The Treasury December 2005

Transcription

1 The Treasury December 2005 For specific questions on any aspect of the Budget process, please contact your Treasury Vote Team. Feel free to any general comments and suggestions for improvements to the Guide to:

2 BUDGET GUIDE FOR DEPARTMENTS AND MINISTERIAL OFFICES 1. Introduction Who should use this Guide? What s New about this Guide? How to use this Guide Overview of the Budget Process and Key Products The Budget The Wider Context of the Budget The Public Finance Act The Fiscal Management Approach Managing for Outcomes Roles and Responsibilities Departments roles Ministers roles Treasury s roles Underlying Principles for Relationships between Key Players The Key Phases and Products of the Budget The Strategic Phase Budget Strategy Half-year Economic and Fiscal Update Budget Policy Statement The Initiatives Phase Budget Initiatives Budget Bilateral Briefing Bilateral Minutes Financial Recommendations Budget Package Cabinet Paper Baseline Updates (March and October) Production Phase Budget Statement (Budget Speech) Fiscal Strategy Report Budget and Half-year Economic and Fiscal Updates (including Specific Fiscal Risks) Budget Legislation The Estimates Appropriation Acts (Main and Supplementary) - additional information Imprest Supply Act Departmental Reporting Requirements Budget Information for the Media, MPs and the Public Ongoing Budget related activities Unappropriated Expenses and Fiscally Neutral Transfers Between Budget Spending

3 Crown Financial Statements Cash Payment Schedules Glossary Budget Initiative Template Annex one

4 1. INTRODUCTION This guide is intended to help people in Departments and Ministerial offices to understand the various aspects of the Budget process, and enable them to successfully carry out the tasks required of them as part of this process. The guide is intended as a comprehensive source of advice about the Budget process. It contains essential information about key dates, responsibilities and requirements. It also provides links and references to more detailed technical guidelines, Cabinet Office and Treasury Circulars, and relevant information on the Treasury s Intranet. The annual Budget Circular is a companion document to this guidance. The Budget Circular outlines the points that either Ministers or Treasury would like to emphasise to officials as they develop the Budget, and highlights any significant changes from previous years. The Budget Circular is available on CFISnet. You should use this guide as your first port-of-call for information relating to the Budget. There will, however, always be complexities, exceptions and grey areas. If you cannot find the information you require in this guide or the Budget Circular, please seek the assistance of your Treasury Vote Analyst. This guide will be supported by training to key people in Departments. We welcome feedback on any aspect of this guide. Please forward your comments to Malcolm McKee, mailto:malcolm.mckee@treasury.govt.nz 4

5 1.1. Who should use this Guide? Each Department and Ministerial Office has a different approach to the way in which they undertake Budget-related activities, and different people within Departments have different roles to play. In addition, while some people in Departments have significant experience of the Budget, for others it will be relatively new. All these factors make it difficult to write a guide that meets the needs of all readers. The guide is intended as a comprehensive source of advice about the Budget process for everyone involved, including Chief Financial Officers, policy managers, analysts and Ministerial office staff. It is likely that each reader will find that there are parts of the guide that they refer to in detail, and other parts that are not so relevant to the work that they do. People who have limited experience of the Budget process may wish to read the guide in its entirety, in order to gain a better understanding of the process as a whole. A separate guide is produced for Treasury Vote Analysts. This contains the same basic information provided in the Budget Guide for Departments and Ministerial Offices, plus additional details about Treasury s internal processes relating to the Budget. 5

6 1.1. What s New about this Guide? This guide was substantially re-written for Budget For Budget 2006 the document has been fully reviewed but large sections have only had very minor edits. We suggest that users re-familiarise themselves with the contents of the document. In particular the following sections have had more than minor changes. Budget process Budget Minister s have agreed to a major shift in the Budget process for Budget Allocations will not be used in Budget Instead Budget 2006 will focus on implementing Labour Party manifesto and confidence and supply agreements, as will all Budgets in the parliamentary term. A process will be conducted during December and January to consider priorities. Senior Ministers 1 will meet either in late January or early February to consider these priorities. Any remaining funding is expected to be modest. Given this, Budget initiatives will need to focus heavily on the department s ability to fund the initiative within baselines. Budget bilaterals will still operate for Budget Budget Initiatives (pg 25) Ministers are required to submit all their initiatives by Tuesday 24 January The CFISnet initiatives input screen is still designed to allow departments to split funding into two categories (in Budget 2005 departments were required to split discretionary and non-discretionary funding). No split is required this year. All initiatives will be submitted against one allocation (other) and all figures should be inserted in the funding sought section of the input screen. Treasury has developed a Primer on Cost-Benefit Analysis to assist departments to better quantitatively rank alternative proposals: (i) between a given proposal and the status quo; or (ii) between competing proposals. This is set out in the initiatives section and the Primer can be found in the guidance area of CFISnet. Financial Recommendations (pg 40) The Financial Recommendations module in CFISnet has been enhanced to allow departments to compile more of their Financial Recommendations within CFISnet. In particular departments will now be able to insert all their noting recs into the module. We would encourage departments to use the Financial Recommendations module as much as possible. Ultimately it will save time for departments as it ensures that recs balance with the initiative and the syntax of the recommendations is consistent with Treasury and Cabinet Office guidelines. Ultimately we would like to have departments do all of their Financial Recommendations within CFISnet which is the case for Estimates in Budget 2006 (see below). 1 The make up of this group is yet to be determined. 6

