Inclusive growth - Fiona Ross, New-Zealand
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© The Treasury OECD Senior Budget Official 2015 Inclusive Growth – a New Zealand Perspective
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Transcript of Inclusive growth - Fiona Ross, New-Zealand
© The Treasury
OECD Senior Budget Official 2015
Inclusive Growth – a New Zealand Perspective
The outlook for real GDP growth remains solid with real GDP growth forecasts around 2.8% on average over 2015-2019
Key factors supporting the growth outlook are low interest rates, robust investment activity, strong population growth and historically high terms of trade
Nominal GDP (the dollar value of output) forecasts have been reduced reflecting weaker-than-previously inflation
Tax revenue forecasts have been revised as a result of lower nominal GDP and lower interest rates
There are a number of risks to the forecasts, including:
• upside risks to net migration • downside risks to global economic
developments and the risk that dairy prices and CPI inflation (and hence nominal GDP growth) do not rebound as expected
ECONOMIC CONTEXT
-3
-2
-1
0
1
2
3
4
2009 2011 2013 2015 2017 2019
% change
Budget 2015
Forecast
Economic growth (real GDP)
0
1
2
3
4
5
6
2009 2011 2013 2015 2017 2019
%
Budget 2014 Half Year Update 2014 Budget 2015
Forecast
CPI inflation
FISCAL STRATEGY
Fiscal strategy objectives:
• Returning to and maintaining OBEGAL surpluses
• Returning net core Crown debt to 20% by 2020 and repaying nominal debt by 2017/18
• Lowering ACC levies and beginning to reduce income taxes from 2017
• Using any additional fiscal headroom to lower debt
Why this fiscal strategy?
Returning debt to prudent levels (set by this Government at 20% of GDP by 2020 and then 10-20% over the economic cycle):
• Tighter fiscal policy (larger operating balances) takes pressure off interest rates and the exchange rate. This promotes macro stability and creates the confidence to enable businesses to invest and a platform for the BGA to deliver.
• Provides a buffer for future shocks, important for NZ as shown since 2008 given we are vulnerable to shocks and have high levels of private debt.
• Also helps prepare for the impact of an ageing population.
• Expenditure restraint tests spending for value and results, including baselines.
05
1015202530
2006 2008 2010 2012 2014 2016 2018 2020
Net core Crown debt% of GDP
5
We are shifting New Zealand’s public sector
From now ... to the future
Agency-centric Citizen-centric; working for and with New Zealanders
Outputs Results and outcomes; working together to make a difference for New Zealanders, flexibility to deliver and target interventions
One or two strong agency leaders Leadership; empowering our people and motivating one another
Focus on the short term Stewardship; looking after New Zealand for present and future generations
High integrity and trusted state sector High integrity, trusted state sector with incentives and accountability mechanisms in place that drive performance and innovation
Limited use of data Information driven; using data to determine where and when to invest, better evidence of what is working and what is not
Presenter
Presentation Notes
This provides the context for how Treasury thinks about performance management and where we focus our efforts. The shift from an output focus means that we are thinking differently on how we purchase. Becoming more information driven in our decision-making is obviously at the heart of what the Treasury does. Going to take you through a range of initiatives Treasury is leading or supporting to improve performance information and make it more relevant to budget decision making and accountability systems. Starts with the basics – about better understanding baselines, balance sheets and agencies, - often don’t know much about how well we’re utilising assets or how close to an efficiency frontier an agency is. And moving to better tools, information and incentives for investment decisions from an infrastructure and from a social investment perspective
Understanding Performance Building up a detailed understanding of performance across agencies and sectors: Tier 1: Controls and monitoring Tier 2: Cost drivers and sustainability Tier 3: Efficiency Tier 4: Effectiveness
0
2
4
6
8
10
12
14
2007/08 2013/14
Changes in Departmental Expenses
Other operatingRentDepreciationCapital chargeConsultantsTotal personnel costs
$ billion
+$352m
+$25m+$248m
+$424m
+$130m
+$978m
14.5 19.0
10.613.9
8.1
10.04.7
5.42.8
3.36.9
6.3
-
10
20
30
40
50
60
70
2007/08 2013/14
Composition of Non-departmental Expenses (grouped by administering Department)
OtherMBIEIRDEducationHealthMSD
$ billion
Analysing demand, price and policy change as key drivers across the public sector, especially for the non-departmental expenses.
