IMPROVINGTHESCRUTINYOFTHEESTIMATESBYSELECTCOMMITTEESINNEWZEALAND’SPARLIAMENTExploringoptionsforreform.

HamishCoghillCompletedinfulfillmentofPOLS428:ParliamentaryInternship

Acknowledgements:ProfessorStephenLevine,JamesPickerandtheOfficeoftheClerkoftheHouse.

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I Introduction In New Zealand’s Westminster system of government, the executive cannot raise

revenue or spend funds without authorisation from Parliament. The conventional

process by which this occurs is known in New Zealand (and widely elsewhere) as the

Budget. At the heart of the Budget is the Estimates of Appropriations that set out the

government’s planned expenditure for the upcoming financial year. New Zealand

Parliament’s select committees are tasked with the important role of conducting close

scrutiny of the government’s estimates of expenditure for the upcoming financial

year. Effective scrutiny and oversight of the government finances by the legislature

has been increasingly recognised as one if its key functions and as strongly connected

with good governance outcomes. Pursuant to this recognition, considerable attention

by researchers and experts has been focussed on understanding how to improve it, and

from that body of research it is possible to identify several key factors that contribute

to effective financial scrutiny by the legislature. Drawing on the findings of a number

of these studies, this essay attempts to explain each of these key factors, assess the

performance of New Zealand Parliament’s select committees against those factors and

by drawing on this analysis, offer recommendations for ways in which the scrutiny of

the Estimates by select committees in New Zealand’s Parliament might be improved.

Before embarking on that analysis however, this essay first seeks to explain the

importance of the financial scrutiny role assigned to most national legislatures in

democratic systems with regard to good governance outcomes. This essay then goes

on to briefly explain the system of public finance in New Zealand and locates the

specific role of select committees in the Estimates scrutiny process.

II The Role of Legislatures in Scrutinising Public Expenditure In most democratic systems of government around the world it is possible to identify

three distinct branches: a legislature (that makes the law), an executive (that

implements the law), and a judiciary (that interprets the law). In addition to its core

law-making function, legislatures fill two additional core functions: representation

and oversight. Oversight is about “seek[ing] to ensure that the executive and its

agencies, or those to whom authority is delegated, remain responsive and

accountable” (Islam, 2008, p. xv). For example (Islam, 2008, p. xv):

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Legislatures may examine government policies as they are being developed or work to ensure that programs are implemented and administered efficiently, effectively, and in a manner consistent with legislative intent.

Despite the fact that oversight is a core function of legislatures, Nakamura (2008)

notes that comparatively little attention has traditionally been paid to it beyond merely

noting the existence of mechanisms of accountability. However, sustained research in

recent decades, particularly by those in the sector of international development

concerned with democracy assistance, has highlighted the strong connection between

legislative oversight and good governance outcomes such as the efficient and

effective implementation of government programmes. At the same time, the New

Public Management (NPM) revolution which has rolled out across the public sector

entities of the developed world has stimulated closer inspection of the institutions of

government with a focus on improving their performance (Jacobs & Jones, 2006).

The result has been a body of research and analysis aimed towards the goal of

enhancing the ability of legislatures to constrain or check executive power in an effort

to ensure responsible government (Heywood, 2007, p. 342). In a strong indication of

the central importance of the sub-topic, scrutiny and oversight of the public finances

has been a particular focus for researchers into the oversight function of legislatures.

Any state must acquire and expend resources in order to carry out the particular roles

and functions that it performs within its geographical boundaries. A state’s choices of

how and where it acquires those resources, and how and where it spends them, are

perhaps the most fundamental expression of state power. Indeed, conflict over the

public finances has been at the centre of the development of the institutions of

democracy and responsible government we enjoy in New Zealand today. At the

marshes of Runnymede alongside the River Thames 800 years ago, one of the key

compromises that King John was forced into by his rebelling barons was that there

could be no taxation without the consent of a ‘common counsel’ (Thomas, 2014, p.

17). This requirement gave rise to the need for a representative body capable of

providing that consent, and so a ‘Parliament’ of feudal lords and nobles was

convened. In the ensuing centuries, control over the public finances was often at the

centre of the struggles between Parliament and the Crown. This conflict was resolved

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in Parliament’s favour, and was codified in Article 4 of the revolutionary Bill of

Rights Act 1688 which provided:

That levying money for or to the use of the Crowne by pretence of prerogative, without grant of Parlyament, for longer time or in other manner than the same is or shall be granted, is illegal.

