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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
14
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
15
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;
19
• 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).
20
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