Presenter
Presentation Notes
Starts with understanding the basics... The Ministry of Finance Function is the name we have given to a work programme based around 4 critical elements of performance across the state sector. This uses the information we get from 4 Year Plans and helps bring a more consistent, system-wide approach to our thinking about financial and non-financial performance. Tiers 1 and 2 are the areas we have made the most progress. In looking at cost drivers we are using a different approach to looking at departmental and non-departmental expenses. The costs of running departments have increased by 20% since June 2008. Half of this is from higher personnel costs, despite little change in wages. Non-departmental expenses are a broader category, with growth in the costs of the benefit system (75% of which is NZ Super), health services and education accounting for a large share of the growth in costs.
IMAP – Investment Management and Asset Performance
Presenter
Presentation Notes
The Treasury is the lead on Investment Management (and asset management) in the State Sector. Treasury has ownership of, and accountability to develop and maintain, the system 'rules' and processes around investment management including those related to major projects and programmes at a transactional level and a government portfolio level. The ambition is to get the government investment management system working well. This involves working with State sector agencies to effectively turn intent into outcomes. The Treasury's Investment Management and Asset Performance (IMAP) team was established in 2014 to have portfolio oversight of investment management. The investment management system is complex with interrelated cycles spanning months or years. The system has to concurrently and effectively convert business unit, agency, sector and all of government needs into outcomes in a way that optimises value to New Zealand, working within financial and other constraints. The investment life cycle comprises four recognisable phases: think, plan, do and review: THINK: Investment possibilities: To anticipate as much as possible what will be required to transition to the outcome, and satisfy the intent while maintaining services. PLAN: Investment choices: To analyse and decide which investments to undertake considering the optimal overall value from the limited resources, and the current risk appetite. DO: Investment development: To give chosen investments the greatest possibility of realising the benefits promised, while maintaining controls to avoid loss of value. REVIEW: Investment performance: To review the performance of investments against expectations. To encourage promised benefits to be realised and assets to be operated near optimal levels of performance.
Four Year Plans – better assurance and planning
Ministers determine what they want to achieve and priorities (strategy)
Ministers decide what mix of goods and services they wish to provide and performance expectations (agencies advise on this) Chief Executives manage their resources to achieve these (planning and achieving)
Agencies report to the Minister and Parliament on how they are delivering (monitoring and reporting)
Strategic Intentions – sets out the strategic objectives the agency intends to achieve
Estimates – sets out what is intended to be achieved with the appropriated expenditure and how performance will be assessed
Annual Report
Statutory documents (tabled in Parliament)
Documentation and reporting
Four Year Plans – sets out strategic objectives, strategic delivery, risks, finances and workforce
Output Plan or similar (optional) – sets out services to be provide in a year
Agency in-year progress reporting
Presenter
Presentation Notes
Four Year Plans are partly about improving capability within the State sector and partly about getting better performance information. This reporting tends to be fairly high level. Four Year Plans provide further insight into what an agency wants to achieve, what it will do and how it will organise itself to achieve. Should provide assurance to Ministers that they Chief execs understand their business... ... And highlight strategic business choices.
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The Results Approach
The Results approach is changing how the State sector works...
Agencies are organised around the results that matter to the Government and New
Zealanders. Results require agencies to find new ways of combining capabilities and
resources to address difficult issues that are important to New Zealanders.
Focus on the vital few. Trying to do too much has hampered previous
efforts to improve outcomes because it has been unclear how to
prioritise scarce resources and capability.
Data and performance information is used to drive action. Those
responsible for result achievement are required to demonstrate
progress against key indicators and targets.
Leaders are accountable for achieving cross-agency results. Each result area has a named Minister and chief executive tasked with leading across agencies and accountable for achievement of results targets.
Open Government. Progress towards achieving the results is announced every six months. Publication is an important driver of action.
Tangible outcomes. Results are achieving tangible, measurable outcomes for New Zealanders. Government actions can be tracked and measured.
Presenter
Presentation Notes
Results are a way of focusing efforts in order to achieve the shift in State sector performance. About Ministers picking a few things that matter and focusing agencies on the outcome, not the programmes. Is driving a culture shift.
