Initiatives for Reform, Neville Wran - Michael Egan

Changes of a singular nature would follow the election of the Wran Labor Government sworn in on 14 May 1976, changes that would alter dramatically Treasury's pivotal role in the management of the financial affairs of the State.

Prior to the Wran Ministry, Premiers had traditionally distanced themselves from the Budget process. The overall strategy of the State's financial planning had rested with the Premier and Treasurer whilst avoiding the details of portfolio allocations.

Neville Wran now embraced the American system with an immediate impact on Treasury. He achieved this by appointing personal Economic Advisers, who now became actively involved in the process of allocating Budget priorities and strategies, the once unimpeded and exclusive role of the Treasury.

Financial Management Reforms 1976-2000

Over the following two decades there would be a constant stream of change in New South Wales as to the way in which Treasury developed the State Budget, and in the way Treasury accounted for and reported upon the State's financial transactions.

This revolution in State finances commenced under the former Treasurer, Ken Booth, and broadened and accelerated under the Premier and Treasurer Nick Greiner and progressing to the present day under the current Treasurer, Michael Egan MLC. Key Treasury officers and Ministerial policy advisers played and would continue to play a central role in initiating, facilitating and implementing this reform process.

Major Reform 1980-2000
the introduction of Program Budgeting

If the Government decides that program budgeting and the budget procedures recommended by you (Professor Wilenski) are to be adopted Treasury will do its utmost to see that the Government's wishes are met...(Treasury's) responsiveness to Government requirments has never been questionedat least in this State. ...We have never wavered in our belief that wholesale adoption of program budgeting could be a serious waste of effort and the evils could be great.. .we are afraid that we may be creating a mirage.. .and are convinced that there are much more effective ways of trying to get value for the taxpayers dollar
(Treasury Working Papers, 30 March 1980, AO NSW ref: 10/48381)

In January 1977 seven months after taking office, Wran commissioned Professor Peter Wilenski to advise on the implementation of such (administrative) improvements as the government decides upon.

There had not been any major changes made in budget presentation or financial reporting in the Public Accounts between the Spencer Committee of 1930 and the Wilenski recommendations of 1977.

The Budget process came under particular scrutiny when nine months later in November 1977 an Interim Report, Directions for Change was produced, in which Wilenski proposed that the Budget Papers should begin to use a program-based format similar to the system adopted by Ontario, Canada. This proposal was one of a number designed so that 'non-technical' readers (could) easily gain a clear understanding of the activities of the Government and able to relate these activities to prevailing social and economic conditions in their state.' At the same time, the Review proposed that a Budget Task Force be established to recommend changes necessary to implement six principles, identified by the Review, and upon which budgeting processes should be based.

The Task Force was established in June 1978. Its Report was presented in May 1980 and included in the Review's Further Report of May 1982. Its recommendations were consistent with and reinforced the principles expounded in the Interim Report regarding the budgetary process.

The 'Unfinished Agenda' of 1982 was the catalyst for change and strongly supported by the Auditor-General's Office and the Public Accounts Committee.
In the early days of the Review, the proposal for Program Budgeting had met resistance from both within and beyond Treasury. The Wilenski Report when acknowledging the differences in attitudes, recognised the sensitivities of the Treasury Executive and the Treasury officers. Wilenski in his report expressed that there could be no doubt as to the competence and dedication of Treasury officers in undertaking the very heavy workload that the budgeting system and government demands made on them.

As a direct result of the Review of New South Wales Government Administration the Treasurer, Ken Booth announced on 12 July 1982 a number of major reforms being undertaken by himself to improve the State's financial administration including program budgeting, a system to be phased in over several years. The reforms were to be given the highest priority.

To oversight the implementation of program budgeting a steering committee was appointed which included the Secretary and Comptroller of Accounts, Treasury (Chairman); the Chairman, Public Service Board and the Secretary, Premier's Department. On the recommendation of that committee a special team was formed within Treasury to undertake the detailed work involved in introducing program budgeting.

Don Nicholls, Assistant Secretary of Budget and Financial Policy and Ian Neale, Senior Budget Inspector made a hurried trip to Canada and Hawaii in November 1983 where they explored aspects of Budget procedures and program budgeting issues.

The team's work culminated with the preparation of the 1983-84 Budget Estimates on a program basis as a supplementary budget paper for the information of Parliament.

In 1984, the Budget Branch of Treasury assumed responsibility for the continued development and implementation of program budgeting including the preparation of the 1984-85 Budget Estimates Classified by Program. With the finalisation of the 1984-85 Budget process and the completion of the first stage of the formal implementation of program budgeting six appropriations on a program basis had been taken, including Treasurer. By 1986-87, all departmental estimates were appropriated by program.

1982-83 Period
Single Consolidated Fund

The Consolidated Revenue Fund and the General Loan Account were combined into a single Consolidated Fund, from which recur¬rent and capital allocations were made. This was designed to improve and simplify the presentation of financial information to Parliament and the public, and to improve the decision making process in resource allocation.

The Niemeyer Statements

Included in the changes was the proposal to issue monthly, to the public, an income and expenditure statement, the Niemeyer statement.

1983-1990 Period
The Public Finance and Audit Act

This Act of 1983 replaced the Audit Act of 1902. Treasury con¬vened a committee to review that earlier act and contributed to the drafting of a more contemporary statement of financial responsibil¬ities. The Act made provision with respect to the administration and audit of public finances. It emphasised accountability, and gave greater flexibility while strengthening financial control in the administration, accounting and auditing of the State's finances.