7 Estimates (pg 62) The process for compiling the Estimates has been fundamentally changed for Budget In the past Treasury has relied on departments editing word documents and inserting tables from CFISnet to compile the Estimates. This has caused significant version control problems. Many of the versions that Vote Ministers were signing off were different to either the information on CFISnet (in regards to the appropriation tables) or to the final word version supplied to Treasury for publication. In Budget 2006 departments will be required to compile their full Estimates chapters within CFISnet. CFISnet has been enhanced to enable departments to do this. This will ensure that there is only one version of the document that departments (eg finance staff, CFO, CE), Vote Analysts and Vote Ministers will all work from. CO (02) 17 There are many references to CO(02)17 Guidelines for Changes to Baselines in this guidance. This circular is currently being reviewed in light of the Public Finance Act changes. A new circular will be released after this review. We will inform Treasury vote teams and departments of this at the time. Financial Recommendations Technical Guide The Financial Recommendations Technical Guide is being redeveloped by Treasury following the recent changes to the Public Finance Act. This will be reissued shortly. We will inform Treasury vote teams and departments of this at the time. 7

8 1.2. How to use this Guide This guide exists in two forms: As a hardcopy Work Book, which contains the key relevant information that Departments and Treasury Vote Teams need to successfully carry out all Budget related tasks; As an electronic resource book. This has the same content as the hardcopy Workbook, but includes internal and external links to additional information about specific Budget processes and products. The guide is intended primarily as an electronic document, as it contains multiple links and is live. This means that it s updated on a regular basis as new information becomes available. The guide starts with a brief overview of the Budget process. The full Budget timetable is then provided. The remainder of the guide provides detailed information about the tasks associated with the production of each of the key Budget products in the timetable. Each item in the timetable contains a link to the relevant part of the guide. 8

9 2. Overview of the Budget Process and Key Products 2.1. The Budget The Budget is the mechanism through which the Government reallocates existing resources and provides a limited amount of new resources, in order to achieve its desired outcomes within its fiscal policy objectives. The Budget represents a culmination of Government decisions about: Fiscal policy what the Government wants to achieve at a high level to achieve its fiscal objectives and maintain fiscal control (e.g. in respect of revenue, expenditure, debt repayment and investment). Fiscal objectives ensuring the Government is working towards its fiscal aims, as required by the Public Finance Act (e.g. reducing debt to prudent levels). Budget strategy and management developing overall capital and operating spending allowances to achieve Government priorities in the most effective way, reflecting the latest economic and fiscal information. Policy initiatives and cost pressures - allocating available resources to manage progress towards the Government s overall policy objectives, and meet any non-discretionary cost pressures. The Government s Budget in any one year is the key outcome of a cycle of activity that occurs throughout the year (in fact, each year deals with 3 Budgets current, future and past). This cycle comprises a range of products and processes which feed into and flow from the Budget. This cycle is illustrated / summarised below: Strategic Phase Budget Policy Statement Forecasting round (HYEFU) (October December) Initiatives Phase Budget initiatives and bilaterals (December March) First baseline update (OBU) Crown Financial Statements Financial Review Bill (October) Technical baseline adjustments (MBU) (March/April) Appropriation Bills Passed Unappropriated Expenditure 2 nd Imprest Supply Bill 30 June Actuals (June-August) Budget Day (May) Production Phase FSR, Estimates and SOIs Forecasting Round (BEFU) Imprest and Appropriation Bills (February-April) 9

10 Strategic Phase The Strategic Phase sets the Government s priorities for the Budget and the fiscal parameters. It includes setting priorities (eg, manifesto commitments and confidence/supply agreements) of funding for broad areas of expenditure. This phase incorporates the October Baseline Update and the Half-year Economic and Fiscal Update. The high level results are released to the public in the Budget Policy Statement. Initiatives Phase The Initiatives Phase focuses on individual proposals that (might) form the Budget. This includes: Development of proposals and/or packages focussing on the Government s specific Budget priorities, and a department s outcomes (as published in the Statement of Intent) in consultation with the Vote Minister, other departments with an interest and Treasury. Treasury assessment of proposals, both on policy grounds and with a view to contain overall spending within the fiscal parameters. Joint Minister consideration of individual proposals at a bilateral. Cabinet agreement to the Budget package. Production Phase The Budget package, once agreed, then needs to be approved by Parliament. It is documented and published in the Estimates. These support the Appropriation Act, which is the basis of approval by Parliament. The Estimates, along with supporting documentation (Fiscal Strategy Report, departmental Statements of Intent and the Budget Economic and Fiscal Update), are tabled on Budget Day. 10

