New Zealand

Review of Public Administration

Study Visits

Study visit to New Zealand - March 2003

Constitutional arrangements and structures of government

New Zealand has a population of approximately 4 million people, with almost 3 million living in the North Island and around one million in the South Island. The Constitution of New Zealand is not found in one document but rather comprises of a series of written documents, constitutional conventions, judicial decisions and legislation. One of the key documents that form the Constitution is the Treaty of Waitangi, signed in 1840, as an agreement between the British Crown and a large number of the Maori of New Zealand. The Treaty is accepted as document that aims to guide relationships between the Maori and the Crown in New Zealand (the New Zealand Government). The principles set out in the Treaty ensure that this relationship remains dynamic.

Region	Population (‘000)

North Island


Northland	145
Auckland	1,252
Waikato	373
Bay of Plenty	250
Gisbourne*	45
Hawke’s Bay	148
Taranaki	106
Manawatu-Wanganui	227
Wellington	446
Total North Island	2,992

South Island


Tasman *	44
Nelson *	44
Marlborough *	41
West Coast	31
Canterbury	504
Otago	191
Southland	93
Total South Island	948
Total New Zealand	3,939

Source Statistics New Zealand, populations estimates 30 June 2002

* Denotes Unitary Authorities

New Zealand government

Government of New Zealand consists of a single parliamentary tier, the House of Representatives, and a cabinet. The Parliament comprises the Governor-General, representative of the Queen, and an elected House of Representatives. The Executive comprises the Prime Minister and Cabinet and the public sector. Local government derives its authority from the governments’ legislation, the most recent being the Local Government Act 2002. Local government raises revenue from private and commercial property rates and charges for services. Local government in New Zealand is not dependant on central government grants.

Electoral system

The house of Representatives is elected under the Mixed Member Proportional (MMP) system (voters have two votes one for the political party that they want to see in Parliament and the other for the person they want to represent them). There are 120 MPs in Parliament representing 61 general electoral areas and Maori ones. Fifty-three of the MPs are list MPs, identified by parties. Functions of the House are to debate and pass legislation, scrutinise government, operate a number of select committees, and represent the views of the public.

Structure

There are 28 Ministers (20 of whom make up the Cabinet and include the Prime Minister and Deputy Prime Minister) holding around 80 portfolios spanning 39 government departments. There are around 3,200 public bodies known as Crown Entities (approximately 2,700 of which are School Boards) and sixteen State Owned Enterprises which are run on a trading basis. Around 33,000 people are employed in the Public Service representing 13% of the 260,000 state sector jobs. The departments are listed below.


Archives New Zealand	Crown Law Office	Department of Child, Youth and Family Services
Department of Conservation	Department of Corrections	Department for Courts
Department of Internal Affairs	Department of Labour	Department of Prime Minister and Cabinet
Education Review Office	Government Communications Security Bureau	Inland Revenue Department
Land Information New Zealand	Ministry of Agriculture and Forestry	Ministry for Culture and Heritage
Ministry of Defence	Ministry of Economic Development	Ministry of Education
Ministry for the Environment	Ministry of Fisheries	Ministry of Foreign Affairs and Trade
Ministry of Health	Ministry of Housing	Ministry of Justice
Ministry of Maori Development	Ministry of Pacific Island Affairs	Ministry of Research, Science and Technology
Ministry of Social Development	Ministry of Transport	Ministry of Women’s Affairs
Ministry of Youth Affairs	National Library of New Zealand	New Zealand Customs Service
Serious Fraud Office	State Services Commission	Statistics New Zealand
The Treasury	New Zealand Security Intelligence Service	The Police

Source: State Services Commission

Each Department is a self-contained entity and in recent years there has been a strong emphasis on a policy/ service delivery split in departmental functions. The degree of Ministerial influence depends on the nature of the organisation. They have considerable influence with Departments, less so with Crown Entities and cannot direct State Owned Enterprises in any way. Each Minister has a contracting relationship with Departments on the basis of the range of portfolios held. Crown Entities are grouped according to functional responsibility, for example, some are regulatory, and some provide services, while some provide an advisory role.

