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6  Managing Money

The receipt, management and disbursement of public and trust money

Introduction

Careful management of money is a key part of ensuring a responsive and efficient public sector. This chapter outlines how the financial management system manages the receipt of cash and other liquid assets, how these are managed or invested, and how money is disbursed. The chapter also considers how trust money is managed by the Government.

To limit potential fiscal risk to the Crown and Crown entities, cash and other financial instruments are generally managed centrally. The public sector financial management system therefore restricts the natural person powers in relation to borrowing and investing, including the power to contract, which are conferred on departments and Crown entities by other legislation. At the same time, flexibility exists under sections to operate bank accounts and undertake transactions to meet justified business needs.

Sources of Funds

The Government's main sources of cash are:

  • taxes and other sovereign receipts
  • sale of goods and services
  • investment income and the realisation of investments
  • receipts from Crown entities and SOEs
  • borrowing.

Taxes and other sovereign receipts

Taxes and other receipts, such as levies, fines, duties and child support payments, are gathered using the Crown's sovereign power. Under the Constitution Act 1986 it is not lawful for the Crown to levy a tax except by or under an Act of Parliament.

All taxes collected by the Crown are public money and must be lodged in a Crown bank account.

Sale of goods and services

The goods and services of departments and Crown entities are costed to ensure the appropriate parties are charged full costs. In some cases, fees are set to recover less than full costs due to other policy considerations.

Three principles guide agencies setting fees for goods and services:[31]

Authority: A public entity must have legal authority to charge a fee for the goods or services it is legally obliged to provide. A public entity is usually funded to provide goods or services it has an obligation to provide, and needs specific legal authority to collect fees.

Fees must not be set at more than the amount necessary to recover costs, unless the entity is authorised by Parliament to set a higher fee. Setting a fee that recovers more than the costs of providing the goods or services can be viewed as a tax, so authority given to a public entity to charge a fee usually has an implicit cap set at the level of full cost recovery.

Efficiency: Public entities have a responsibility to understand, monitor and manage their costs to ensure they are operating efficiently. An 'efficient' operation is one that produces as many goods or services as possible at the desired level of quality from a given quantity of resources, thereby minimising costs to the Crown and users.

Accountability: Because public entities are accountable to Parliament and the public, they need to ensure their processes for identifying costs and setting fees are transparent, comprehensible and defensible.

All receipts collected by the Crown or departments from the sale of goods and services are public money and must be lodged in a Crown or departmental bank account. Departments are expected to maintain a management, accounting and information system that:

  • recognises revenue when it is earned
  • accounts for all debtors
  • accounts for all receipts relating to revenue.

This requires departments to operate adequate systems of internal control for such debtors and revenue, to use appropriate procedures for collecting debt, and to provide forecasts to the Treasury of revenue and the resulting cash flows.

Investment income and the realisation of investments

All money received by the Crown or a department from investment income or the realisation of investments must be lodged in a Crown or departmental bank account.

Receipts of Crown entities and SOEs

SOEs and Crown entities are separate legal entities. They receive money from a variety of sources, including from the Crown itself. The money they hold is managed by those entities and is not public money as defined in the Public Finance Act. Operating in a competitive market, SOEs do not have the same constraints on charging and retaining payment as departments and Crown entities.[32] But if a SOE or Crown entity makes payments to the Crown (eg, as dividends or repayments of capital), then the Crown will treat those receipts as public money and deposit them into a Crown bank account.

Borrowing

Borrowing by the Crown is prohibited except by authority of an Act of Parliament. This prohibition does not include the use of short-term credit from a supplier or the use of credit cards (for up to 90 days' credit).

Under the Public Finance Act, the Minister of Finance has powers to raise loans in the public interest. Total debt is maintained at prudent levels set by the government of the day. The budget process sets the level of taxes and spending, and hence the net level of borrowing or debt repayment.

The New Zealand Debt Management Office (NZDMO) arranges and manages loans to meet the Crown's gross borrowing requirement, and manages New Zealand dollar and foreign-currency assets

The proceeds from borrowing by the Crown are public money and must be lodged in a Crown or departmental bank account.

Notes

  • [31]Criteria for deciding when it is appropriate to set fees are laid out in 'Charging fees for public sector goods and services'.
  • [32]Where departments and Crown entities have already been paid by the Crown to deliver outputs, costs recovered are generally paid into a Crown bank account. Constraints on charging were covered earlier in this chapter (see 'Sale of goods and services').
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