As Thomas (2014) explains, the next stage of constitutional development saw

Parliament struggle against the Crown for power over where the appropriated public

funds it approved could be spent. Parliament was to prevail here too, and throughout

the 18th and 19th centuries especially, it developed the key components and

institutional machinery to improve the ability by which it carried out this function.

The establishment of the Office of the Comptroller and Auditor-General and the

Public Accounts Committee in the 1860s marked the completion of the ‘circle’ of

financial accountability by providing that Parliamentary oversight continued well into

the implementation and evaluation phases of the policy cycle.

III Select Committee Scrutiny of the Estimates in New Zealand As a British colony, New Zealand generally inherited the system of public finance

that had developed over the centuries in the United Kingdom when it “transplanted”

the Westminster system of government for the purposes of providing its own

responsible government in the 1850s (Rhodes & Weller, 2005; Thomas, 2014, p. 23).

In his 2014 Masters Thesis titled Opening and Balancing the Books: the New Zealand

Parliament and the Control and Scrutiny of Government Expenditure, Alexander

Thomas goes into much more detail about the development of the mechanisms for

Parliamentary control of public expenditure, from the Magna Carta through

Gladstone’s 19th Century reforms and right up to the present day New Zealand. It is

not proposed to recount this here, though readers interested in more background

would be well directed to read his work. For the purposes of the present exercise

however, it is desirable to generally outline the present system of public finance in

New Zealand for the purposes of focussing in on the specific role and function of

select committees in the scrutiny of the Estimates.

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Section 22 of the Constitution Act 1986 codifies into New Zealand law in modern

language the principle contained in Article 4 of the Bill of Rights Act 1688, providing

that it is unlawful for the Crown to levy a tax, borrow money, or spend any public

money except under the authority of an Act of Parliament. David McGee QC’s

authoritative text Parliamentary Practice in New Zealand (2005) and Thomas’s

(2014) work provide the source material for the following description of the role of

Parliament in the public finance process. In accordance with the convention that such

authority is granted on a yearly basis, during the months prior to the beginning of the

financial year on 1 July, public sector agencies, the Treasury, and government

ministers go through an often fraught and contentious process of deciding how much

the government will spend on what in the forthcoming financial year. These figures

are known as ‘the Estimates’. Once the Estimates are compiled and approved by

Cabinet, it is customary that at some point in May or June (it must be delivered before

31 July) the Government will present the Budget to Parliament for approval. The

Budget consists of a number of documents, and includes the Main Appropriation Bill,

the Fiscal Strategy report, and the economic and fiscal update. The Estimates are

attached to the Main Appropriation Bill via inclusion in the Bill’s Schedule, and are

arranged into ‘Votes’ that generally correspond with a major area of government

activity (i.e. ‘Vote Defence’, ‘Vote Conservation’, etc). Once the Budget is presented

to the House, the Budget debate commences and takes place for a number of allotted

hours.

Once the initial speeches from the minister of finance, the prime minister, and the

leader of the opposition have been delivered, the Main Appropriation Bill is referred

to the Finance and Expenditure Committee (FEC). FEC then allocates Votes to the

relevant subject select committees for closer examination, although on rare occasions

it can decide to exercise its power to review any particular Vote. Once FEC

distributes the Votes in the manner it sees fit, those select committees have two

months in which to conduct their detailed scrutiny role and report their findings back

to the House. Select committees are usually prepared for their scrutiny role with a

briefing by staff from the Office of the Auditor-General, who may alert committee

members as to any issues within the sector relating to a Vote. The support staff for

each select committee coordinate these briefings, and also prepare their own briefing

documents for members, providing an overview of relevant information and trends,

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such as the appropriation details from the past few years and some of the key on-

going issues within that area or department which have been identified during annual

reviews. In the weeks prior to the Budget’s presentation, select committees also

approve and send out to the minister responsible for a Vote a questionnaire for the

purpose of “elicit[ing] matters on which Vote Ministers may wish to elaborate orally

before a committee, and to help committees target their examination of Votes with the

administering departments or entities” (Finance and Expenditure Committee, 2015).

Oral hearings are then held where the Minister in charge of a Vote and the relevant

departmental chief executive are questioned by committee members. Following the

hearings, select committees then deliberate and prepare a report outlining whether

they recommend the appropriations in the Vote and where they might have concerns.

