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Public Sector Finance 4th Annual Forum

Copthorne Plimmer Towers, Wellington

Michael Cullen To Public Sector Finance 4th Annual Forum

Thank you for the opportunity to address the Public Sector Finance 4th annual forum.

The public service today is almost unrecognisable from the days when "Gliding On" was considered a fly-on-the-wall documentary. The public sector has in a sense been turned on its head. This Government intends to gently put it back on its feet.

But we will continue to maintain tight spending disciplines. We have begun preparing for next year's budget with a Value for Money programme under which Ministers have been asked to identify potential savings within their portfolio areas.

The intention of the review is to improve the effectiveness of public spending and to ensure consistency with the new Government's policy objectives and priorities.

A secondary aim is, by reprioritising spending, to release funding for new initiatives in the 2001 and subsequent budgets. But I would not want to overstate this.

After years of sinking lid spending policies, there is not much fat left in the public sector. In fact, in some cases the previous Government had already begun to cut into the muscle.

The Labour-Alliance coalition is committed to a strong public service. We proved that by moving to restore some departmental baselines in our first budget and are dedicated as a Government to rebuilding the capacity of the public sector.
The Value for Money exercise must be seen in this context. It is not a razor gang, cost cutting initiative. It is - as the name suggests - about getting best value for the tax dollar.

In the Speech from the Throne it was made clear to the boards of SOEs and other organisations that their job is no longer to prepare assets for sale. The job now is to enhance the enterprise's value and ability to contribute to economic and social growth.

This change reflects a broader change to be applied to the public sector. My government strongly backs public funding and public ownership of core social services.

Much progress has been made in clarifying what the public sector is providing and purchasing and in improving its efficiency. The accountability of the sector is continuing to improve as we move forward with the Crown entity reforms as part of a package designed to support our goal of improving trust in government organisations.

Last week Margaret Wilson announced details of the Crown entity governance and accountability review. Current Crown entity legislation is patchy, fragmented and sometimes contradictory. We will amend this ad hoc law with provisions that strike the right balance between accountability and autonomy.
We will introduce a Crown Entities Bill into Parliament by the end of the year.

The new arrangements will make the Government's expectations very clear. More than 100 Crown entities have been allocated to one of four classes and each class has its own governance and accountability arrangements.

This approach recognises that one size does not fit all. It balances the requirements of the Government for accountability with the need to provide each Crown entity with the flexibility to function effectively.

All chairs of Crown entities will have received or be receiving very shortly, a letter detailing the class in which their organisation has been placed and outlining the consultation process that we will go through before those allocations are confirmed.

I want to stress that this is not yet another restructuring exercise. These changes are not about job losses or throwing an organisation up in the air to see how it comes down. It is about the Government being very clear about what we expect from organisations.

Public Service departments and State-owned enterprises are not part of this reform package. However we do expect to see more efficiency and effectiveness as the Government makes more and more clear exactly what we expect from the public sector.

As a case in point we have agreed that public service chief executives will be required to demonstrate explicitly how they are acting on the government's policy objectives for improving outcomes for Mäori.

This Government has promised and is delivering a more balanced view about the appropriate role and size of the state than we have seen in New Zealand for some time.

We have committed over the next three years an additional $3 billion spending over what was allocated by the National Government. This was applied to increasing assistance in a number of areas, including:

 Restoring superannuation to 65 percent of the average wage
 Writing off the interest on student loans while people are studying
 Making sure that low income state house tenants pay no more than 25 percent of their income in rent.

Although we have increased spending, we are still expecting to post fiscal surpluses about $300 million a year higher than was anticipated under the previous Government. The forecasts actually show a stronger financial position by 2004 than was forecast in the PREFU.

I do believe we have been successful in restoring some balance between addressing pressing social needs and ensuring that the Crown's finances are in a position to anchor our efforts in dealing with emerging long term spending pressures.

Let me talk for a moment about how we intend to balance our short-term needs against long term strategies.

The Government's objectives are to reduce gross debt to below 30 percent of GDP and net debt to under 20 percent. Our current debt levels of around 21 and 35 percent are relatively low by both historical and international standards.

I have stated many times that I consider myself to be a fiscal conservative. I believe these goals are fiscally prudent. As I noted earlier, they have been set with long-term cost pressures in mind. We know that over time, an aging population will put extra pressure on Government spending. Some of these increasing costs, like superannuation, we can predict with reasonable accuracy and so make provision for.

By 2051 we can expect to be supporting twice as many pensioners as we do now. Accordingly, the cost of National Superannuation is expected to rise from the current 4 percent of GDP to 9 percent over the next 50 years.