11 2.2. The Wider Context of the Budget This section provides a brief overview of how the Budget process fits with other key Government frameworks, processes and activities The Public Finance Act 1989 The Public Finance Act exists to govern the use of public financial resources, notably to: provide a framework for parliamentary authorisation and scrutiny of the Government s expenditure proposals and management of the Government s assets and liabilities establish lines of responsibility for effective and efficient management and use of public financial resources specify the principles for responsible fiscal management in the conduct of fiscal policy and require regular reporting on the extent to which the Government s fiscal policy is consistent with those principles specify the minimum financial and non-financial reporting obligations of Ministers, departments, Offices of Parliament and certain other agencies provide for the application of financial management incentives and for the accountability of specified central government organisations, and safeguard public assets by providing statutory authority and control for the borrowing of money, issuing of securities, use of derivative transactions, investment of funds, operation of bank accounts and giving of guarantees and indemnities. The Public Finance Act was amended in A full guide to the amended Act can be found on the Treasury website at One of the changes to the PFA was to take the contents of the Fiscal Responsibility Act 1994 and incorporate it into the PFA. These sections are now contained in Part 2 (Fiscal responsibility) of the amended PFA. The provisions in Part 2 of the PFA ensure accountability and transparency for the budget preparation cycle though a number of required annual financial reports. The key ones are: The Budget Policy Statement (BPS) This provides an early warning of the Budget policy framework and is required to be published before the end of March each year. Economic and Fiscal Updates (EFU) These are published regularly (in November or December and at the time of the Budget) and provide current and medium-term (three yearly) Budget information. 11

12 The Fiscal Strategy Report (FSR) This provides long-range forecasts (at least ten years) and includes comparisons of consistency between the Budget Policy Statement and the Economic and Fiscal Updates. Statement of Long-term Fiscal Position Every four years Treasury is required to produce a statement on the long-term fiscal position. This covers 40 years. The Act can be viewed in full at Statutes of New Zealand, The Fiscal Management Approach In 2002, the Government agreed to the fiscal management approach to assist with internal fiscal management (CAB Min (02) 33/4 refers). One of the objectives is to ensure that expenditure in each Vote stays within the baselines agreed for the year of the current Budget and the following three financial years. The main features of this approach are: fixed nominal baselines, whereby expenses and capital expenditure limits (and sources of finance) for the current and the subsequent three fiscal years are set in nominal dollar terms at the level of the individual appropriations. There is no automatic provision for cost increases (with some pre-specified and very limited exceptions); fixed outputs and capability The Statement of Intent and Output plan for a department records the outcomes that are expected to be achieved, the output mix and levels of performance required to deliver the desired outcomes, as signed off by the relevant Minister; changes to baselines - Cabinet tightly defines the circumstances in which baselines changes are agreed to (see Cabinet Office Circular CO(02)17). Proposals for additional resources are considered only during Budget rounds except in exceptional circumstances; Detailed information about the government s fiscal management approach is provided in Treasury Circular 2002/ Managing for Outcomes In December 2001, Cabinet introduced new planning expectations that set the scene for the Managing for Outcomes (MfO) initiative [CAB Min (01) 38/6A refers. Managing for Outcomes aims to get departments to adopt a more strategic and outcome-based approach to departmental planning, management and reporting. It encompasses the management cycle of setting direction, planning, implementing and delivering, and reviewing the results, which then feeds back into the cycle to inform future planning, enabling a cycle of ongoing improvement. The legislative reporting requirements for a Statement of Intent are aligned well with the MfO initiative. The SOI sets out publicly the key elements of a department s plans and is therefore expected to reflect the departments MfO thinking. 12

13 There is a two way link between the Budget process and Managing for Outcomes, with each informing the other. Managing for Outcomes provides important contextual information that assists Ministers in their wider deliberations. The evidence gathered through Managing for Outcomes is likely to be one of the influences upon Budget decision making. Similarly, it is also important that the Government s statement of its priorities via the Speech from the Throne and the Budget Policy Statement inform each department s Managing for Outcomes thinking. This allows departments to maintain and develop policy and capability in line with Government outcomes. It also ensures that ministerial priorities are properly incorporated into departmental planning processes. Managing for Outcomes provides Treasury Vote teams with an opportunity to engage with departments throughout their management cycle. It should also provide useful information on which to base Vote team advice and assessments. Detailed information about Managing for Outcomes can be found at Managing for Outcomes, and 13