This report is then presented to the House, where an Estimates Debate is then held

and the House considers each Vote contained within the appropriations. The minister

responsible for the Vote is conventionally present at the relevant stage of the debate,

and it is customary for issues identified and information obtained during the select

committee process to be raised and debated by members. After any amendments to

the Main Appropriations Bill proposed by the relevant select committee or minister

are made, the Bill passes into law and the government is granted the authority to

conduct its activities in accordance with the appropriations authorised. This is the

conclusion of Parliament’s financial scrutiny of ex ante expenditure. Parliament’s

financial cycle restarts once the financial year finishes on June 30 the following

calendar year, whereupon Parliament’s financial scrutiny of ex post expenditure takes

place via the annual review process. Given that ex post financial scrutiny by

Parliament is not the subject of this essay, it is not proposed to go into this process in

any depth.

IV Assessing the Quality of the Scrutiny of the Estimates Given the importance of the financial scrutiny function of many legislatures, a

considerable amount of research and analysis has been conducted investigating how it

can be enhanced. From this large body of work, it is possible to distil a number of

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common factors that have been identified to contribute to the quality of the financial

scrutiny a legislature is able to undertake:

• the state’s constitutional structure;

• the legislature’s financial scrutiny processes;

• the leadership and membership of the scrutinising bodies;

• the scrutinising body’s access to technical support and advice;

• the scrutinising body’s access to accurate and reliable budgetary information;

and

• the public nature of the scrutiny process.

Below each of these factors is explained in detail, and the performance of New

Zealand Parliament’s select committees is assessed against findings from the

literature and compared with the performance of comparable jurisdictions.

Recommendations under the relevant heading are then suggested for changes which

could be made to improve select committees scrutiny of the estimates. These

recommendations are summarised and compiled, and are set out in the final section of

this essay.

A Constitutional Structure

The constitutional structure of the State within which a legislature operates is the first

major factor contributing to the performance of a legislature’s fiscal scrutiny function.

It may be trite to mention, but the state must be governed by, and subject to, the law –

in other words, the Rule of Law must prevail. A constitution that defines the roles and

powers of the three branches of government must confer some power on the

legislature with regard to the public finances (probable in a democracy given the

centrality of public finance to power). Once it is established that a legislature has a

role in the public finance process, the next question is the actual nature of their

budgetary role. Brazier (2007, p. 347) identifies the three main categories that the role

of a legislature may fall into: firstly, legislatures that have the ability to amend or

reject budgets submitted by the executive and may alternatively formulate their own

budget; secondly, legislatures that may amend or reject proposals but cannot

substitute their own budget; and thirdly, legislatures that cannot amend proposals and

cannot substitute their own budget. Perhaps the most well known legislature of the

first type is the United States Congress, which is a very powerful actor in the budget

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process. Wehner (2006, p. 767) notes that Members of Congress view the

constitutional requirement for the congressional approval of appropriations to be a

key method by which they check executive power. Recent government ‘shut-downs’

in the United States are testament to the decisive influence they can wield (BBC,

2013), although, as Brazier notes (2007), they are also testament to the fact that

greater control by legislatures does not necessarily lead to a better functioning system

of public finance. In the second main category reside most European states, while the

third category broadly contains those states operating under the Westminster system

of government (including New Zealand).

In Westminster systems, the influence of Parliament over the budget is tightly

constrained by the longstanding constitutional principle of the ‘financial initiative of

the Crown’ which holds that “the House shall not accept any petition for any sum of

money … unless upon recommendation of the Crown” (Good, 2005, p. 18). McGee

(2005, p. 446) notes that in New Zealand this initiative is reflected in the existence of

Parliament’s Standing Order 326, which permits the government to exercise a veto

over legislative proposals that “would have more than a minor impact on the

Government’s fiscal aggregates if it became law.” When combined with the further

constitutional principle that votes of Supply indicate whether the government has the

confidence of the House, Wehner (2006, p. 771) states: “In effect, the confidence

convention reduces legislative authority to a stark choice between accepting the

budget unchanged or forcing the resignation of the government and fresh elections.”

Good (2005, p. 21) notes that this lack of influence can result in Members of

Westminster Parliaments not taking the budget scrutiny process seriously. Good goes

on to argue in favour of reforms: “[If] Parliamentarians become players and not just

police they might take on a new measure of accountability and responsibility for their

own actions and inactions.”

Fundamentally opening up the budget process to move New Zealand from the third of

Brazier’s (2007) categories into, say, the second, would necessarily involve at least

partially dismantling some of the vital constitutional principles that underpin the

Westminster system of government. Furthermore, Brazier identifies the benefits of the

current Westminster system, which provides “certainty and stability and allow[s] for

clear lines of responsibility about the decisions made and who has taken them” (p.