Budget 2015: $790m child hardship package
Family Category Change to entitlement (per week)
Number of families impacted
Beneficiary families $25 increase to benefit
110,000 families
Working families
(less than $27,000)
$24.50 increase to WFF
4,000 families
Working families
($27,000 - $36,350)
$12.50 increase to WFF
50,000 families
Presenter
Presentation Notes
Greater work obligations for beneficiary parents, including most sole parents looking for work when their youngest child turns three A $25 a week after tax rise in benefit rates for families with children Up to $12.50 a week more in WFF for lower-income families not on a benefit For very low-income working families, an extra $12 on top of that, making an increase of $24.50 a week An increase in Childcare Assistance for low-income families, from $4 to $5 an hour, for up to 50 hours of childcare a week per child
Smart social sector investment is about lifting long-term outcomes through the application of five principles to social spending:
• Clarity on the key measurable outcomes (in welfare the focus has been on the benefit liability)
• Better use of evidence, data and population information to target those who most need help or where benefits are greatest
• Clear institutional incentives and accountability mechanisms to drive performance and innovation
• Financial and delivery flexibility to target interventions coupled with evaluation and evidence based feedback loops to test, learn and adapt
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Building from results - Smart social investment
Presenter
Presentation Notes
Taking this further is social investment. Embedding the shift towards a genuine citizen and outcome perspective – rather than agencies, outputs and programmes. Not just about the data. Also need to have the incentives, delivery models and evaluation and feedback loops to make this work. Current system is not geared in this way. We know a lot about who we’re buying from, but often little about who is getting services and what impact this is having.
A focus on social investment
1 per cent of five year olds:
• are known to CYFS, and
• have been supported by benefits for more than 40 months, and
• have a parent who has had contact with Corrections
This 1 per cent is around 600 children per year, but over 20 years creates a pipeline of 12,000 at high risk
A focus on social investment
If we look at an average group of ten of these five year olds
A focus on social investment
On average, each child in this group will cost taxpayers $320,000 by age 35 – some over $1m
At age five… By twenty one…
…four will have been on a benefit long-term (40%)
At thirty five…
…a quarter will have been in prison (24%)
After high school…
…seven would not have NCEA2 (74.6%)
… a group of ten of these high-risk children
Social Development learning more about their clients and future costs
Presenter
Presentation Notes
This chart shows how the Ministry of Social Development have been learning more about their client group and understanding their potential costs on the system. As an example, their work has shown that single parents make up 13% of the client group but contribute to 24% of the liability in the benefit system This kind of information can help direct investment and agency focus on outcomes. Welfare reform has reduced the expected future time on main benefits by an average of 1.2 years for sole parents and 2.8 years for youth beneficiaries,” says Mrs Tolley. Actuarial approach to measure future fiscal liability of the benefit population – $68 billion June 14 liability, down $7.5 billion from June 2013 $2.2 billion of reduction attributed to within Min Social Development control Hold MSD to account for reducing liability (reduce liability by further $13b by 2018) Greater flexibility to target and redirect spend and programmes
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SOCIAL INVESTMENT – UNDERSTANDING CUSTOMERS WITHIN AND ACROSS AGENCIES
Source: Treasury analysis of MSD’s Integrated Child Dataset
Estimates costs from birth to age 35 by number agencies interacted with by age
5, 1990 birth cohort
Overlap of agency contacts before age 5
CYF
W&I Dept. of Corrections
577 6511
3226
489
435
142
49,860
1178
Number of children in the 1990 birth cohort who had contact with CYF, Work and Income
or had a parent with a corrections history.