Regional councils

There are 12 Regional Councils in New Zealand that provide almost total geographical coverage in the country – the exception are four unitary authorities that also operate as regional councils. Functions of the Regional councils include special planning, environmental issues and transport. Revenue at regional level is raised mainly from a regional rate levied on top of the local rates and investment. Regional councils are not dependent on government grants.

Local government

Local government in New Zealand is largely independent of Central Government with around 95% of the money spent raised directly from the rates base, charges for services and, where applicable, investment returns. Local government accounts for approximately 10% of the total public expenditure. Functions of local council responsibilities are set out in legislation, the responsibility of the Department of Internal Affairs, and are viewed as relatively minor. Typically they include the maintenance of local roads and footpaths, garbage collection, town planning and libraries. There are 86 district councils, four of which are unitary authorities. In total there are 1,050 councillors with council membership ranging between 8–25. Mayors are elected at large.

There is no mechanism for equalisation of funding across council areas.

The Table below sets out the responsibilities of each tier of government.

Central	Regional	Local
Defence Foreign policy Trade Postal Telecommunications Employment Social services Health Education Law and Order Housing Transport Currency	Regional natural resources Environmental management Flood protection Land management Regional parks Public transport Water supply	Water Rubbish collection Sewage treatment Local parks Swimming pools Street lighting Local roads Libraries Building and environmental consents

Community boards

There are 154 Community Boards to which members are elected. Community Board operated in a similar way to Parish Councils in that they are largely advisory. The local councils determine what these bodies do in their area.

Health boards

The Health service in New Zealand has undergone a number of structural changes in the past 20 years. Most recently, 21 district Health Boards were created at the beginning 2001 following legislation that changed the way the health sector worked. Health Boards now manage funding for their particular regions and this has created more local focus on the use of Government money on essential health and disability services.

Health Boards are responsible for improving, promoting and protecting the health of the population of New Zealand. They decide on the mix, level and quality of health and disability services to be publicly funded in their district. They do this by entering into agreements with the providers for the delivery of those services. District Health Boards are also responsible for funding the delivery of health services by providers such as GPs, Maori and the Pacific groups, pharmacies, laboratories, dental services and mental health providers, as well as hospital and community services.

The Boards are directly elected by the public, although some have questioned how meaningful this can be since the individuals who stand for election will usually be unknown to most people.

Wellington regional council

Wellington Regional Council area covers eight city and district areas – Carleton, Hutt, Upper Hutt, Kapiti, Masterton, Poriruam, South Wairarapa, and Wellington. The Council serves a population of 450,000 and has 13 Councillors representing six constituencies. The Regional Council also owns 75% of the Port of Wellington. The Council sets three rates – one general rate, one to cover transport, and a Stadium Purposes Rate to cover the loan taken to promote the new stadium in Wellington.

Wellington Regional Council, as with other Regional Councils in New Zealand, is responsible for looking after the regions natural resources – water, air, and soil. They plan in the longer-term, over ten years aiming at sustainable living.

Wellington city council

Wellington City Council serves a population of 175,000 people. The population is highly educated and around 80% have access to the internet. Wellington is the seat of government for the country and as a consequence many corporations have sited their head offices in the city. This however is changing with Auckland attracting more of business headquarters.

The city has 19 Councillors and 1 Mayor, and an annual turnover of $250 and employs around 1,400 people. The Council operates on the basis of a 10-year financial planning framework and focuses on outputs and outcomes. The plan is put out to consultation and last year 500 responses were received. Recent local government legislation has provided for wider powers, similar to a power of general competence, the use of which is subject to the agreement of citizens.

In addition to the services set out in the Table above Wellington provides capital city services in terms of art and culture. In recent years it has played an important role in building the film industry in New Zealand.

Reform in the New Zealand public sector

Drivers for change

The main driver for reform during the 1980’s and 1990’s was a substantial economic crisis in the country. Related factors included the lack of clarity in the budgetary systems, over-reliance of the economy on the public sector and the general inflexibility of the public sector. During the 1970’s New Zealand experienced an economic downturn as a result of the oil crisis and the removal of exclusive access to British markets following Britain’s membership of the EEC. Policies were developed aimed at: maintaining employment levels, controlling consumer prices, and making New Zealand less dependant on external energy sources. By the early 1980’s the government was locked into a cycle of borrowing to fund its deficits and, consequently, inflationary pressures. By this time New Zealand’s debts were considerable and it was judged to be one of the most excessively regulated jurisdictions in the world.