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348). Because of the low likelihood of wholesale and revolutionary constitutional

change in New Zealand’s system of government in the foreseeable future, the scope

for making recommendations for the improvement of the scrutiny of the Estimates by

select committees is limited. Indeed, recent Parliamentary consideration of whether to

amend the Crown’s financial veto was considered and rejected (Standing Orders

Committee, 2014). Nevertheless, as Brazier (2007, p. 348) notes, there are many other

ways that Parliament could significantly improve its scrutiny of proposals. One

suggestion from the more radical end of the spectrum is for the reinstatement of an

Upper House of Parliament. The Australian experience of Estimates scrutiny in a

bicameral system recounted by Worthington (2010) demonstrates the enhanced

opportunities for scrutiny offered by an institutional structure that makes it

challenging for one party to achieve a majority in both the House and the Senate

simultaneously. When these conditions exist, a Senate committee charged with

examining the Estimates may be chaired by, and have a majority of, non-governing

party members. The reinstallation of an Upper House of Parliament in New Zealand

has been advocated from various perspectives over many years – the argument that it

could enhance financial scrutiny adds another strong reason in favour of it.

B Legislature’s Financial Scrutiny Procedures

While the constitutional structure of a state sets down the parameters within which

legislatures must perform their financial scrutiny function, the particular rules and

procedures adopted by legislative bodies have also been found to have a significant

impact on the quality of financial scrutiny. Researchers have found that particularly

important for the quality of budget scrutiny by the legislature are the specific

processes they follow in carrying it out. A combined World Bank Institute and Inter-

Parliamentary Union global survey in 2001 reveals the wide extent of processes that

legislatures have adopted for scrutinising the budget (Pelizzo & Stapenhurst, 2008).

Debate is one of the most common forms that budget scrutiny takes, as Stapenhurst

(2004, p. 2) notes: “In some legislatures, most of the debate takes place in plenary, on

the floor of the house, elsewhere, the emphasis is on review in committee.” Indeed,

New Zealand’s Parliament allocates several hours per budget cycle to debate the

Estimates and the budget more generally, and has actually recently increased the

number of those hours (Standing Orders Committee, 2014). However, as Worthington

(2010, p. 32) has noted in the Australian context, the formal character of Estimates

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debates in the committee of the whole House can “militate against a level of

interactivity that would allow members to test ministers.”

The importance of more in-depth ‘inquiry’ forms of budget scrutiny that is capable of

being performed by smaller committees in the legislature has been recognised since

the 19th century. Wehner (2006, p. 771) recognised this when he concluded: “In short,

a well-designed committee structure enables budget scrutiny and oversight of

implementation.” One of the most longstanding and widespread Parliamentary

institutions in Westminster systems for carrying out this role is the Public Accounts

Committee (‘PAC’). Thomas (2014, p. 22) recounts the rationale behind the UK

House of Commons incorporating a PAC into its suite of tools of financial oversight

in 1861:

[T]he final requirement for parliamentary control of government expenditure [was] a permanent committee of the House to review the government’s accounts. While detailed appropriations, proper accounts and a Comptroller and Auditor-General were all important, the information they produced was only useful if it was thoroughly considered. The solution was a PAC.

Detailed scrutiny of the Estimates was to become one of the key functions to be

assigned to PACs, and they were to proliferate internationally across Westminster

Parliaments including to New Zealand. Thomas (2014, p. 30) notes that New

Zealand’s PAC “examined government finance almost entirely on its own,” and this

remains fairly typical in comparable jurisdictions (Jacobs, Jones, & Smith, 2007, p.

32). Thurstans (2007) identifies two other models of committee for the scrutiny of the

Estimates: ‘Estimates Committees’, of which a number are specially convened for a

limited time (common in smaller Australian states); and subject select committees that

examine the estimates relevant to their subject specialisation (currently in operation in

New Zealand). In conducting their scrutiny function, common to most committees is

that they are empowered to bring before them for questioning the ministers

responsible for appropriations, heads of the relevant government departments, and

their own independent advisers.

