Writing Financial Recommendations
for Cabinet and Joint Minister Papers
Technical Guide for Departments
New Zealand Treasury
December 2012 Update
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ISBN: 978-0-478-39691-1 (Online)
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Contents
What’s New? ....................................................................................................................... 4
Introduction .......................................................................................................................... 5
About this Guide ........................................................................................................... 5
Why have Financial Recommendations? ...................................................................... 5
How to Use this Guide .................................................................................................. 5
Financial Recommendations Module in CFISnet ........................................................... 6
Essential Elements for Financial Recommendations ............................................................ 7
How to Write Financial Recommendations......................................................................... 11
Eight Steps in Writing Financial Recommendations .................................................... 11
Impact on the Operating Balance and/or Debt ............................................................ 12
Supplementary Estimates and Imprest Supply ............................................................ 12
Impact on Contingencies............................................................................................. 13
Numbering of Recommendations ................................................................................ 14
Four Common Scenarios ............................................................................................ 15
Forecasting Changes .................................................................................................. 16
Recognition of Crown Liabilities (eg, Legal Liabilities) ................................................. 17
Baseline Reductions ................................................................................................... 17
Technical Accounting Adjustments.............................................................................. 17
Annex A: Anatomy of Financial Recommendations ............................................................ 18
Annex B: Examples of Typical Financial Recommendations .............................................. 21
Example 1 – Combined Approval and Impact Statement for a Single Baseline
Change ....................................................................................................................... 21
Example 2 – Combined Approval and Impact Statement for Multiple Baseline
Changes All Impacting on Operating Balance and/or Debt .......................................... 25
Example 3 – Separate Impact Table where a Single Baseline Change Partially
Impacts on the Operating Balance and/or Debt ........................................................... 28
Example 4 – Separate Impact and Summary Tables where Multiple Baseline
Changes Partially Impact on the Operating Balance and/or Debt ................................ 31
Example 5 – Expense and/or Capital Transfers within an appropriation across
financial years (ECTs) ................................................................................................. 34
Example 6 – In-Principle Expense and/or Capital Transfers within an appropriation
across financial years (IPECTs) .................................................................................. 35
Example 7 – Retention of Underspends (RoUs), where approval is sought prior to
or at March Baseline Update ....................................................................................... 37
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 1
Example 8 – Retention of Underspends (RoUs), where approval is sought after
March Baseline Update ............................................................................................... 38
Example 9 – Front-loading of Spending (FLoS)........................................................... 39
Example 10 – Fiscally Neutral Adjustments (FNAs) Within a Vote .............................. 40
Example 11 – Fiscally Neutral Adjustments (FNAs) Between Votes............................ 41
Example 12 – Changes in Funding Source ................................................................. 42
Example 13 – Changes to Crown Revenue or Capital Receipts .................................. 43
Example 14 – Specifying Baselines beyond the Forecast Period ................................ 44
Annex C: Financial Recommendations for Multi-year Appropriations (MYAs) .................... 46
Example 15 – Establishing a New MYA ...................................................................... 47
Example 16 – Converting an Existing Annual Appropriation into an MYA.................... 48
Annex D: Financial Recommendations for Multi-class Output Expense Appropriations
(MCOAs)............................................................................................................................ 50
Example 17 – Establishing a New MCOA ................................................................... 51
Example 18 – Fiscally Neutral Transfer to or from an MCOA ...................................... 53
Example 19 – Adding an Output Class to an Existing MCOA ...................................... 54
Annex E: Financial Recommendations for Permanent Legislative Authorities (PLAs) ........ 55
Example 20 – Changes in Appropriation where Permanent Legislative Authority
Exists .......................................................................................................................... 55
Example 21 – Inter-departmental Purchase of Outputs ............................................... 56
Annex F: Financial Recommendations for Capital.............................................................. 58
Example 22 – Capital Injections to Departments ......................................................... 59
Example 23 – Capital Injections to Departments with Associated Operating
Implications ................................................................................................................. 60
Example 24 – Non-departmental Capital Expenditure ................................................. 62
Annex G: Capital and Operating Swaps and Voluntary Capital Withdrawals ...................... 63
Example 25 – Operating to Capital Swaps within a Single Financial Year ................... 64
Example 26 – Capital to Operating Swaps within a Single Financial Year ................... 65
Example 27 – Operating to Capital Swaps where Reductions in Operating
Expenses are Ongoing................................................................................................ 67
Example 28 – Capital to Operating Swaps where Increases in Operating Expenses
are Ongoing ................................................................................................................ 68
Example 29 – Voluntary Capital Withdrawals .............................................................. 70
Annex H: Financial Recommendations for Retention of Departmental Operating
Surplus .............................................................................................................................. 71
Example 30 – Requests for Retention of Surplus ........................................................ 71
2 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Annex I: Departmental Other Expenses ............................................................................. 72
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 3
What’s New?
This document updates the previous guidance update, titled Writing Financial
Recommendations for Cabinet and Joint Minister Papers and released in June 2010.
