New Zealand's Public Sector Financial Management System: Financial Resource Erosion in Government Departments

• Main Author: Newberry, Susan Margaret
• Language: en
• Published: University of Canterbury. Accountancy, Finance and Information Systems 2008
• Subjects: public sector reforms; new public management; financial management reforms; privatisation
• Online Access: http://hdl.handle.net/10092/862

New Zealand's public sector reforms have been hailed as a model of theoretical consistency and coherence. The associated financial management reforms, known internationally as new public financial management (NPFM), were world-leading although they are no longer unique. The underlying nature and intent of public sector reforms have been the subject of considerable debate internationally. Early public sector reforms openly sought privatisation, often on ideological grounds. However, in the face of gathering public opposition, public discussion of privatisation softened. NPM and NPFM have been promoted instead mainly on more pragmatic grounds such as improving public sector performance. In New Zealand, the Public Finance Act 1989 is the key legislation underpinning the financial management reforms. The Act delegates regulatory powers to the Treasury and, over time, a considerable body of secondary regulation, including accounting rules, has been developed. However, this secondary regulation, and its contribution to the success or otherwise of the public sector reforms, has not been examined in detail to date. In 1999, New Zealand s Controller and Auditor-General suggested that the financial management system erodes government departments resources and that somehow this resource erosion escapes parliamentary scrutiny. The Treasury, on the other hand, defended the foundations of the financial management system as solid, arguing that retention of the existing framework would allow further and faster progress towards improved performance and value-for-money than would be achieved by a new set of reforms. This debate prompts questions whether and, if so, how and why a financial management system, ostensibly implemented to improve the performance and accountability of the public sector, could be linked to such effects, and whether parliamentary scrutiny is indeed avoided. This thesis examines the secondary regulation and explains the development of the financial management system with the intention of answering those questions. The analysis undertaken in this thesis suggests that New Zealand's public sector financial management system fabricates the conditions under which privatisation initiatives might be accepted for pragmatic reasons. The erosion of departments financial resources is an essential mechanism in that fabrication process. As this system has developed, the time available for parliamentary scrutiny has reduced and the Controller and Auditor-General s controller function has been eroded, while the control and discretion exercised within the Treasury has increased. Arguably, these developments have helped to conceal the system s privatising intent. The thesis identifies features of the financial management system used to rationalise the financial resource-eroding processes. It also notes that if New Zealand's financial management system is no longer unique, then other NPFM systems may contain a similar combination of features.