Applying these findings to the current select committee system in New Zealand’s

Parliament reveals a system that is largely fit for purpose. Improvements that might

be recommended to improve financial scrutiny are therefore less structural and more

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‘tweaking’ around the edges. New Zealand’s approach of distributing the Votes to the

most relevant subject-committee instead of confining scrutiny to one specialist

committee means that the capacity to perform the financial scrutiny function must be

shared (and possibly diluted) among a number of committees. When not all members

of a committee understand their financial scrutiny role, their lines of inquiry can skew

towards some of the “political point scoring” behaviour which has been identified as

potentially “endangering” optimal scrutiny (Thurstans, 2007). This is compounded by

a more widely recognised problem: the lack of time able to be devoted by members to

the scrutiny process. As Sir Geoffrey Palmer recently noted (2015, p. 29), there is

often too much on the plates of committees and members themselves. Ministers may

only spend 1 hour before a committee answering questions about a particular Vote,

and subtracting the time spent by ministers answering ‘patsy’ questions from

committee members from the governing party, there is little remaining time for

extended examination. This is especially relevant as Di Francesco & Eppel (2011)

have recently argued that the decisions of ministers regarding the particular policy

outcomes they identify, and the particular outputs they ‘purchase’ to achieve them,

represent a significant decision-making node that policy failures can be traced back

to. This essay recommends the adoption of an ‘Estimates week’ during a non-sitting

week as was recommended by the Clerk of the House for the 2014 Standing Orders

Review. It would allow members a period with less distractions in which they can fit

more hours with ministers and chief executives in which to conduct their scrutiny.

C Leadership and Membership of Scrutinising Body

With the legislature providing the particular processes and committee systems within

which scrutiny takes place, the next determinant of the quality of the scrutiny of the

Estimates by the scrutinising body is their leadership and membership. Researchers

and academics often cite a bi-partisan and collegial environment as an important

component of a well-functioning public finance scrutiny body. Jacobs (2013, p. 10)

notes: “It is clear …that political neutrality and cross party representation is a

fundamental requirement for an effective PAC.” Elaborating, the UK’s National

Audit Office (2011, p. 9) states that Parliamentary financial oversight committees

work most effectively when they:

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…involve members from across parliamentary parties, reflecting the make-up of the legislature; are chaired by a member from an opposition party or group to increase public confidence in scrutiny of government; work with a non-partisan culture focusing on improvement.

However, recent analysis by Pelizzo (2011) has cast doubt on the commonly held

view that an opposition chair is a key ingredient of effective financial scrutiny by

PACs, instead finding that the correlation is “statistically insignificant” (p. 536):

“…we find no evidence that PACs chaired by an Opposition MP are more effective

than PACs chaired by MPs affiliated with the government party or coalition” (p. 544).

The better view, and the one espoused by Gay & Winetrobe (2003), is that for PACs

there is no correct size, membership should generally reflect party balance, and that it

is common but not critical to have an opposition chair.

The incidence of these basic institutional building blocks is a prerequisite for effective

financial scrutiny by legislative committees, but it is not sufficient in and of itself to

ensure it. As Pelizzo (2011, p. 543) notes: “The presence of oversight tools is a

necessary but insufficient condition for effective oversight.” Rather, it is the

characteristics of the individual Members as the actors on these committees that is a

key determinant of their effectiveness. By virtue of their Office, Members of

Parliament usually have a multitude of roles and responsibilities and as a result are

time-poor. Brazier (2007) notes that members must be prepared to prioritise this work

if they are to perform this function successfully. Furthermore, as Jacobs & Jones

(2006, p. 21) recognise: “An effective public accounts committee needs more than a

formal commitment to parliamentary scrutiny, it also needs political will.”

Members must also posses a degree of understanding of how the system of public

finance operates and what the role of Parliament is with regard to it. They must also

properly understand their own role as scrutinisers: as Member of the Parliament of the

Isle of Man Juan Watterson MHK (2011, p. 118) advises: “You are not there to audit

the books and records of government – that is usually the job of the Auditor-General.”

Equally, effective financial scrutiny cannot be achieved merely on the footing of

general political debate despite the fact that the Estimates encompass virtually the

entirety of government activity. Instead, a middle ground must be struck where

members can identify and scrutinise the political implications behind the financial

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information before them. To illustrate this point, Watterson (2011, p. 121) suggests

possible lines of inquiry for members involved in financial scrutiny of government:

check that big government strategies have a corresponding budget and risk

assessment; look for trends in spending and seek explanation; check for significant

over-spending and under-spending and seek explanation; ask where assumptions have

been made in compiling the figures and where the areas of subjectivity are; check

agency’s performance against its key performance indicators; and question whether

those key performance indicators are appropriate for those agencies.

