Story: Treasury

Page 4. Treasury and the state sector since 1980

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From the 1960s computers had opened up new possibilities not just for the control of public spending but also for evaluating spending, though practice proved more difficult than the theory, in part because governments frequently overrode Treasury advice.

Managing government-owned businesses

One consequence of the ‘Think Big’ programme of 1979–81 was to turn attention to the management of government business activity. It was argued that the market would ensure efficiency in ways that governments could not.

The State-Owned Enterprises Act 1986 was implemented by the State Services Commission but informed by Treasury thinking and advice. Departments such as Forestry and Lands and Survey were broken up into commercial arms (corporations) and service arms. The Ministry of Works was completely ‘corporatised’.

Selling government businesses

Between 1988 and 1993 many corporations – among them Petrocorp, Postbank, Air New Zealand, New Zealand Steel, Telecom, the Bank of New Zealand and New Zealand Rail – were sold to private interests. For governments the immediate appeal was cash. For Treasury it was to overcome a contradiction – for many Treasury advisors ‘corporatisation’ was an unsatisfactory halfway house, because the government was the only shareholder and a lender of last resort. But after 1993 the pace of privatisation eased, in part because there was less to privatise.

State-sector reorganisation

The State Sector Act 1988 and the Public Finance Act 1989 aimed to enhance efficiency in the core state sector by devolving management and financial responsibility. Again, Treasury concepts, advice and officials drove it.

Pushing the envelope

In the mid-1990s Treasury reckoned on a figure of around $1 billion to meet all claims under the Treaty of Waitangi redress process, and the government settled on this as a guideline. Protests erupted throughout the country over what became known as the ‘fiscal envelope’. Nonetheless, major settlements were reached with Tainui and Ngāi Tahu in 1995 and 1996. In the mid-2000s Treasury was again involved in treaty matters, notably the financial package underpinning the central North Island forests settlement.

Treasury itself changed. The establishment of the Debt Management Office (DMO) professionalised the management of government debt. Decentralisation ended Treasury’s role as the accounting agency for central government. The number of staff doing routine accounting (rather than investigative work) fell from 100 to just six, and by 1991 around half the staff (totalling about 330) were economic or financial analysts. Consistent with the spirit of the age, Treasury also grappled with gender and ethnic representation within its own ranks.

Redesigning the welfare state

Treasury endorsed the reform of the welfare state promoted by the National government elected in 1990. National set up Crown health enterprises – a health-sector equivalent of corporatisation – but they were unpopular with interest groups. Treasury sought more school autonomy and parental choice in education but these moves were also resisted.

Treasury saw universal national superannuation, introduced by the National government in 1975, as a legitimate target for reform, but for governments it was a ‘no go’ area. Other benefits were cut – widening the gap between benefits and wages was expected to encourage beneficiaries into work.

1999–2011

The Labour-led government that took office at the end of 1999 did not share Treasury’s sceptical view of state-owned businesses. A majority shareholding was acquired in Air New Zealand after business difficulties brought it to the brink of bankruptcy in 2001. Mindful that all trading banks were overseas-owned, the government set up Kiwibank, piggybacking a branch network on the back of New Zealand Post outlets. The rail network was repurchased in 2004 and the rolling stock in 2008, at which point KiwiRail was established to run both. Labour replaced Crown health enterprises with elected district health boards.

The National-led government that took office at the end of 2008 did not reverse these decisions. However, Treasury was encouraged to take the lead in ‘improving state sector performance’, along with the two other central agencies, the Department of the Prime Minister and Cabinet and the State Services Commission – thus re-establishing patterns from the 1980s and 1990s.

A National Infrastructure Unit established within Treasury was committed to developing a national infrastructure plan which would present ‘a high-level view of New Zealand’s infrastructure needs’ up to around 2030. It was the first time the state sector had taken an overview of infrastructure since the disestablishment of the Ministry of Works in 1987.

How to cite this page:

Malcolm McKinnon, 'Treasury - Treasury and the state sector since 1980', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/treasury/page-4 (accessed 14 December 2018)

Story by Malcolm McKinnon, published 20 Jun 2012