5  Strengthening the Governance of Public Institutions in New Zealand[31]

A full discussion of the quality of governance in New Zealand would need to traverse the fundamental elements of New Zealand’s constitutional arrangements. In this paper the nature of our representative democracy and its key institutions are largely taken as given. [32] The approach here has been to draw on the theoretical literature on institutional design, and to assess existing arrangements against international standards and norms of good governance. The focus is on enhancing the functioning of existing public institutions through strengthening transparency and accountability. [33] The section concludes with some brief remarks about the potential role of government in fostering the evolution of social norms in New Zealand.

The analytical approach adopted draws on agency theory, in which the relationships between the electorate, Parliament, the government, and the public service are viewed as a series of principal/agent relationships (after Moe, 1984). The task of institutional design is to maximise the advantages of delegation of control to an agent, while minimizing the scope for agents to pursue their own interests at the expense of the principal’s interests (i.e. to minimize agency costs). Principal/agent theory stresses the importance of the ex ante specification of roles and responsibilities of agents, reporting of performance by agents, and the ex post monitoring of performance by principals. [34]

The concept of a national integrity system, as developed by Jeremy Pope and Transparency International, has also informed this paper’s suggestions for governance issues that are of potential concern in New Zealand.[35] A national integrity system is the set of institutions necessary to ensure good governance in any society. These include an independent judiciary and judicial review, a free press, freedom of information legislation, open budget processes, active non-government organisations, and effective watch-dog institutions such as an Auditor-General and Ombudsman. These components interact and reinforce each other, creating a network of horizontal accountability strands that can effectively constrain vertical power. The integrity system is ultimately dependant, however, on the strength of its foundations in society’s values and the willingness of the populace at large to defend those values.

Given these analytical perspectives, and the discussion in the first four sections of the paper, the following priority areas for strengthening the governance of public institutions in New Zealand are suggested for consideration.

5.1  Greater Accountability for the Results of Government Activities

Accountability for results is fundamental to good governance in any system of government. There is reason to be concerned that in some areas New Zealand lags behind other developed countries in this respect. In particular, accountability for the outcomes of government spending, and for some aspects of taxation, needs to be strengthened. [36]

Accountability for the outcomes of government spending is widely acknowledged to have proven a weak part of our public management system. [37] There is a relative lack of adequate information on the effectiveness and cost-effectiveness of government spending in achieving intended results. In addition to improved accountability, there is arguably a democratic right for the electorate to have access to such information.

There are, of course, inherent difficulties in assessing the impact of outputs on outcomes for many public sector activities (see for instance OECD 1999). However, there are also a number of activities where it is possible to develop meaningful indicators of intermediate outcomes that measure some of the impacts of government activity on the community. While there are also reasons to think that a small country such as New Zealand will invest a relatively modest amount on research and evaluation compared to larger countries, there are, nevertheless, likely to be cost-effective initiatives that could be taken to improve performance in this area.

The importance of comprehensive outcome reporting, together with better research and evaluation, is also being increasingly recognised internationally as a means of achieving more integrated and coherent policies. Recent work by the OECD on sustainable development stresses the importance for sustainability of a number of elements of public sector governance, including improving the evidence base of government policies, publication of outcome indicators, and improving openness and accountability. [38]

A move to publishing better information on outcomes should involve various levels the sectoral level or major portfolio area, with comprehensive reporting of these at a whole of government level and at the individual departmental or agency level, by driving strategic plans off an outcomes focus, reporting performance against outcome targets in annual reports, and measuring value for money in outcome terms.

Such an approach would help to promote more informed public debate and questioning of the effectiveness of government policies and programmes. It should also spur an improvement in the current relatively low capability of the New Zealand public service to articulate the “intervention logic” linking outputs to outcomes, to generate the necessary data, and to conduct the required analyses.

Recent initiatives such as the CAP pilot,[39] Pathfinder,[40] and the publication of The Social Report are evidence of a necessary start towards a greater focus on outcomes in the New Zealand public management system. Extending this systematically and grafting it onto the existing accountability regime - in which formal accountability remains tied to the delivery of outputs - will require careful design and implementation if overall accountability is to be effectively strengthened.