14 2.3. Roles and Responsibilities A number of key players are involved in developing the Budget. The section outlines each of their roles in broad terms. More specific information about roles at particular points in the Budget process is provided in the relevant sections of this guide Departments roles Departments roles include: providing advice to Ministers about: o the outcomes that the Minister might want the department to pursue over the medium-term and their relative priorities (consistent with the Budget Policy Statement and Managing for Outcomes); o whether the existing outputs are the most efficient and effective ones to achieve those outcomes and what alternatives could be considered; o whether the organisations in the Vote have the right capability to deliver the outputs; and o the main risks and how to manage these; supporting Ministers in developing policy initiatives that require additional or new funding (capital or operating); updating departmental budgets; and providing information to Treasury to enable it to produce the Budget and other related documents that are required by legislation Ministers roles All Ministers have a key role in the Budget process. Collectively, they agree on the Budget Strategy and priorities for spending. On an individual level, Ministers identify priorities for departmental chief executives to guide preparation of Budget submissions. Vote Ministers and the Minister of Finance have further roles, as outlined below. The Vote or Portfolio Minister Vote Ministers drive the development, fine-tuning and negotiation of initiatives and baseline submissions in their Vote areas for inclusion in the Government s overall Budget package. Ministers identify the priorities for departmental chief executives to guide the preparation of Budget submissions (for both continuing and new outputs). Vote Ministers are responsible to Parliament for the accuracy of their appropriations and the documentation for their Votes. The Vote Minister, in finalising their numbers for the next financial year, must sign a statement for the Minister of Finance that confirms accuracy. Ministerial office staff facilitates this process through discussions with departments. The Responsible Minister 14

15 The Responsible Minister is accountable under the Public Finance Act for the financial performance of a department. The Responsible Minister role involves managing the department's capability to deliver what the Vote Minister requires of the department, and in some cases, it implies a coordination function across several Vote Ministers to ensure the department is working efficiently towards the multiple goals Ministers may seek from that department. The Responsible Minister takes the lead role in the Managing for Outcomes process, including signing off the departmental Statement of Intent. Lastly, the Responsible Minister (not the Vote Minister) is required under the Public Finance Act to explain unappropriated expenditure to Parliament. Budget Ministers Budget Ministers are an informal group of senior Ministers - usually including Finance Ministers, the Prime Minister and one or two other Ministers who provide a resource to the Minister of Finance to test key decisions such as the overall Budget strategy and finalising the Budget package. Budget Ministers usually meet prior to the Minister of Finance seeking Cabinet agreement to Budget decisions. As such, all Cabinet papers on the Budget have been signed off by this group of senior Ministers. The Minister of Finance The Minister of Finance s roles are to: develop and reach agreement on the Government s fiscal targets and the resulting Budget Strategy; take an overall view of Budget initiatives and manage competing priorities to ensure that the Budget package meets the Government s fiscal and wider policy goals agreed by Cabinet; and help ensure the value for money of government expenditure Treasury s roles Treasury staff play a number of roles in supporting the Budget process. Vote Teams Treasury Vote teams (and Vote Analysts in particular) play an assess and assist role in the Budget process. In the assist role, Vote teams work alongside departments in updating baseline information and developing Budget initiatives for specific Votes and sectors. They provide the link between departments, other Treasury teams and the Minister of Finance. Vote teams are a department s first source of advice at any stage of the Budget process. Treasury Vote teams are responsible for providing advice to the Minister of Finance on Budget issues the assess role. There are a number of key aspects to this role: 15

16 the provision of advice about the objectives and relative priorities that should be addressed through the Budget package; the provision of advice on the efficiency and effectiveness of major programmes, and the appropriateness of an agency's choice of outputs to achieve key Government outcomes; undertaking assessments of Budget initiative proposals and providing advice to the Minister to inform his decisions about the package of initiatives for a particular Vote (or group of Votes); the provision of quality assurance on the information that is used to make budget decisions and to update baseline information; and alerting the Minister of Finance to any policy and fiscal risks that might not be fully disclosed in a Vote Minister s Budget submission. To undertake their role effectively, it is important that Vote Teams work collaboratively with departments. Budget and Macroeconomic Branch (BMB) The Fiscal Management and Reporting (FMR1 and FMR2) teams within Treasury s BMB advise the Minister of Finance on the macroeconomic and fiscal outlook. FMR1 advises Ministers and departments on Budget strategy and management, as well as budget process design. The team brings together the wider fiscal and macroeconomic picture with the analysis from individual Vote teams to advise the Minister of Finance on an approach that enables the Government to meet its key policy objectives and satisfy its fiscal and economic goals at the same time. FMR2 monitors the Government's fiscal position and supports transparency by preparing fiscal forecasts for publication in the Economic and Fiscal Update. FMR 1 and 2 also provide assistance to Vote teams. The Financial Management Systems Team within BMB runs the Crown Financial Information System (CFISnet) a secure means of transmitting financial data. CFISnet is used extensively by officials in departments and Treasury throughout the Budget process. CFISnet contains initiative and baseline data which is uploaded and updated by departments. Important information, such as Budget templates, is available on CFISnet for downloading by departments. In addition, departments and Treasury use CFISnet to exchange draft and final documents because of its secure status, not everyone in a department will have access to CFISnet (note new users can be added). The Financial Management Systems Team operates a HelpDesk which is available to all CFISnet users. The HelpDesk number for CFISnet is or cfisnet@treasury.govt.nz. 16