Other pressures such as future health costs are less easy to quantify. But our prudent debt objectives provide us with some breathing room to deal with these issues further down the track.

The Government is determined to preserve a universal publicly funded pension and the link between that pension and the average wage, without having to resort to higher taxes in the future.

We will increase fiscal surpluses above their current levels so that we can set aside funds to meet some of the future costs of the baby boomers in their retirement.

Let me turn now to our e-government strategy. New Zealanders love technology. 65 percent of us used the Internet over the past year. One in four of us use the internet at work, mainly for email communication and young people are even more at home in the digital world with eight out of every ten young New Zealanders surfing the net.

It is critical that the Government keeps up with the play. Not only so we do not fall behind the rest of the world but more importantly so we do not fall behind our own people.

One way of describing what the Government intends to achieve from its e-government programme is a transition from an industrial age government to an information age one.

We do this by harnessing information and communications technologies to change the way government operates to deliver better services to people.

It's about making sure that governments are more relevant; it's about governments delivering better information and services; it's about people using modern technology so that they can have more of a say in the way things work. In other words e-government is about the future of democracy.

We are on a quest for better quality and better value for the taxpayers' dollar.

In my budget speech I identified e-commerce as a major priority for the Government. A number of initiatives are already in train:

 putting an e-commerce strategy in place by the end of the year
 hosting an e-commerce summit in November
 the telecommunications inquiry will make sure that the platform for e-commerce is right
 we are introducing an electronic transactions bill that will facilitate the use of electronic transactions for commercial activity, and updating legislation written for paper government, and
 e-government initiatives

When we talk about E-Government, we are not talking about one big, complex IT or data management project.

We want to make it easier for people to have their say. We build bridges with New Zealanders by offering easier and more convenient access to better integrated government information and services.

As Minister of Finance, I am of course interested in any potential improvements in the value we get for the taxpayers' money through e-government.

But our vision is wider than making cost savings, albeit significant ones. Our vision states that "New Zealanders will be able to gain access to government information and services, and participate in our democracy, using the Internet, telephones and other technologies as they emerge."

In the budget I announced additional operational funding of $16 million and capital of over $1 million to contribute to achieving this vision.

Already we have a number of projects up and running such as the Government Online website, the ability for companies to register on-line and, the scrapping of the general requirement to file annual tax returns – a sensible idea introduced by the previous administration.


The on-line registration of companies is a good practical example of using new technology to transform a service to make it effective, more accessible and more efficient. The Internet based incorporation service was a world first and won the inaugural 1999 KPMG Innovation Awards.

All of the registry services in the Companies Office in the new Ministry of Economic Development are now available via the Internet.

The benefits and savings are clear:
 In 1995 it cost $200 to incorporate a company. Now it costs $7.
 In 1995 it took 2 whole weeks to incorporate a company. Now it is a half-hour task.
 In 1995 the office was open Monday to Friday, 9 to 5. Now you can access the search and filing services around the clock, 7 days a week.

But all these positives won’t mean anything if we do not address the digital divide. We do not want to become a society characterised by a rigid division between those who have the resources and skills to access new technology and those who do not or cannot because of patchy communication infrastructure.

“Computers in Homes, launched by Trevor Mallard as Minister of Education is a good example of the Government’s commitment to addressing this issue with practical solutions.

The State Services Commission's e-government Unit is actively collaborating across government agencies to make the most of the already substantial investment in information technology the government has made.

We are taking an evolutionary approach – we won’t be dumping our existing investments. We are also absorbing lessons from our experiences so far, the good and the Incis.

We will be requiring a more collaborative approach between government agencies (and with the private sector) especially in the use of a common framework of data and information policies and standards, which are essential for integrating services and infrastructures.

We are requiring significant rationalisation of what has been a very fragmented approach to investment in information systems and technology.

We are also emphasising the accountability of chief executives for effective management of IT projects. So major projects will need:
 A two stage approval process, firstly to get the OK to undertake detailed scoping of the project and then the sign off for the project itself.
 A modular approach to project management and approval; and
 A requirement to quantify the risks in advance and monitor them over the course of the project.

The use of information technology will significantly transform the way in which the Government operates in the future. We must plan now to improve the quality and value for money of government services, and to avoid wasteful investment in poorly thought through information technology projects.

We want to have our e-government strategy in place by the end of the year. It will identify ways of breaking down the information silos which have formed around government agencies. We expect to see a new culture of collaboration in the future. All agencies will be required to work together to deliver better government services to all New Zealanders.

Thank you for your time.


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