There are also some weaknesses in accountability for tax policy.[41] While the Generic Tax Policy Process has improved the operational and legislative phases, particularly through the development of tax policy in a consultative environment, there is little transparency or attention given to desired tax policy outcomes at an aggregate level. There is also a lack of information on “tax expenditures” (i.e. tax concessions, tax deferrals, tax holidays, or other special tax treatments that represent a departure from some defined “normal” tax base). Given the apparent level of interest in New Zealand in introducing new tax concessions, this is a potentially serious deficiency in transparency, and is one of the very few areas where New Zealand does not meet international standards in fiscal transparency.[42] Finally, there are limited (and non-independent) post implementation reviews of new tax policies.

Remedies that should be considered include requirements for governments to publish a statement of their desired tax policy outcomes and progress in achieving them; annual publication of tax expenditure statements;[43] and increased resourcing and involvement of independent policy analysts. [44]

Initiatives to strengthen accountability for the results of government activities in areas such as spending and taxation could result over time in less policy instability, as improved evidence and knowledge about “what works” narrows the scope for hasty or ill-considered policy change.

Finally, the Svensson review of monetary policy in 2001 raised some important concerns about accountability for the implementation of monetary policy in NZ. [45] Svensson recommended a number of changes, including greater resourcing of Parliament’s Finance and Expenditure Committee (FEC) to enable it to review more effectively the effectiveness of monetary policy. It is also questionable whether the FEC has sufficient resources to engage independent advice on the soundness of the policy underlying proposed changes to tax law.

These are specific instances of a much more general issue. In a Parliamentary system, particularly one with a unicameral House, significant power is vested in the hands of a government that can command a majority in Parliament. An important check on the effectiveness of the executive is exercised through the scrutiny activities of Select Committees of Parliament.

Ensuring the New Zealand Parliament is adequately resourced is fundamental to the quality of governance, and is an issue worthy of further in-depth investigation and analysis. For instance, the current balance of resources between the executive and legislative branches might be reviewed.

5.2  Ethics in Public Institutions

The Mixed Member Proportional electoral system is widely considered to have increased the influence of individual MPs on Parliamentary outcomes, and it is predicted this will lead to an increase in lobbying of MPs.[46] While lobbying can be socially beneficial – by improving the information available to decision-makers – where MPs take or shift positions in response to narrow, well-placed sectional interests behind closed doors, there is the potential for abuse of office. A change that should be considered, therefore, is the introduction of a Leadership Code for Parliamentarians, covering issues such as conflicts of interest, public disclosure of private interests, and acceptance of gifts and hospitality – similar to the provisions in the Cabinet Office Manual applying to Ministers. It would be prudent to extend this sort of practice to cover all MPs, as suggested for instance by Sir Geoffrey and Matthew Palmer in their book Bridled Power. They argue that it would be desirable for action to be taken now in this area before an incident presses home its necessity.

There is a similar gap at local government level. Given the scope for conflicts of interest in local government – for example in granting resource consents – consideration should be given to introducing a requirement that all local governments have in place a Code of Conduct that deals with integrity issues. This could be inserted in the Local Government Act (LGA).

There would also be merit in considering moves to strengthen the ethical environment in the judiciary. There have been one or two high profile instances in recent years of perceived impropriety by members of the judiciary. Concerns have also been raised about conflicts of interest faced by judges. It is critically important for the public to have full confidence in the judiciary – particularly given the over-representation of Maori and low socio-economic groups in crime statistics.

In order to minimise the need for Parliament to intervene in individual cases to remove a dishonest judge – which could undermine the perceived independence of the judiciary - the judiciary should act to discipline its own members more effectively. [47] One way to achieve this would be through the introduction by the judiciary of a Code of Conduct for Judges, which could set out more clearly the norms of what is acceptable and unacceptable behaviour by a judge. In a related vein, there would also be merit in reviewing the degree of public access to court information in New Zealand.

Finally, incidents in recent years have heightened awareness of risks to public confidence in the integrity of the public service. This is reflected in discussion in the State Services Commissioner’s 2000 Annual Report,[48] and in the appointment of the State Sector Standards Board.

The recent incidents appear to be isolated instances of fraud or maladministration. However, it is difficult to demonstrate that serious misconduct is not more widespread, and/or will not become so. One response would be for the government to consider commissioning a survey of public servant understanding of, and attitudes towards, standards and integrity. International experience suggests that surveys of public officials can be an effective means of identifying areas of vulnerability in public institutions. [49] In New Zealand such a survey could aim to establish whether there is a problem, and the dimensions of any problem. It might help focus any remedial efforts on priority areas, and it could establish a benchmark for subsequent monitoring.