0 100000 200000 300000 400000
Three
Two
One
None AverageCYF & YJcost
Averagebenefit costas child
Averagebenefit coststo 35
AverageCorrectionscosts to 35
Presenter
Presentation Notes
Finally, starting in the social sector, we are seeing a stronger push for social investment analysis and approaches. This is a broad concept instanced in numerous ways across the welfare approach, the justice sector pipeline investment analysis, and new models like Whanau Ora and the B15 RFI process. ��The common feature is a better data based understanding of what drives customers longer-term outcomes, not agencies or service lines, to inform investment and accountability decisions. ��This is a big focus for Ministers and many of you will be involved in the social sector board taskforce work to develop a social investment framework. The slide illustrates the work Treasury did with MSD data sets on disadvantaged children as part of the b15 discussions. ��Expect questions about this customer understanding to inform B16 social sector priority and proposal discussions. ��This is not to say that Budget 16 will be all about social investment. There will still be a focus on keeping core systems running which is likely to take most of the funding. ��But it should be a prominent part of most thinking. Discussions about BPS results will inform what we ask agencies to demonstrate in 4 year plans. Discussions are ongoing about things like the result 1 interfaces between W&I, health and other agencies.��And we know that Ministers have already commissioned a review of youth spend for 15-24 year olds. We know that Minister Bennett and English will be coming back to what we can do for the most disadvantaged and want quick progress on agreeing a working definition continuing from the B15 discussions, then advice on how to improve outcomes. ��It’s also not just about better analysis, but shifting perspectives and providing tools and incentives:�Clarity on the key measurable outcomes (in welfare the focus has been on the benefit liability)�Better use of evidence, data and population information to target those who most need help or where benefits are greatest�Clear institutional incentives and accountability mechanisms to drive performance and innovation�Financial and delivery flexibility to target interventions �Coupled with evaluation and evidence based feedback loops to test, learn and adapt�Again, Treasury can’t solve all these problems or get the enablers right ourselves so we are looking for your input on how to make this approach work.
Changing the Budget process CBA-X • CBA-X is a tool that helps agencies identify the long term economic and fiscal
impacts of their planned interventions. • The first stage of the model develops a marginal annual value for the
intervention at a per-person level.
• The second stage of the model aggregates the per-person annual value to a cohort level annual value, which drives the cost-benefit analysis of the intervention.
Adjusted value of unit cost
$Unit Cost
Marginal impact of intervention
#Confidence scaling
factor
%Annual value, per
person
$pp/year
Annual value, per person
$pp/year
Duration of impact Target cohortAnnual value for full
cohort
$yearShare of impact by
vote
%Annual value by vote
$vote
Presenter
Presentation Notes
Some good starts but still early days. Treasury trying some things and getting some things right, and others wrong. developed a CBA model from the social bond work and applied it across new initiatives. Value is more in the questions it raises about assumptions and Return on Investment rates than a NPV number. Always required this, but starting to do it properly. Agencies sceptical , but liked the idea of common cost and efficacy assumptions. Launched a request for ideas to support at risk families. Trying to bring external voice into process. Got a response and goodwill, but lessons about more focus next time if we want workable proposals. For next Budget and beyond – starting to collate a better pipeline view of citizen outcomes at the centre as basis for ROI framework Picking some priorities early and digging into existing services while encouraging agencies to collectively develop best responses. Continuing to help shift to better outcome based contracting, and push for better standards for evaluation and feedback.
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UNDERSTANDING AND EMPATHY
Presenter
Presentation Notes
Finally, starting in the social sector, we are seeing a stronger push for social investment analysis and approaches. This is a broad concept instanced in numerous ways across the welfare approach, the justice sector pipeline investment analysis, and new models like Whanau Ora and the B15 RFI process. ��The common feature is a better data based understanding of what drives customers longer-term outcomes, not agencies or service lines, to inform investment and accountability decisions. ��This is a big focus for Ministers and many of you will be involved in the social sector board taskforce work to develop a social investment framework. The slide illustrates the work Treasury did with MSD data sets on disadvantaged children as part of the b15 discussions. ��Expect questions about this customer understanding to inform B16 social sector priority and proposal discussions. ��This is not to say that Budget 16 will be all about social investment. There will still be a focus on keeping core systems running which is likely to take most of the funding. ��But it should be a prominent part of most thinking. Discussions about BPS results will inform what we ask agencies to demonstrate in 4 year plans. Discussions are ongoing about things like the result 1 interfaces between W&I, health and other agencies.��And we know that Ministers have already commissioned a review of youth spend for 15-24 year olds. We know that Minister Bennett and English will be coming back to what we can do for the most disadvantaged and want quick progress on agreeing a working definition continuing from the B15 discussions, then advice on how to improve outcomes. ��It’s also not just about better analysis, but shifting perspectives and providing tools and incentives:�Clarity on the key measurable outcomes (in welfare the focus has been on the benefit liability)�Better use of evidence, data and population information to target those who most need help or where benefits are greatest�Clear institutional incentives and accountability mechanisms to drive performance and innovation�Financial and delivery flexibility to target interventions �Coupled with evaluation and evidence based feedback loops to test, learn and adapt�Again, Treasury can’t solve all these problems or get the enablers right ourselves so we are looking for your input on how to make this approach work.
