© The Treasury The Imperative for Performance in the Public Sector John Whitehead Secretary to the Treasury New Zealand September 2006

© The Treasury 2 Roadmap Background on the Treasury & NZ Why public sector performance matters Some reflections on setting performance objectives Current performance challenges in NZ Conclusions

© The Treasury 3 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

© The Treasury 4 New Zealand Parliamentary democracy Small open economy Robust system of government and public management system Very low levels of corruption Intimate, open political culture

© The Treasury 5 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...

© The Treasury 6 Getting Better Performance - Operating balance (less revaluation adjustments) OBERAC 1980 to 2005 (4) (3) (2) (1) Year ended 30 June $ billion

© The Treasury 7 And it is not just the Government’s accounts…

© The Treasury 8 What have we learnt about setting performance objectives? Setting performance objectives matters … Clarifying the results expected Facilitate devolved authority Transparency

© The Treasury 9 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

© The Treasury 10 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

© The Treasury 11 Road Deaths (1970 = 1) 2004 TARGET SETTING

© The Treasury 12 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

© The Treasury 13 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

© The Treasury 14 Long term fiscal pressures…

© The Treasury 15 …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

© The Treasury 16 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

© The Treasury 17 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