The new government in 1984 was faced with a poor budgetary information base for decision making, the input based system was largely ineffective in providing useful information. At that time the public sector accounted for around 12% of GDP and 20% of investment. Added to this there was the incentive, inherent in many public sector systems, for managers to expand resources as their pay, in part, was determined by the size of their budget and the number of staff they employed.

There was a need to improve transparency in information, reduce the reliance of the economy on the public sector, and improve staff effectiveness.

Reform programme

Generally, the reform process in New Zealand was directive, lead by legislative reform and was largely non-consultative. The key concepts of the Government’s reform process were transparency, consistency, accountability, effectiveness and efficiency.

The reform process in New Zealand has occurred in two phases, to date. The first phase, mid to late 1980’s put in place a legislative framework that significantly changed the nature in the way in which New Zealand was economically and administratively managed. This process developed throughout the 1990’s. The second phase of reform is more recent with further developments in the openness of government accounting and relationships between the central Departments, the Cabinet and other agencies.

Principles of reform

A number of high-level principles underpinned the reform programme, one of the main aims of which was to gain strategic control of fiscal policy:

clarity in objectives, roles, responsibilities and avoidance of conflicting objectives.
freedom to manage – managers need to be able to make effective resource allocation decisions not hampered by inappropriate controls.
effective assessment of performance and adequate information flows to assess performance
accountability – incentives and sanctions must be in place to modify behaviour and managers must be accountable for the decisions they take. (NZ Treasury paper ‘ Government Management’, 1987).

These principles provided the high level framework that resulted in a redefinition of the role of the State and the relationships between Ministers and the Public Sector. The key elements of the reform process in New Zealand aimed to give effect, quite rapidly, to these principles. They included:

the redefinition of the role of the State as only being involved in those activities relating to the exercise of its constitutional and coercive powers and those things where it has a comparative advantage;
ministers became purchasers of services from Departments rather than advocates for their Departments and Cabinet;
state agencies, including Departments, having clear, transparent and unambiguous purposes with conflicts and overlaps eliminated;
departmental restructuring that rationalised the shape and functions of the core Public Service. Policy and operations functions were separated as were commercial and non-commercial functions with some service delivery functions moved to Crown Entities, and funder, provider and purchaser roles were also separated;
corporatisation and privatisation of government trading enterprises on the understanding that such arrangements would result in them operating more efficiently and effectively. For example, Departments such and the Ministry of Energy, the Forest Service and the Post Office were corporatised to become Crown Entities or State Owned Enterprises (some were later privatised);
accountability arrangements were tailored to the nature of the organisation

core government (Departments and Ministries) where performance was linked to outputs and outcomes that were linked to government goals
state Owned Enterprises (commercial businesses where the government had little or no purchase interest) were required to issue a Statement of Corporate Intent that included the scope of the business and the expected financial performance
crown Entities (organisations that were neither core government agencies nor State Owned Enterprises) were required to issue a Statement of Intent which set out the expected service and financial performance and a purchase agreement;

decentralisation of departmental management with Chief Executives responsible for human resources and the selection and purchase of inputs;
departmental managers were made accountable, through the development of clearly defined 5-year contracts with Ministers, for the efficient running of their organisation with a particular focus on delivering results;
the State Services Commission became responsible for the recruitment and performance monitoring of Chief Executives, previously they were responsible for the whole of the public sector, and advising government of relevant issues;
the introduction of accrual accounting focusing on outputs and outcomes and freeing the Department to determine the inputs required to achieve objectives;
improved information, including on budget and performance against objectives to inform decisions;
requirements for the reporting and monitoring fiscal and economic policy including – specifying reports that must be provided to Parliament over the budget cycle, specific indicators to be reported and forecast over 3-year periods, a budget statement must be published no later than 31 March, and a fiscal strategy must be published with the budget.

