Auditor-General's overview

As Auditor-General, I have a keen interest in the financial sustainability of the public sector. This discussion paper explores international practices and current research in assessing and understanding public sector financial sustainability.

The origin of this paper is the research that my Office commissioned for use on our 2012/13 work programme theme Our future needs – is the public sector ready? I decided to publish this summary of the research because we have found it interesting and helpful for that work programme. It also informed our report about local authorities' long-term plans (published in December 2012) and our upcoming report, due later in 2013, on the Treasury's 2013 Statement on New Zealand's Long-Term Fiscal Position, for which we have had to consider public sector financial sustainability.

The working definition used by the research is:

Public sector financial sustainability is the financial capacity of the public sector to meet its current obligations, to withstand shocks, and to maintain service, debt, and commitment levels at reasonable levels relative to both national expectations and likely future income, while maintaining public confidence.

Clearly, if the public sector is not able to sustain itself financially, then it cannot be ready for the challenges it faces. A lack of clarity about what will help it to remain financially sustainable will put its future performance at risk.

The research identifies an increasing focus on understanding the underlying social, environmental, and economic drivers of public spending, and the connections between them, rather than focusing primarily on the current composition of that spending. Systems of "key national indicators" are increasingly being explored and used to build this understanding.

This finding coincides with what I've been observing when interacting with my international colleagues and with international accounting and auditing bodies. I have noticed greater interest in, and work on, integrated financial and performance reports. In the private sector, integrated reporting is gaining increasing traction globally.

The research makes a strong case for engaging with the public – that it is essential to engage about the major underlying social, environmental, and economic issues, as well as their consequences for public services. New Zealand's public sector is already internationally known for its high levels of transparency about financial and performance information and measurement. Public engagement about our future financial sustainability and the factors that influence it can help the public sector better prepare and shape itself for future needs.

Although this discussion paper, which summarises the research we commissioned, is not a statement of my views or those of my Office, I hope that it will be useful and interesting. Most especially, I hope that it will stimulate debate among members of Parliament, the public, and public entities when reflecting on our future public sector financial sustainability and whether our public sector will be ready for our future needs.

I acknowledge and thank Bruce Anderson (the research author) and all those who gave him their time and insight.

Lyn Provost
Controller and Auditor-General

28 May 2013