government's management of its assets and liabilities to strengthen the current financial reporting framework. A second objective is to provide a regular statement of the Government's investment intentions over the medium term.