As explained above, in New Zealand the subject select committee most relevant to an

area of proposed spending (or ‘Vote’) carries out the detailed scrutiny of the

Estimates. Of the current 14 subject select committees currently in operation, all

except two are chaired by a member of the governing party. The membership of select

committees is determined by the Business Committee at the beginning of each

parliamentary term, and is set at a level that is broadly proportional with numbers in

the House. If New Zealand were to follow the general trend of research, installing a

member of the opposition as chairperson in each of the committees (at least during

scrutiny of the Estimates) could improve scrutiny. Otherwise, it is possible to

conclude that New Zealand’s Parliament possesses the prerequisite building blocks

upon which effective scrutiny of the Estimates may be built.

The focus then shifts to proposals that could improve the capacity of individual

members to conduct effective financial scrutiny. At present, members are supported in

performing their scrutiny role primarily by the Auditor-General (technical advice), the

Office of the Clerk of the House (secretarial support) and their parties (political

advice). However, it is the individual members who are the actors on the committees

and it is they who are tasked with ensuring effective scrutiny. Because in New

Zealand the scrutiny of the Estimates is not focussed in a single PAC, capacity-

building measures must be targeted broadly across all members of Parliament –

particularly new members. Finding the time to educate newer members about the

system of public finance can be challenging, and for time-poor members it is common

to obtain their training through the Estimates process itself (Thurstans, 2007).

Discourse couched in terms such as “inputs”, “outputs” and “outcomes” may be

difficult for those without a background in the public sector or the large private sector

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companies that are managed in accordance with this language and these principles. To

improve member’s scrutiny, this essay supports the continuance of Estimates

briefings, and recommends that tailored individual briefings be targeted towards

newer members to familiarise them with the public finance system and their place

within it.

D Access to Technical Advice and Support

As noted above, members of legislatures are generally time-poor and so have to be

supported in order to adequately perform the many roles they must perform. Few

members have the time and capability to examine the entire detail of the

government’s spending proposals themselves. The UK’s National Audit Office (2011)

briefs parliamentary staff on the pressures members strain under:

Undertaking financial scrutiny is often challenging given the public finance documents, such as budgets, are often technical and contain a high volume of information. It is also a challenge for members of parliament to balance the demands of financial scrutiny alongside their other roles and responsibilities in the legislature. Parliamentary staff are vital, therefore, in supporting members of parliament to be effective in their financial scrutiny role.

This illustrates Jacobs’s (2013, p. 10) finding that, in order for financial scrutiny

processes to be effective, “other elements of parliamentary oversight and audit need to

exist and be functioning.” As Thomas (2014) recounts, the necessity of technical

support for ensuring a publicly accountable system of public finance was recognised

early by the great reformers of 18th and 19th century England. Following an

evolutionary development, the Office of the Comptroller and Auditor-General as we

recognise today was established in 1866 and tasked with the role of “audit[ing] the

department’s accounts for the House of Commons and to report its findings to it”

(Thomas, 2014, p. 22). As the proximity between the date the Office of the Auditor-

General and the PAC (1861) were established suggests, they were intended to be

complementary institutions (McGee, 2002, p. 57). This is because, as Wehner notes

(2003, p. 30): “The level of scrutiny that a PAC can deliver depends on the quality of

audit reporting.” Therefore, as Jacobs (2013, p. 11) notes, “a strong relationship with

an independent and well-resourced Audit Office, including the capacity for regular

private briefings is a critical institutional link.” Thomas’s (2014) account of the

relationship between the Auditor-General and Parliament in the New Zealand context

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demonstrates that in general it has been an effective one and responsive to the

significant changes New Zealand’s in state services and public finance over the years.

It is difficult to identify any particular areas ripe for improvement in the relationship

between the Auditor-General and scrutinising committees, and so this essay would

only propose that it continue to build the capacity for effective financial scrutiny

across Parliament’s committees and individual membership.

While the technical advice of the Auditor-General is critical to a well-performing

Estimates scrutiny process, so too is the role undertaken by the parliamentary staff

who support the select committees. As the UK’s National Audit Office (2011, p. 10)

states, parliamentary staff such as committee clerks and report writers generally

undertake the important tasks of: identifying issues for discussion; identifying key

government ministers, officials and other experts to appear at committee meetings;

preparing briefing information for committee members before each meeting;

analysing evidence from meetings along with providing written documentation to

support committee members to reach conclusions on required actions; and writing

reports for parliament capturing the committee’s conclusions and recommendations.

In order to perform these tasks well, the UK’s National Audit Office states that staff

need a good knowledge of parliamentary proceedings and modern public financial

management, sound coordinating and networking skills, and good report writing,

analytical and verbal presentation skills. In addition to the importance of the

competency of parliamentary staff, studies have also shown that there must also be

sufficient numbers of staff in order to get through the work required to meet this

standard (Pelizzo, 2011, p. 544).

