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Article Article June 21st, 2016

Budgeting and evidence in New Zealand

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Performance budgeting shows how evidence can spark fundamental reform

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In New Zealand, evidence-led policymaking has heled to reforms of state-owned enterprises

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Data analytics provides information we’ve never had before about different interventions

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“You mean we're spending money doing what?!”

Graham Scott remembers the scene well. It was the early 1990s and he was presenting a spreadsheet of budgeting information to a New Zealand government minister - who could not disguise his surprise about what a shift in budgeting procedures had uncovered.

“The reforms were all about finding out what government money was actually being spent on,” recalls Scott, who was serving as Treasury secretary at the time. “We couldn't really do outcome budgeting - which was required by legislation from 1989 - unless we knew what the outputs would be. When we introduced this concept, it had something of a revolutionary effect. Suddenly, government departments asking for Treasury money were faced with a burden of proof and had to say exactly what it would be spent on. It transformed the relationship between the finance ministry and the spending ministries, and there was an immediate improvement in the prioritisation of spending.”

This instance - which arose as part of New Zealand's pioneering performance budgeting reforms - is just one example of how shining a light on new evidence can lead to fundamental reform of government and improved services for citizens. “It was all about bringing better performance information to bear on government decision-making,” says Scott. “Globally, it was typically the finance ministries pushing this, or in the US it was the Office of Management and Budget. This spawned a variety of different ways of pursuing what is sometimes described as ‘performance budgeting' but there is no doubt it had a significant impact.”

Budgeting for greater evidence

A quick glance through Scott's cv shows that his career has taken many twists and turns while remaining rooted in the public sector: healthcare, the electricity and gas markets and the Treasury have all felt his influence over the years. And further afield, he has advised on public sector reform in emerging and transitional countries across Eastern Europe, Asia, Africa, the Pacific and South America.

He has come across policy development in many contexts and settings, but he has no trouble in quickly identifying the prime example of evidence-led policymaking: changing the organisational structure of New Zealand's state-owned enterprises.

“We were moving a lot of business activities that were run inside government departments - like postal services - and incorporating them under general company laws in New Zealand,” he explains. “These businesses originally controlled 11% of the economy and 17% of national investment, and we knew very little about what was going on in these organisations because they weren't required to keep their books in accordance with international accounting standards, weren't audited for performance much beyond compliance checks, and so on.”

Shifting them out of their government berth, however, had sweeping ramifications. “It meant that these organisations suddenly went from having obscure bureaucratic budgetary accountability processes to being properly held to account,” he says. “This gave us a whole heap of information about the services, finances and other performance information that was presented back to government about what they were getting for their investment.”

The reform also led to wider financial benefits - for government and New Zealand's citizens. “Previously they had paid no tax and demanded continuing subsidies,” says Scott. “But within three years they were paying taxes and paying dividends back to the government, and the prices of the services they were delivering were dropping very rapidly and services improving. It really did have an enormous impact on the efficiency and effectiveness of that part of the state apparatus - and it wouldn't have happened without that extra evidence and information that came about because of that reform.”

Such examples might prompt some to wonder why evidence has not always been a core aspect of policymaking, not only in New Zealand's government but the world over. Surely it is logical to use evidence when it comes to constructing new policies?

While Scott agrees with the sentiment, he adds that is not always as simple as you might like or expect. “In general, governments today run a core set of services around health, education and social welfare, and these are much more difficult functions to collect information about,” he says. “These are also services that are mostly delivered free - which means there is no pricing information about their value - and this in turn leads to debates about just how good your health and education systems are.”

Without reliable information about value, mistakes are easily made, he adds. “It is all too easy to impose the wrong performance criteria on these systems. For example, if a hospital is being paid per time that patients are in their beds, they can keep them in over the weekend rather than discharging them on Friday. This complexity means that the demands for reliable evidence and non-distorted metrics are much harder.”

Tick, tock: tech

A more recent phenomenon that is sweeping through governments worldwide is the emergence of data analytics and big data as key tools that can drive government performance and deliver a stronger public impact for citizens - and New Zealand is no exception.

“There is a very enthusiastic uptake of these technologies across our core ministries,” says Scott, “and it looks like being a second revolution in the making. Our finance minister, Bill English, is a particularly strong advocate because of his focus on what he calls ‘social investment' - identifying vulnerable people who need of a lot of support and assistance but are not getting it. That's down to the way in which we have traditionally delivered services in silos. Data analytics now show there are 10,000 people who will cost NZD6.5 billion in social services over the course of their lifetime if the system doesn't change.”

The complex needs of these people mean that it's not simply a case of giving them a house or free childcare. Instead, they need a more bespoke approach - one that provides constant support and assistance over a sustained period of time. “What the government is proposing to do is identify those at risk or with a collection of vulnerabilities in their lives and appoint a navigator - someone to work with and alongside these families, who can steer them towards what service they need - either from a government agency, NGO or the private sector. The data analytics that support all of this is really pretty exciting.”

Although Scott is keen to play down the potential - “I don't want to oversell it” - he nonetheless agrees that data analytics, and the evidence it uncovers, has that rare ability to improve people's lives and improve how government works. “It's giving us information we've never had before about the effectiveness of different kinds of intervention in social policy - it's now down to government to make the most of it.”



  • Impact-led reform. New Zealand's recent story has been one of steady economic growth and evolving social services - much of it linked to a government transformation programme that relies on data and analytics, and putting the ‘customers' first. The country's finance minister, Bill English, tells Miguel Carrasco about the progress made and the changes still to come
  • Power to the people. Few countries have embraced the digital era as successfully as New Zealand. BCG's Miguel Carrasco talks to one of the New Zealand government's key digital transformation leaders, Richard Foy, about how they've done it.
  • Bringing finance to the fore. Few understand the complexities of financial management in government better than CIPFA International Chairman Ian Ball. He tells Adrian Brown about delivering radical reform in his native New Zealand and the enduring importance of new international public-sector accounting standards.

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