The Public Accounts Committee

The Parliamentary Public Accounts Committee, first established in 1902, was reactivated and its powers broadened. It was empow¬ered to extend its scrutiny of the operations of Departments and Authorities and was provided with the opportunity to institute its own inquiries.

Annual Reports Legislation

In May 1984 the Annual Report (Stat Auth) Act was proclaimed. This legislation provided for the introduction of annual reporting legislation and prescribed uniform accounting and timely reporting standards for public sector agencies.
The Annual Report (Dept) Act followed in November 1985. The legislation included provision of performance indicators, specific time limits for completion and audit of financial statements, sub¬mission of a report to the Minister and tabling of the report in Parliament.

Internal Audit Guidelines

In May 1984 Treasury issued Internal Audit Guidelines. An expanded version of the Guidelines was issued in July 1990.

Review of Special Deposits Account

Treasury conducted a review of the use of Special Deposits, with the objective of providing some rationalisation. The review concluded that, generally, each Department or Authority should operate through only one Account for non-Consolidated Fund transactions. This review resulted in a streamlining of the Account from 350 to 250 special deposits including the closure of several dormant accounts, based on recommendations from the Auditor General.

Early Announcemet of Budget Allocations

Because of tightening economic conditions, and the need for rigorous expenditure controls, it was decided to announce departmental allocations some months prior to the Budget. On 1 May 1985 the Premier announced Ministerial allocations so that Ministers could have as much notice as possible of expenditure limits and could, therefore, plan their priorities for the coming year.

Introduction of User Charges by and Commercialisation of Central Service Agencies

Following a Treasury review of service wide payments and ser¬vices, the decision was taken to implement the provision of user charges for services provided between Departments and to allocate to individual Departments payments currently paid on their behalf by various central agencies (e.g. superannuation, payroll tax, debt charges). The objective was to more accurately allocate costs to indi¬vidual programs in order to improve decision making and to encourage more economical use of resources.

Commercial Activities and Ministerial Expenditure Review Committee

Departments were now permitted to operate commercial activities separately from their budget funded programs.

A (Ministerial) Expenditure Review committee was established to set and review broad Budget Strategy and identify and review future issues with major budgetary implications facing the State. It was the first such Committee in the State's history.

The Curran Report

The Premier Nick Greiner announced on 4 April 1988 the estab¬lishment of an independent Commission of Audit to review the State's balance sheet and financial commitments.

Treasury was not responsible for the report of the Commission but the contribution of the officers seconded from the Treasury to give support was recognised and acknowledged in the final Report presented to the Premier. The final Report was presented to the Premier on 29 July 1988 who acknowledged the enormous scope, complexity and importance of the inquiry in a short reporting timetable. In the language of its period it sought to 'present a rela¬tively simple corporate management framework' for reform of the State's finances and 'in a manner which was persuasive for a broad audience’

In June 1989 the Government endorsed a policy document on the Classification and Control of State Organisations. While the classifi¬cation scheme developed applies to the entire New South Wales public sector, the controls are tighter on inner Budget sector entities than outer or non Budget sector bodies.

Target Budgeting

New South Wales was the first State to follow the lead of the Commonwealth and establish and make public Budget estimates that extend beyond the Budget year. The forward estimates provide a medium term perspective for the Government in limiting overall Budget spending, allocating funds between different expenditure priorities and assisting Departments in forward financial planning.

Global Budgeting

Parallel with the introduction of target budgeting, greater flexibility has been provided to Ministers to manage within their level of allocated resources. Ministers have also been given the facility to transfer funds between years.

National Accounts Presentation of NSW Public Sector

New South Wales was the first State to provide a comprehensive presentation of the full State public sector on a national accounts basis. This was first provided in the 1988-89 Budget Papers.

Consolidated Financial Statements

One of the recommendations of the 1988 Commission of Audit was for the production of Consolidated Financial Statements show¬ing the income and expenditure and assets and liabilities of the inner Budget sector, outer Budget sector and the two sectors combined. The objective of these statements is to indicate the State's overall financial position in the same manner that a private holding compa¬ny would present its groups accounts.

2000 and Beyond -
Accrual Accounting for the Inner Budget Sector

Accrual accounting recognises revenue as it is earned or due, even if not received, and expenditure is reflected in the accounts when the liability for payment is incurred, regardless of whether the actual payment is made. Accrual accounting also presents a full balance sheet of the organisation.

Development and Implementation of a Commercial Policy Framework for GTEs/SOCs

This reform is intended to promote the principles of competitive neutrality between GTEsSOCs and private sector enterprises of sim¬ilar risk. The framework covers dividends and tax equivalent pay¬ments, capital structure, government guarantee fees and financial monitoring.

Performance agreements, productivity measurement trials, preparation of a draft State Economic Development Strategy, imple¬mentation of safety net tax arrangement, reform of Commonwealth State financial arrangements, structural reform and the application of Competition Policy Principles are matters which remain in the forward policy agenda for Treasury.

Immediate Reforms 1995-1999

The focus was maintained on improving resource allocation. Elements of the reform included further improvements of the Budget process and tax and inter-governmental financial arrangements reform.

A major component of the reform process in this period has been: the application of competition policy principles.

There has been an ongoing implementation of national competition policy in New South Wales, including the structural reform of public monopolies and reform of anticompetitive legislation. This strategy included the oversight of the ongoing reform of the electricity sector which included the introduction of wholesale and retail electricity markets. Also included was a range of other state and national electricity reform initiatives, and the development of policy for the management of electricity price risk arising from the exposure of electricity agencies to the market.