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10 Putting It Together

Summing up the financial management system and how it is evolving

The state sector financial management system allows the Government to translate its strategy into action, inform decision-making and accountability, and encourage a responsive and efficient state sector.

The State Sector Act, Public Audit Act, Public Finance Act, State-Owned Enterprises Act and Crown Entities Act provide a robust statutory framework but still allow considerable administrative freedom.

The financial management system differentiates between purchase and ownership perspectives of performance. The differentiation between inputs, outputs and outcomes promotes clear specification of performance, and provides ratios and other information needed to assess performance.

Central to the system is the recognition that government agencies should be judged on their ability to deliver goods and services as specified and agreed with the Government. An agency must manage the Government's investment in their organisation in a prudent, effective and efficient manner. This means specifying and monitoring results, and taking corrective action when costs rise without a commensurate rise in output and improvement in outcomes (or 'service improvements' otherwise fail to live up to expectations).

Improved financial and non-financial information supports scrutiny and control by Parliament and decision-making by the Government. Technology now allows financial and non-financial information to be brought together, and there are increasing expectations that agencies will report direct comparisons of funding and results (eg, efficiency measures).

The Public Finance Act requires the Government to set out its fiscal objectives and demonstrate the progress made towards achieving them. This encourages a longer-term view of fiscal management and consistency of government policy with stated objectives.

The accounting practices of GAAP underpin the financial management system. GAAP requires not only cash flow information but also information on revenue and expenses, assets and liabilities, and commitments and contingencies. Comprehensive disclosure limits the risk that off-budget and off-balance sheet items will be poorly managed.

The value of the financial management system lies in its responsiveness to the needs of the Government. To be responsive, the system must meet new needs and encourage the improvement of goods, services and prices.

The system's key structural elements were rolled out in the late 1980s. This put the basic framework in place. The proliferation of digital information in the 1990s (and beyond) has strengthened our ability to tell a richer story about efficiency and effectiveness. Since 2000, there has been a growing focus on what benefits (outcomes) the public got from the spending of successive governments.

The Public Finance Act requires fiscal projections of at least ten years at each Budget and half-year economic and fiscal update. Long-term projections of at least 40 years are required at least every four years. With fiscal strategy looking forward ten to fifteen years, and the long-term fiscal position looking out forty years, there is high visibility of the future costs of current policy settings. These advances have been consolidated by improved ten-year capital intentions and fiscal models that reflect the long-run impacts of demographic change.

The system is continually being refined and updated to meet current needs. The bottom line is that good, committed people make good governance systems work.

The financial management system aims to ensure a disciplined and transparent approach to planning, confirms delivery and reports results, and retains the flexibility that governments need to meet future demands.

In turn, planning, reporting and transparency provide Parliament, state servants, the public and financial markets with confidence that successive governments are progressing along a responsible, fiscally sustainable and reasonably predictable path.

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