17 2.4. Underlying Principles for Relationships between Key Players A successful Budget process is highly dependent on effective relationships and communication between the key players. Treasury would like to emphasise a number of important principles which we consider should underpin the way in which officials engage with each other and Ministers through the Budget process: Relationships between departments, Ministers, Ministers offices, DPMC and Treasury are based on collaboration, openness, mutual respect and recognition of differences in roles and objectives. Working through different perspectives is an integral and important part of the policy development process. While an agreed view amongst officials is the preferred outcome, it will not always be possible. The adoption of a no surprises approach to the provision of advice, with the emphasis on early engagement on issues of importance and timely communication of key information to relevant people. The provision of free and frank advice to Ministers by officials. Free and frank means advice that is honest, impartial and comprehensive. This is an important constitutional convention based on the need to maintain the confidence of the current as well as a future portfolio Minister, and the principle of political neutrality. For more information about the free and frank convention see Political Neutrality: Fact Sheet 3 - The Relationship Between the Public Service and Ministers, The effort applied to the development and assessment of initiatives is proportional to the scale and significance of the area of focus. Where a policy has a relatively low risk and low cost, the level of supporting information provided will not be as great as for a policy with significant implications or risks (financial or otherwise). Similarly, Treasury assessments of low risk / low cost initiatives will not be as detailed as for substantive proposals. 17

18 3. THE KEY PHASES AND PRODUCTS OF THE BUDGET The remainder of the guide provides detailed advice about what is required of departments and Vote Teams at each phase of the Budget process. It contains links to source documents such as Cabinet Minutes and Treasury Circulars, detailed technical guidance and other relevant documents. Each section provides a description of the product and its purpose, and the roles of departments and Treasury in delivering the product. Information is given about timeframes and deadlines, what is required at each stage of the process, and how to go about undertaking the tasks required. CFISnet technical information is highlighted in boxes, as is Vote Team information not included in the Departmental Guide. Best practice information is provided where this is relevant and available. If you cannot find the information you are looking for, or you have questions resulting from the information contained in this part of the guidance, please contact a member of FMR1 in the Budget Management Branch. This can be done either through your buddy in FMR1 or as a query through the FMR1 Budget portal. 18

19 3.1. The Strategic Phase This phase can be divided into two elements. A Ministerial strategy and planning phase is undertaken by Ministers, their Offices, and their departments. It encompasses Ministers determining the outcomes they are seeking to achieve in their portfolios, their priorities and the capability needed to deliver on those outcomes. To some extent this is an ongoing process that involves consideration not only of what new resources are needed, but also whether current services are working and whether there are better alternatives. Funding from low priority and less effective activities may need to be reapplied to higher priority and more effective activities. Departmental work undertaken as part of the Managing for Outcomes process will be one source of information feeding into the Ministerial strategy and planning phase. In other instances, a Department may be engaged in another strategic review process, such as a Value for Money or Baseline review. A Government strategic phase covers Ministers development of an overall strategy for the Budget. During this phase Budget Ministers methodically consider all aspects of the building blocks of a Budget, including: fiscal objectives; top-down pressures and constraints; bottom-up pressures; the amount of funding available for new initiatives; themes and priorities; and the process and timetable for developing the Budget. There are various key products within the strategic phase of the Budget. These are outlined in further detail below, along with the requirements of departments with regard to each product. The level of engagement between the Ministerial strategy and planning phase and the Government strategic phase will vary from year to year. The level of engagement depends to a large extent on how much of the bottom-up fiscal pressure information needs to be accessed directly from Ministers outside the Budget Ministers grouping. 19

20 Budget Strategy What is it? The Budget Strategy provides a high level framework for assessing budget initiatives. It is usually agreed by Cabinet in November or December, and sets out: the Government s fiscal objectives and management approach; the themes and priorities for the Budget, and how they relate to previous and future Budgets; the economic and fiscal outlook and the amount of funding available for new spending; whether allocations for specific Votes or areas of spending will be used; the Budget timetable and processes Who does what? The Treasury provides advice to the Minister of Finance on the Budget Strategy. This advice is provided on the basis of existing financial and other information. Departments may be asked to provide supporting information to assist Treasury in preparing its advice. Vote Teams may be asked to assess information submitted by departments, and provide information about any further potential issues for the Budget. The Minister of Finance submits the Budget Strategy to Cabinet for approval. 20

