Public Sector Reform in New Zealand and Its Relevance to Developing Countries

Does New Zealand's success story have lessons for developingcountries contemplating public sector reform? That questionusually elicits one of two reactions, both inadvisable in theauthors' view. The first reaction is to be impressed with theefficacy of the reforms and conclude that they should be adopteduncritically in other countries. The second reaction is thatthe special conditions existing in New Zealand are such thatnone of its reform experience is relevant to others. The authorstake a middle position, maintaining that poorer countries canindeed extrapolate from the experience of their higher incomeneighbor despite the different conditions under which they haveto operate. New Zealand's comprehensive overhaul of its publicsector affords both general principles and specific elementsrelevant to countries looking to improve the quality, efficiency,and cost effectiveness of their public service sectors, anda careful analysis of those reforms can ascertain what mightbe transferable and what principles might apply.      

The Relevance of AAS 29 to the Australian Public Sector: A Cause for Doubt?

In December 1993, the AARF issued Australian Accounting Standard AAS 29, Financial Reporting by Government Departments . The Standard requires all Australian government departments (GDs) to adopt comprehensive accrual financial reporting no later than 30 December 1996. Given the magnitude and potential financial cost of these reforms, the claimed benefits of AAS 29 justify empirical investigation and scrutiny. The purpose of the present study was to test underlying rationales of AAS 29 by reference to ratings and opinions of 172 federal and state GDs in Australia. The key rationale of AAS 29 is that accrual-based financial reports will be relevant to the economic decision making of GDs and their external users. While the empirical results presented in this paper are confined to the internal viewpoints of senior GD officials and representatives, they cast into doubt the relevance of AAS 29 in the Australian public sector.     

`Sector Neutrality' and NPM'Incentives': Their Use in Eroding the Public Sector

Despite New Zealans public-sector reformers' claims that financial reporting changes promote competitive neutrality and improved accountability and transparency, privatisation-favouring "incentives" were designed into the system at a hidden detailed level. That distorted system has been encompassed within the accounting profession's standard-setting activities through standard-setters' erroneous claims, in Australia and New Zealand, that the accounting profession's conceptual framework and accounting standards are sector-neutral. These claims help to conceal the fact that the public-sector financial management system has been designed to be partial, with its incentives structured to erode the public sector and favour privatisation.     

'Sector Neutrality' and NPM 'Incentives': Their Use in Eroding the Public Sector

Despite New Zealans public-sector reformers' claims that financial reporting changes promote competitive neutrality and improved accountability and transparency, privatisation-favouring "incentives" were designed into the system at a hidden detailed level. That distorted system has been encompassed within the accounting profession's standard-setting activities through standard-setters' erroneous claims, in Australia and New Zealand, that the accounting profession's conceptual framework and accounting standards are sector-neutral. These claims help to conceal the fact that the public-sector financial management system has been designed to be partial, with its incentives structured to erode the public sector and favour privatisation.     

Toward Transparency: New Approaches and Their Application to Financial Markets

The Asian financial crisis in the late 1990s not only highlightedthe welfare consequences of transparency in the financial sectorbut also linked this relatively narrow problem to the broadercontext of transparency in governance. It has been observedthat objections to transparency, often on flimsy pretexts, arecommon even in industrialized countries. This article arguesthat transparency is indispensable to the financial sector anddescribes its desirable characteristics: access, timeliness,relevance, and quality. The authors emphasize the need to weighthe costs and benefits of a more transparent regulatory policy,and they explore the connection between information imperfections,macroeconomic policy, and questions of risk. The article arguesfor developing institutional infrastructure, standards, andaccounting practices that promote transparency, implementingincentives for disclosure and establishing regulations to minimizethe perverse incentives generated by safety net arrangements,such as deposit insurance. Because institutional developmentis gradual, the authors contend that relatively simple regulations,such as limits on credit expansion, may be the most reasonableoption for developing countries. They show that transparencyhas absolute limits because of the lack of adequate enforcementand argue that adequate enforcement may be predicated on broaderreforms in the public sector.      

Without `Reinventing the Wheel': Business Accounting Applied to the Public Sector

This article considers why a business accounting model was applied in an early adoption of public-sector accrual accounting. The history of that change shows that large private-sector consulting firms were active in the promotion and implementation of a commercial model of public-sector accrual accounting. It is argued here that the consulting firms' actions are best understood using concepts of mimetic isomorphism and the interplay between self-interest and perceived public interest. They formed an epistemic community in which self-interest was present but with a zealous belief that private-sector accounting was an inherently righteous objective for the public sector.     

Without 'Reinventing the Wheel': Business Accounting Applied to the Public Sector

This article considers why a business accounting model was applied in an early adoption of public-sector accrual accounting. The history of that change shows that large private-sector consulting firms were active in the promotion and implementation of a commercial model of public-sector accrual accounting. It is argued here that the consulting firms' actions are best understood using concepts of mimetic isomorphism and the interplay between self-interest and perceived public interest. They formed an epistemic community in which self-interest was present but with a zealous belief that private-sector accounting was an inherently righteous objective for the public sector.     

Public Sector Downsizing: An Introduction

Authorities throughout the developing world are turning to downsizingin an effort to reduce budget deficits and address the inefficienciesengendered by state-led development strategies. Because large-scaleinvoluntary dismissals are often politically difficult, a voluntaryapproach to reductions in public sector employment is increasinglypopular among developing-country governments, multilateral organizations,and donor countries. This article (and, more generally, theresearch project on Public Sector Retrenchment) attempts tosketch a protocol for public sector downsizing that takes intoaccount the costs and benefits for the workers and the economy. After reviewing the international experience with downsizing,the article addresses five questions: how to identify the redundantworkers, how to predict their losses from separation, how todesign compensation and assistance packages, how to assess thefinancial and economic returns to downsizing, and how to dealwith downsizing in one-company towns. Based on the answers tothese questions, a decision tree is proposed.     

The Existence and Composition of Audit Committees in the New Zealand Public Sector

This study investigates the association between the source of funding of New Zealand public‐sector entities (PSEs) and the existence and composition of their audit committees. We examine 134 PSEs in the health, local government and tertiary sectors. Of these PSEs, 81 (60%) have an audit committee. The size of the audit committees are on average larger than recommended by best practice guidelines. However, most of the PSEs comply with guidelines recommended for audit committee independence but not financial expertise. PSEs with higher levels of government funding are more likely to establish audit committees and PSEs that rely on funding from rate payers and debt providers are more likely to have audit committees with a majority of independent members. There is no support for the association between the source of funding and the level of financial expertise on audit committees.     

Securitization in Public Sector Finance

Already commonplace in the private sector, the securitization of future income streams is now being promoted in the public sector as a means of accessing investment capital. This article reports on a British university's securitization of 30 years' future rents on its student accommodation. Although the securitization made it possible to refurbish the residences, it has turned out to be costly in other respects. The authors conclude that investment returns in the public sector will rarely be sufficient to cover the finance costs of securitization; that the loss of the securitized income in labour-intensive public services is virtually certain to cost jobs; and that the accounting treatment of securitization needs to incorporate a realistic calculation of the movements in effective debt. Finally the article recommends that the value for money of any proposed public sector securitization should be independently checked by comparing its total cost of capital with the returns on its proposed uses.