It is typical for the work of select committees in New Zealand to be supported by

around 3 full time staff: the clerk, the deputy clerk/report writer, and an administrator.

This is towards the low end in comparable jurisdictions such as Australia and the

United Kingdom, though is more than in many smaller and under-developed states. It

is the author’s opinion that, while current staffing levels are sufficient for producing

an acceptable level of support, additional staff (bringing the level to 3.5 full time staff

per committee for instance) coupled with more training than is currently provided to

staff (generally a yearly briefing from Treasury and Auditor-General staff) would

make them more confident in directing members as to their proper role during the

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Estimates scrutiny process. Members often look to committee staff for guidance on

such matters, and through the drafting process for the committee’s Estimates report,

staff also can draw member’s attention to key points they may have missed.

E Access to Accurate and Reliable Budgetary Information

In order for the members of a legislative body performing a financial scrutiny

function to be supplied with optimal technical advice and support, it is fundamental

that they are supplied with accurate and reliable budgetary information. As Pelizzo

(2011, p. 543) notes, effective oversight depends on “whether parliaments and

parliamentarians are given proper information to perform their oversight tasks

adequately.” There is a fundamental power imbalance between the executive and

legislatures attempting to scrutinise activity due to information asymmetries, as Good

(2005, p. 18) explains: “[T]he government knows a great deal about what is in and

behind a budget and the legislature knows very little, with the consequence that

legislatures rarely acquire a deep understanding about how public money is spent or

the implication of appropriating more or less.” Therefore, in order for effective

financial scrutiny to take place, mechanisms such as the Office of the Auditor-General

and statutory tools such as the Public Finance Act 1989 have been developed to

attempt to redress the imbalance to the extent that sufficient scrutiny can take place.

Wehner (2006, p. 771) identifies the kinds of information that are required:

Crucial for [effective budget scrutiny] is the breadth and depth of supporting documentation that accompanies the budget figures submitted to the legislature. In addition, in-year revenue and expenditure updates as well as high-quality audit reports, including performance audits, are crucial types of information for legislative oversight of budget implementation.

Good technical advice for scrutinising committees must be based on truthful and

accurate reporting and presentation of a wide range of data. Compliance by

government departments with the principles of the Generally Accepted Accounting

Principles has also been a requirement for over 20 years, a key contribution of which

has been to require the use of accrual accounting (requiring assets and liabilities to be

recorded once they are incurred) instead of cash accounting (which was felt to allow

the government to conceal large liabilities and debts). Separating out proposed OPEX

(operating expenditure) from proposed CAPEX (capital expenditure) is another vital

16

requirement to allow scrutinisers a better understanding of the big projects and

activities going on within departments.

Also posing challenges for ensuring accurate and reliable information is available for

legislative bodies has been the introduction of New Public Management (NPM)

reforms, which have introduced a much greater range of information required. NPM

shifted the traditional focus on compliance and monetary ‘inputs’ into departments

that was fairly simple to monitor, to a more performance oriented model that gives

managers more flexibility in return for holding them to account for their results. As

Laing (2007, p. 26) notes: “Accountability for expenditure depends on information of

all types being available”, and this poses problems for oversight bodies. The

inexactness and slippery nature of performance information brings additional areas of

concern for oversight bodies, such as whether the government is measuring the right

things and whether the sources of the information are reliable. This last concern is

particularly acute in the NPM environment, one that emphasises the efficient delivery

of government services through the use of competitive market forces where possible.

As Watson (2004) notes, the private sector tends to be weak on transparency

compared to the public sector, and it can be difficult to monitor risks on big projects

(such as in the IT space) with the information traditionally made available to

committees. Over the past 30 years New Zealand has tended to be at the forefront of

countries reforming their public sectors in accordance with these principles, and the

Office of the Auditor-General and the wider public sector are well acquainted with

them. Where the accuracy and reliability of budgetary information could be improved

is in clearly highlighting the assumptions that a minister and a department have made

in arriving at their figures and what, where, who, how and why particular

performance indicators have been chosen.