21 Half-year Economic and Fiscal Update The Half-year Economic and Fiscal Update (HYEFU) feeds into the Budget Strategy. It provides the scene for the Budget Policy Statement. The HYEFU includes forecasts of economic performance and the Crown fiscal position. The latter includes information from: the October Baseline Update; Department and Crown Entity forecasts; and the specific fiscal risks chapter. The Minister of Finance (and Treasury in its advisory role) uses this information to set the Budget quantum and budget themes etc. For detailed information and guidance on HYEFU and economic and fiscal updates generally see the Budget and Half-year Economic and Fiscal Updates (including Specific Fiscal Risks) section on p55. 21

22 Budget Policy Statement What is it? Under Part 2 of the Public Finance Act 1989, the Government is required to publish a Budget Policy Statement. This is one of two annual documents on Budget and fiscal intent (the other being the Fiscal Strategy Report - see the section on Fiscal Strategy Report, p54) required under the Act. The reason for publishing such documents is to enhance the accountability of the Governments fiscal policy and intentions. The Budget Policy Statement is required to be tabled in Parliament no later than 31 March, but is typically published alongside the Half-year Economic and Fiscal Update. The Budget Policy Statement set out the broad strategic priorities by which the Government will be guided in preparing Budgets. This includes outlining the overarching policy goals that will guide Budget decisions and the particular areas of focus for the upcoming Budget, and explaining how the Budget accords with the intentions for fiscal policy signalled previously. Who does what? The BPS is the Minister of Finance s document (it bears the Minister s signature), and is drafted by the Treasury on the basis of existing financial and other information. Departments do not have a direct input to the Budget Policy Statement, however information from the October Baseline Update and Specific Fiscal Risks is incorporated. 22

23 3.2. The Initiatives Phase This phase covers the development of Budget initiative proposals by departments, their assessment by Treasury and consideration by Ministers, and the compilation of a Budget package that meets the Government s fiscal and policy objectives. It builds on the decisions of the strategic phase and each Minister s planning phase and concludes when Cabinet makes its final decisions on the Budget package. A key objective for Budget Ministers is to develop a Budget package that is consistent with the strategy and priorities outlined in the Budget Policy Statement. As specified in Cabinet Office Circular CO(02)17 (see DPMC website, all new policy proposals should be considered as part of the annual Budget process. This is intended to lead to more efficient spending decisions as it ensures Ministers have an opportunity to consider the relative priority of initiatives. It is recognised that between-budget spending will be necessary from time-to-time. Processes and requirements for between-budget spending are discussed later in this guide (Between Budget Spending, p83). This section covers the following: Developing initiatives, page 25 guidance on developing initiatives and an overview of the dimensions of good policy development and links to further guidance. The template is attached to the Guide and available on CFISnet. It is intended as a summary of development work. Detailed guidance on specific types of initiatives, and allocations: a. Capital initiatives, p31 b. IT initiatives, p32 c. E-government initiatives, p33 d. Cross-Vote initiatives, p34 e. Capability Initiatives, p34 f. Initiatives from Crown Entities, p35 g. Contingency Items, p36 Information and templates for the Bilateral Briefing, including key points for aiding Ministers in decision-making, page 37. Bilateral Minutes, page 39. Financial Recommendations, page 40. This section outlines the process, and includes a link to the Financial Recommendations technical guide. It also includes a checklist for quality assurance. Mistakes in Financial Recommendations could flow through to appropriations. Note that departments can begin their Financial Recommendations in the CFISnet module as soon as they have uploaded their initiatives. Information on the Budget Package Cabinet Paper, page 45. The Paper pulls together the fiscal and economic picture for the Budget; key themes and messages; 23

24 and individual agreements made with each Minister on the initiatives in their Vote (the Financial Recommendations) Guidance on Baseline Updates, page 47; including the types of changes that are allowed; and a link to CO(02)17, which holds the detailed guidance on what Joint Ministers can approve. This section also outlines the process for Updates. 24

25 Budget Initiatives What is it? Budget initiatives cover all new policies, including extensions to, or increased costs for, existing ones. The goal of the initiatives process is to allow the Government to prioritise funding amongst the competing demands of Vote Ministers. Technical changes may also be considered where these are beyond joint Ministers delegated authority to approve under CO(02)17 ( This section provides detailed guidance about the kind of supporting information required for all new initiatives. Who does what? Departments work with their Ministers and Ministers Offices to identify, cost and prioritise Budget initiatives. They should do so in consultation with other agencies. In particular, Cabinet Office Circular CO(02)17 requires departments to consult Treasury on all proposals involving additional expenditure. This phase is probably the most important and time consuming for officials in departments. The information provided in support of Budget initiatives will have a strong influence on whether they are successful or not, including whether they are supported by Treasury. The amount of funding sought for new initiatives proposals always exceeds the amount of additional funding available through the Budget often by three times or more. It is essential, therefore, that departments have good internal processes for working with their Minister(s) and their Minister s Office to identify which initiatives are necessary in order to meet the Government s objectives, ensure that costings are robust, and rank initiatives. Departments can also expect there to be a strong focus on how initiatives can be funded within current baselines. Cost Benefit Analysis (CBA) is a useful tool in this process. More particularly, CBA can be used to quantitatively rank alternative proposals: (i) between a given proposal and the status quo; or (ii) between competing proposals. It provides Ministers with a consistent basis for assessing proposals and informs them about the implications of using economic resources. Treasury has developed a Primer on Cost Benefit Analysis to: outline Treasury's expectations for new initiatives; provide departments with guidance on CBA when preparing new initiatives; A copy of the primer can be found on the guidance page on CFISnet. Treasury Vote Teams have two roles in the Budget initiatives phase; offering feedback, advice and assistance to departments and Vote Ministers, and 25