Legislative basis for reform

Underpinning the principles of reform in New Zealand where a number of important pieces of legislation:

the Official Information Act (1982) was introduced to improve the involvement of citizens in the processes of Government by improving the access to official information;
the State Owned Enterprises Act (1986) provided the basis for converting the trading departments and corporations into businesses operating along private sector lines;
the State Sector Act (1988) included a number of important administrative and managerial changes including making Chief Executives directly accountable for the efficient and effective management of their organisation, making the Chief Executives responsible for the employment powers previously held by the State, changing significantly the role of the State Services Commission from employer of the public service to employer of the Chief Executives and advisor to the Government on management of the State sector;
the Public Finance Act (1989) changed the basis of the State Sector financial management from a focus on inputs to a focus on outputs (the relevance and effectiveness of products) and outcomes (the overall result of the outputs), it introduced accrual accounting;
the Employment Contracts Act (1991) increased the flexibility to tailor contracts to individuals, and applied to private and public sector employees.
the Fiscal Responsibility Act (1994) aimed to improve the fiscal management and policy by setting out principles of responsible fiscal management and placing legislative reporting requirements on Government and agencies.

Reform results

The reform, centrally lead by the Prime Minister and the Treasury, resulted in smaller central government both in terms of functions and controls, managers were given the control to manage their inputs to deliver their objectives, large scale corporatisation and privatisation. There was substantial reduction in staffing and the number employed in the Public Service.

The outworking of this agenda was in three main areas, improved clarity in roles and responsibilities, fiscal and budgetary changes, transparency, and human resources.

Roles and responsibilities

Greater clarity in the role of Ministers resulted from the change in their capacity as advocates in cabinet to commissioners of services from their portfolio Departments. Their roles in relation to the delivery of public services also changed substantially through the corporatisation and privatisation from one that had technical responsibility and could direct CEO’s to one that prohibited such links.

Chief Executive roles also changed significantly from one in which there were perverse incentives inherent in the system in relation to budget and staff to one that required a focus on outputs and outcomes with flexibility, within bottom line constraints, to manage inputs to deliver results.

Fiscal and budgetary

The reforms, particularly the legislative framework, resulted in the Government moving from a severe fiscal crisis to a positive net worth in less than four years. Primary among the tools used to achieve this was a substantial squeeze on operating costs, the residual control of cash (this was quite punitive) cash investments, reducing the reliance of the economy on the public sector. Large increases were avoided in the pubic sector wage bill.

Accrual accounting offered managers greater flexibility to use budgets so that the focus was on outcomes, outputs and the ‘bottom line’. The budget was introduced to the Chief Executives performance requirements through a requirement to deliver on purchase agreements.

Large-scale privatisation and corporatisation of public service resulted in a process of freeing up budgetary controls and focusing on outcomes. Corporatisation of major services in transport, tourism, forestry, broadcasting and utilities occurred with privatisation of other publicly owned services such as Air New Zealand, New Zealand Railways and Telecom Corporation.

Significant gains have been made in accountability arrangements within government generally and also within individual public sector organisations. The quality of regular reports, purchasing practices and cash management and control policies has increased.

Transparency

More widely available and more information has resulted in a substantial increase in transparency throughout the public sector in New Zealand. Ministers are better informed and are in a better position to make decisions on funding and public sector organisations are better able to monitor the impacts of performance on outcomes. In addition select committees, the media, opposition parties, interest groups and the public also have benefited from the availability of performance data.

Human resources

Human resource reforms set about changing the conditions of employees, creating more flexibility in the appointment of staff, including appointing on merit. Rewarding good performance was seen as an important element of the new system. Along with the structural reforms many employees were moved from Departments to work in Crown Entities and State Owned Enterprises resulting in less job security and wages aligned to the private sector. The effect of this was a decrease in the public service workforce of more than 50% from 88,000 in 1988 to 37,000 in 1994.

As a result of the reforms there is an increased opportunity to appoint people to senior positions from outside the system, although in practice many are still recruited from within. Corporatised and privatized organisations have been more successful in attracting external candidates because, it has been suggested, they can offer higher salaries.

One of the consequences of the powers vested in Chief Executives, who have responsibility for the employment within their individual organisations under the State Sector Act, is that New Zealand does not have a legally defined civil service group of staff. The ability to tailor contracts to individuals was introduced through the Employment Contracts Act (1991) which applies to both the public and private sector. Another consequence of the suite of legislation is that there is in practice little movement, particularly at senior level, between public bodies.