Changes since the previous version include:
· Updating the document to reflect:
- changes in Cabinet Office Circular CO (11) 6 Guidelines and Requirements for
Proposals with Financial Implications, which has superseded CO (09) 6 (including two
new flexible funding mechanisms for departments – retention of underspends and
front-loading of spending)
- new rules relating to capital charge
- amended rules relating to Multi-class Output Expense appropriations.
· Inclusion of a new standard recommendation stating how spending that impacts on the
operating balance and/or debt will be managed (ie, whether it will be charged against a
general or “tagged” contingency, or not).
· Incorporating best-practice developments for improving clarity that have emerged since
the previous version of the guidance document was published, such as:
- including up-front a separate, plain language/plain English recommendation specifying
the policy that is being agreed
- use of tables rather than text where new appropriations are being established.
· Edits to existing text and worked examples, where necessary, to provide greater clarity.
· Adding more worked examples on capital and operating swaps and voluntary capital
withdrawals.
4 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Introduction
About this Guide
This Technical Guide is intended as an aid for departments preparing papers containing
financial recommendations. It has been prepared to help ensure that departments meet
Cabinet Office requirements requiring information to follow a consistent style and format (as
set out in the CabGuide at http://cabguide.cabinetoffice.govt.nz/).
The requirements and guidance outlined in this document are to apply until it is updated or
replaced. This document is scheduled for review in 2013, given there are a number of
changes included the State Sector and Public Finance Reform Bill currently being considered
by Parliament which, if enacted, will require revised or additional financial recommendation
guidance. Such changes include multi-category appropriations, and distinguishing between
administration and use of an appropriation.
This document has been written by Treasury’s State Sector Management team.
Why have Financial Recommendations?
Financial recommendations are used to record decisions by Cabinet or joint Ministers that
affect baselines. These decisions provide the necessary authority for the use of Imprest
Supply, as well as the contents of Appropriation Acts. They also enable government to
monitor the impact of its spending decisions on its overall fiscal intentions. For these
reasons, financial recommendations need to be error-free, complete and unambiguous.
Financial recommendations are used by Cabinet Ministers and their staff, as well as
departmental staff, who must implement decisions. Employing a standard format helps users
deal quickly and accurately with what would otherwise be complex technical information.
How to Use this Guide
The sample recommendations contained in the Word version of this guide have been
formatted to allow readers simply to copy and paste the tables and other information into
their own documents. To copy and paste from a sample recommendation, highlight and
select the desired text and/or tables within the blue-framed box surrounding the sample.
[Note that copying from the PDF version of the document may result in the loss of preset
formats.]
If you insert additional rows or columns into a table, you may need to adjust the table
formats. Generally speaking there should be vertical lines between each column in a table.
In addition, horizontal lines should appear:
Between header information and line item information
Between respective votes’ line information where there are multiple votes.
For illustrations of these, please refer to the ‘anatomy’ information and the worked examples
in Annex A.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 5
The examples provided in this guide are formatted in Times New Roman – 12 point for text
and 10 point for tables. Use of 10 point font in tables balances the need for sufficient
legibility with the volume of information requiring to be shown.
Financial Recommendations Module in CFISnet
The CFISnet financial recommendations module is designed to improve the quality of the
recommendations in the Cabinet Budget paper.
The financial recommendations module in CFISnet automatically outputs financial
recommendations relating to Budget initiatives entered into CFISnet. The majority of these
system-generated recommendations will be consistent with this guide. However, in some
instances, eg, multi-year appropriations and multi-class output expense appropriations, the
recommendations will require further off-line editing to comply with the required format. The
guidance on how to use the financial recommendations module in CFISnet can be found in
CFISnet Help [Choose ‘Baselines’, then ‘Recommendations’].
6 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Essential Elements for Financial
Recommendations
To ensure clarity and completeness, the following information should always be incorporated
into financial recommendations, where relevant:
Action to be taken
State what actions Ministers are being asked to take:
· agree – should (for example) be used for recommendations that put
in place policy decisions, including establishing new appropriations
· approve – should be used for recommendations that authorise
changes in expenditure. This is the preferred terminology for
baseline change recommendations
· note – should (for example) be used for recommendations that
provide context for substantive decisions (keep to a minimum)
· invite – should be used where Cabinet or joint Ministers are requiring
Minister(s) to undertake further action
· direct – should be used where Cabinet or joint Ministers are
requiring department(s) to undertake further action.
Purpose of the
baseline change
Explain specifically what the baseline change is for
eg, “to give effect to the policy decision in recommendation 1 above”,
or “to provide for the write-down of assets described in
recommendation 1 above”.
It is generally desirable to reference the baseline change to an earlier,
plain English and stand-alone recommendation that agrees the policy
decision or notes the circumstance giving rise to the requirement for the
baseline change, as the above examples do. In limited situations it is
permissible to encapsulate the purpose within the financial
recommendation for the baseline change where this can be achieved in
a pithy manner
eg, “to provide for increased capacity for provision of policy advice on
X”.
Title(s) of the Vote(s)
affected
Include all Votes affected by the proposed baseline changes, with the
name(s) of the Vote(s) shown above the line items affected.