26 providing advice to the Minister of Finance to help him make decisions about which Budget initiative proposals should be included in the Budget package. Treasury s Fiscal Management and Reporting Team (FMR1) provides co-ordination between, and advice to, Vote Ministers, Treasury Vote Teams and departments about the Budget process and package as a whole, including technical advice. What happens and when? Key Task Departments and Vote Ministers develop new initiatives Departments discuss draft Budget initiative proposals with Treasury Vote Teams Departments complete Budget initiative template for each new initiative proposal. Vote Ministers submit Budget initiative proposals to Minister of Finance Departments upload initiative information. Treasury Vote Teams undertake initial assessments of initiatives and enter into CFISnet Treasury assessments of bids / negotiations with departments Bilaterals process takes place Budget initiatives paper submitted to Cabinet Period July - December August - December December - January January January January Early Feb January - February February March March - April Additional Information Engagement with Treasury at this stage may be useful. A formal business case is prepared for each capital initiative before it is submitted as part of the Budget. Focus is on overall package of proposals from Dept and resolving any issues/concerns relating to specific initiatives. The Budget initiative template has been reworked and is attached. The template is designed as a summary of the initiative for submission by Vote Ministers, and is a basis for discussion between departments and Vote Teams. Vote Ministers submit two hard copies of Budget initiative proposals to Minister of Finance. Enter summary information on to the CFISnet Initiatives module, and Upload an electronic copy of each Budget proposal on to CFISnet. The CFISnet initiatives input screen is still designed to allow departments to split funding into two categories (in Budget 2005 departments were required to split discretionary and non-discretionary funding). No split is required this year. All initiatives will be submitted against one allocation (other) and all figures should be inserted in the funding sought section of the input screen. Info on CFISnet is brief support/contingency/do not support and revised costings if applicable. Bilaterals held between Minister of Finance and each Vote Minister, as required. This will include a focus on performance issues. See the section on Budget Bilateral Briefing p37 for full details of the bilaterals process. 26

27 Cabinet agreement of Budget See the section on Budget Package April initiatives package Cabinet Paper p45. Departments update baselines Once the Budget initiatives have been in CFISnet agreed, the information needs to be included in the department s baselines in CFISnet to allow the Budget documents April (e.g. Estimates) to be prepared. Departments submit a Dataload and update Vote Changes either manually or automatically via the Financial Recommendations module. * Specific dates are available in the timetable on page Error! Bookmark not defined. How do I do it? In order for Ministers to prioritise between initiatives, they need information about each initiative, its objectives, costs and risks. In addition, Treasury can only support initiatives if it has good information about the initiative. A key requirement on Departments is to provide supporting information by completing a Budget Initiative Template. This is attached as Annex One and is also available on CFISnet, under the Treasury Circulars menu. Departments are required to complete all parts of the template, bearing in mind that the amount of information provided should be appropriate to the size, significance and risks of the proposal. The template is an information tool and departments are encouraged to provide additional information where appropriate. Treasury and Ministers, and their Offices may also seek further information should they consider this necessary. Below are the generally accepted dimensions of good policy analysis. Departments are expected to have considered each of these dimensions in the process of developing the initiative proposal. Treasury Vote Analysts are also expected to use these dimensions as a framework for assessing Budget initiative proposals. The following table summarises the dimensions and provides links to more detailed guidance, where this is available. Dimension Key questions Further information available from: Problem definition What problem is the initiative trying to address? Policy objectives / What are the objectives of the initiative? desired outcomes Fit with Dept s strategic planning process and Govt s desired outcomes How does the initiative fit with the Government s Budget Strategy and the Government s and Department s strategic objectives? Does the proposal duplicate other initiatives or activities already in the baseline (or in other Votes? Are linkages with other initiatives or activities identified? 27

