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The Imperative for Performance in the Public Sector John Whitehead Secretary to the Treasury New Zealand September 2006 © The Treasury Roadmap • Background on the Treasury & NZ • Why public sector performance matters • Some reflections on setting performance objectives • Current performance challenges in NZ • Conclusions 2 © The Treasury The New Zealand Treasury • The Government’s principal economic and fiscal adviser • Strong interest in efficiency and effectiveness of the public sector & its connection to the growth and economic well being of New Zealanders 3 © The Treasury New Zealand • Parliamentary democracy • Small open economy • Robust system of government and public management system • Very low levels of corruption • Intimate, open political culture 4 © The Treasury Public sector performance matters • Size of government & impact on economy • Public sector provides services that are not otherwise available • Major provider of infrastructure • We were forced to undertake major reforms of our economy and public sector, which have delivered major benefits ... 5 © The Treasury Getting Better Performance - Operating balance (less revaluation adjustments) 1980-2005 OBERAC 1980 to 2005 $ billion 9 8 7 6 5 4 3 2 1 0 (1) (2) (3) (4) 1980 1983 1986 1989 1992 1995 1998 2001 2004 Year ended 30 June 6 © The Treasury And it is not just the Government’s accounts… 7 © The Treasury What have we learnt about setting performance objectives? Setting performance objectives matters … • Clarifying the results expected • Facilitate devolved authority • Transparency 8 © The Treasury Setting performance objectives is a difficult task … • Cannot rely on price signals or share price to judge performance as in the private sector • Multiple objectives & ambiguity as to their relative value • The public sector can be: – Short term in focus – Risk averse – Resistant to change 9 © The Treasury Good performance objectives • Know what you want to do & do it well – Agree what results you want – Measure the right things well – Inform decision-making Important to note … • It is an iterative process • Risk of poor performance objectives 10 © The Treasury Road Deaths (1970 = 1) 1.4 1987 1.2 1990 1970 1 Road Deaths (1970=1) 1995 2000 NZ Norway 0.8 2004 UK NSW Sweden 0.6 Victoria 0.4 0.2 0 1965 TARGET SETTING 1970 1975 1980 1985 1990 1995 2000 2005 Year 11 © The Treasury Setting performance objectives alone is not sufficient - it requires • Visible political support • Senior management authority and commitment • Sound institutional and governance arrangements • The right incentives • Relevant good quality data and robust analysis 12 © The Treasury We cannot stand still … • As a small, open economy on the edge of the world we can’t afford an inefficient state sector • Government wants to know what it has got for significant extra expenditure in recent years • Less fiscal headroom • Increased public and stakeholder expectations • Long term fiscal position 13 © The Treasury 43 6 41 4 39 2 37 0 35 -2 33 -4 31 Core spending Operating balance -6 Operating balance (% of GDP) Core spending (% of GDP) Long term fiscal pressures… 29 -8 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 14 © The Treasury …and we are still struggling to get some things right • Issues that span several agencies that matter to Ministers & citizens • Fragmentation • Getting traction on non-departmental bodies • Inconsistent information about the effectiveness of interventions • Avoiding reporting just being compliance costs 15 © The Treasury Response to issues • Government’s long term perspective under unifying themes • Organising the budget around themes • Lead agencies with mandate to align activities • Expenditure review • Central agencies leadership • Legislation 16 © The Treasury Conclusion • Setting performance objectives in the public sector is important • But only part of the story, other things matter: – – – – – – Visible political support Senior management authority and commitment Sound institutional and governance arrangements The right incentives Good information and analysis The ability to take a longer-term view • This takes time 17 © The Treasury