F The Public Nature of the Scrutiny Process

The last key factor that the large body of research devoted to improving a legislature’s

financial scrutiny function has highlighted is public involvement and media coverage

(Stapenhurst, Sahgal, Woodley, & Pelizzo, 2005). When the proceedings of

committees are public, the UK’s National Audit Office (2011, p. 7) explains, “their

work helps to ensure transparency and openness of government activities by

providing a public arena in which government spending is explained and debated and

17

individuals are held to account for their actions.” As with all of Parliament’s

activities, without the public’s attention its key power as a ‘bully pulpit’ would be

neutered and ministers and officials wouldn’t take the financial scrutiny process

seriously. The UK’s National Audit Office (2011, p. 9) again notes that committees

conducting financial scrutiny work effectively when they: hold meetings open to the public and media, with all documentation published soon after the meeting; publish reports and recommendations which are easy for the public and general reader to understand; … engage effectively with the media to increase public awareness of their role and work.

In New Zealand’s Parliament, the Estimates scrutiny process undertaken by select

committees is usually open to the public (scrutiny of the Estimates for sensitive areas

such as security and intelligence takes place behind closed doors) (Thomas, 2014).

When the reports of each select committee are tabled in Parliament, they become

available to the public and entered into Parliament’s own journals. They are also

published on Parliament’s website. A new social media strategy currently being

introduced by the Office of the Clerk seeks to enhance the accessibility of these key

documents and sidestep an often uninterested media. Obtaining the coverage of

proceedings and findings of committee proceedings by the major media outlets has

been challenging. A side-effect of this noted by Thurstans (2007) to be detrimental to

the task of improving the quality of financial scrutiny conducted by committees is that

members are sometimes inclined to turn proceedings into a “media circus.”

Compounding problems raised earlier relating to the small amount of time ministers

are actually before committees for questioning, anecdotal accounts from select

committee staff indicate that members often use the opportunity to attack ministers

from a controversial, attention-grabbing political perspective rather than from a public

financial performance one.

No easy solutions to this problem are apparent, although the recommendations made

in previous sections of this essay (such as better education and training for members)

may have the effect of improving the confidence by which members may criticise the

planned expenditure proposals in the Estimates from a public finance perspective. It is

also worth noting current trends in public management literature in favour of

innovations such as ‘participatory budgeting.’ In an effort to overcome what a number

18

feel to be the democratic deficit in the more technocratic aspects of government, such

as writing a budget, the OECD (OECD Senior Budget Officials, 2014) recently stated

that a key principle of good budget preparation is that, “debate on budgetary choices

should be inclusive, participative and realistic.” Likewise, Jacobs (2013, p. 11)

recently considered that, in relation to the preparation of budgets, “perhaps future

efforts to build capacity in this area could focus more on how the capacity for these

processes of deliberative democracy are built and sustained.” It should be recognised

from the discussion in the earlier part of this essay that significant constitutional and

political obstacles would have to be overcome in order for a New Zealand budget to

be written in such a manner – not least what the role of select committees would be

(for what purpose would they be required to scrutinise the Estimates?).

V Conclusions and Recommendations for New Zealand Parliament It should be apparent from the analysis above that New Zealand’s select committees

perform their financial scrutiny function in relation to the Estimates in a manner

largely in accordance with international best-practice. The literature from which that

best-practice can be distilled identifies six key factors that contribute to the

effectiveness of the key financial scrutiny function that most democratic systems

allocate to legislatures. The research and analysis contained within the literature

confirms that New Zealand’s Parliamentary select committees operate in close

accordance with the best-practice considered to produce optimal good-governance

outcomes rather than exposing serious deficiencies. Therefore, aside from the first

one, the recommendations this essay suggests for improving the scrutiny of the

Estimates as undertaken by select committees are generally of the nature of

‘tweaking’ rather than ‘reforming.’ A summary of those recommendations are as

follows:

• reinstating an Upper House of Parliament which is granted strong financial

oversight powers and is elected on a separate basis to the House;

• implementing the Clerk of the House’s recommendation for an ‘Estimates

Week’ to be timed during a non-sitting week when ministers and officials will

be available for longer periods of questioning from committees;

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• strengthening the educational training and support given to (particularly new)

members of Parliament to build their confidence in performing their financial

scrutiny function;

• enhancing existing professional development programmes for Parliamentary

staff to include teaching of the system of public finance, the role of Parliament

in that system, and how to focus members’ minds on their proper role;

• greater openness from ministers and departments about the areas of

assumption and subjectivity behind the figures and performance indicators

presented in the Estimates than is currently provided in the supporting

documentation; and

• continued efforts by parliamentary staff to ensure the accessibility of the

scrutiny process and the findings of committees for the interested public,

through traditional media and increasingly through alternative modes of

communication (such as social media).

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