28 Dimension Key questions Further information available from: Priority How important is this initiative relative to other proposals? Has this initiative been submitted in previous Budget rounds and been declined or only partially approved? If so why, and has it changed? How does the proposal fit with what the Department is currently doing? Evidence What evidence is there to suggest that the initiative will address the identified problem and will achieve the intended objectives? Has clear intervention logic been established? Does the initiative represent value for money? Is there sufficient demand for the initiative or activity? Is the initiative the best way to achieve the stated objectives? What other options have been considered, and why have they been rejected in favour of this proposal? Reprioritisation Can the initiative be funded fully or partially from the reprioritisation of existing funding? If offsetting savings are identified, are there any risks that these may not be realised (e.g. are they demand driven)? Can the initiative be funded fully or partially from third party charging or other sources? If not why not? Note that given the fiscal constraint on Budget 2006 this section will need to have far more prominence Expected fiscal and social costs Expected benefits (fiscal and social) What are the assumptions driving costs (or where can this information be found)? How were the costs established (e.g. external/internal benchmarking, cost driver analysis)? If the initiative involves cross-vote costs (or savings), have all the relevant departments (and Vote Teams) been consulted and signed off on the costings? Are there any non-financial costs to be considered? What are the expected benefits of the initiative? How long until they are realised? Has a cost-benefit analysis been undertaken? Will the initiative result in a reduction in costs or additional revenue to the Crown in outyears either in this or other Votes? Are there wider economic or other benefits that are difficult to quantify? SSC Site (Intervention logic) Improving Output Costing: Guidelines and Examples, t.nz/publicsector/output costing/ Chapter 5 of the UK Treasury Green Book Greenbook: index ( mic_data_and_tools/gr eenbook/) 28

29 Dimension Key questions Further information available from: Cost effectiveness When developing initiatives, departments need Guidance and to keep in mind the requirement in the PFA to requirements for report on the main measures and standards the department intends to use to assess and report on the cost-effectiveness of the interventions that the department administers 2006/07 Statements of Intent will be available in early December on the SSC Managing for Outcomes website: display/document.asp? Risks Has a risk analysis been undertaken? What risks have been identified if the initiative is / is not implemented? What risk management strategies will be implemented to mitigate the identified risks? Are there any regulatory or legislative risks that have not been identified? Implementation What are the details and issues with regard to implementation (e.g. timing, capability, project and change management)? Should the initiative be piloted before full implementation? Does partial implementation create risks for future Budgets? Review, evaluation and monitoring Consultation (other relevant agencies) How will the Government know whether the initiative has achieved its objectives? Are there clear success criteria? What arrangements will be put in place to monitor and / or evaluate the efficiency and effectiveness of the initiative? Have relevant departments, agencies and stakeholder group have been consulted and do they agree with the proposal? Capability Does the Department or sector have the capability to deliver? How might this impact on the success of the initiative? Alternatively, does the proposal address and include funding for addressing shortfalls in capability? navid=208. Previous SOI guidance can also be found on this site. Treasury Circular 2003/13: Using Evaluative Activity to Improve Decisionmaking t.nz/circulars/# Doing the Right Things and Doing Them Right - Improving Evaluative Activity in the New Zealand State Sector, display/document.asp? docid=

30 Dimension Key questions Further information available from: Sustainable Development Initiatives should show that Ministers have explicitly considered the following: environmental, social, cultural and economic implications and the interactions between them, where these implications are significant (whether direct or indirect) the medium and long term effects and risks (e.g. the effects in 5, 10 or 50 years time and beyond depending on the issue) other initiatives or existing programmes, including any inter-linkages that should be considered together Sustainable Development Programme of Action CAB Min (02) 34/4C Once completed the initiative template should be uploaded into CFISnet. This also requires entry of summary data into CFIS. This aids Treasury in tracking the budget process. It is also where Vote Teams will enter their assessments of the budget initiatives, i.e. whether the initiative is supported and for how much. In order to assist the Minister of Finance in tracking progress through the Budget, FMR1 produces daily and weekly updates on spending proposals and bilaterals, these are generated by CFISnet. In order that these reports are as accurate as possible, departments and Vote Teams need to update the information in CFISnet as initiatives develop. In particular FMR1 requests that departments and Vote Teams ensure that CFISnet is up to date at COP every Wednesday from the time initiatives are uploaded to when bilateral minutes have been confirmed. This gives the Minister of Finance as accurate a weekly report as possible. The template does not need to be updated. CFISnet information If creating a new initiative then: CFISnet Baselines Budget Initiatives Enter a New Initiative. Departments should enter in the summary information, and then upload the initiative template using the upload field at the bottom of the page. If editing an existing initiative, then: CFISnet Baselines Budget Initiatives Edit an Existing Initiative [select initiative to edit] The document upload field is at the bottom of this page If departments have created/completed all their initiatives but haven't included any documents, they can call up all their initiatives on the one screen and add the associated documents all in one go. If they wish to use this avenue, then: CFISnet Baselines Budget Initiatives Upload Documents for Multiple Initiatives 30