Appropriation type
The appropriation type must be shown in all instances, eg, Departmental
Output Expense.
Where more than one line item for each type of appropriation in any
given Vote is affected, items of the same type should be grouped.
For information on different appropriation types and their uses, refer to A
Guide to the Public Finance Act on the Treasury website at
http://www.treasury.govt.nz/publications/guidance/publicfinance
Appropriation name
Individual appropriations within each appropriation type should be listed
in alphabetical order and grouped by Vote (when more than one Vote is
affected).
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 7
Portfolio/Appropriation
Minister
The Minister responsible for each appropriation needs to be identified,
because a single Vote may contain appropriations for which different
Ministers are responsible.
References to the Minister responsible should cite the relevant portfolio
or responsibility, eg, “Minister of Justice”, “Minister Responsible for the
Earthquake Commission”.
Monetary amounts
These must be expressed in $ million and rounded to three decimal
places (eg, $0.045 million).
The amounts must reflect expenses and capital expenditure measured
and reported in accrual terms, in accordance with relevant accounting
standards, and therefore excluding GST.
Changes to
appropriations
Both direction (ie, increase/decrease) and amount must be shown.
Increases in appropriations or revenue items should be shown as
positive numbers, with decreases shown as negatives in brackets
eg,
Revenue source for
departmental output
expense
appropriations
increase in baseline or revenue: 1.234
decrease in baseline or revenue: (1.234)
All recommendations relating to departmental output expense
appropriations must either explicitly state the source from which the
additional expenditure will be funded, or note that no funding is sought or
required.
Departmental outputs are usually funded from revenue Crown, revenue
department, revenue other, or a mixture of these. On occasions,
departmental outputs may also be funded from a department’s retained
surplus.
Revenue Crown represents revenue earned by departments from the
Crown in exchange for outputs to be supplied to Vote Ministers.
Revenue department refers to revenue earned by departments from
other departments in exchange for goods or services provided to those
departments.
Revenue other refers to revenue earned by departments from the public
or other organisations (ie, third parties) in exchange for goods or
services provided to those parties.
For any other appropriation types there is no requirement to state the
revenue or funding source.
GST status
All baseline changes are presented on a GST-exclusive basis, so there
is no need to indicate whether any appropriation is GST inclusive or not.
For further guidance on GST matters, refer to A Guide to the Public
Finance Act on the Treasury website at
http://www.treasury.govt.nz/publications/guidance/publicfinance and in
Treasury circular T2005/11 at
http://www.treasury.govt.nz/publications/guidance/circulars.
8 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Year(s) affected by the
baseline changes
Typically tables contain financial information for five years, the first of
which should be the current financial year. The next four years should
be shown individually (even where the amounts are the same in all
years), unless the baseline change is for a multi-year appropriation (refer
Annex C).
This five-year span is sometimes referred to as the “(current) forecast
period”.
If a baseline change is to have an indefinite duration, this must be stated.
Otherwise the change in appropriation will expire in the last financial year
for which the increase or decrease is shown in the table.
For changes with an indefinite duration, the final year column in the table
should state “20XX/YY & Outyears”.
Scope statement
Any financial recommendation proposing to establish a new
appropriation must be accompanied by a recommendation which seeks
agreement to the proposed scope of that appropriation. Where multiple
new appropriations are being established, the preferred approach is for a
single financial recommendation which includes a table listing the titles,
types and scopes of the proposed new appropriations.
The scope statement both describes and constrains the range of
activities, actions or functions that the appropriation may be used for. To
reinforce the latter point, the scope statement for any new appropriation
must begin with the stem “This appropriation is limited to ...”.
On the passing of an Appropriation Bill, the scope statements in the
associated Estimates or Supplementary Estimates become legally binding.
It is therefore essential to get the wording right so that it clearly
defines/delineates the boundary of what the appropriation can be used for.
Once an appropriation has been agreed, substantive changes that widen
or narrow the scope should not be sought in-year, as such changes
would compromise audit scrutiny. However, minor in-year technical
changes to scope statements (eg, to correct spelling mistakes or to
provide additional, clarifying detail) are permissible.
Refer to guidance at:
http://www.treasury.govt.nz/publications/guidance/planning/appropriation
s/guide
Impact on operating
balance and/or debt
The impact of each initiative on the operating balance and/or debt needs
to be clearly stated.
Similarly, if there is no impact on the operating balance and/or debt then
this also needs to be clearly stated. Most changes to baselines
(excepting “technical” changes which joint Ministers have delegated
authority to approve, eg, fiscally neutral adjustments, including operating
and capital swaps, expense and capital transfers, and third-party funded
spending) will impact.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 9
Impact on
contingencies
In addition, where there is spending which impacts on the operating
balance and/or debt, how this will be managed (eg, charged against the
between-Budget operating and/or capital contingency, or charged
against a “tagged” contingency, or not charged against any contingency)
needs also to be clearly stated.
Supplementary
Estimates and Imprest
Supply
Where a proposed change to an appropriation affects the current year’s
baseline and the spending is not already covered by a permanent
legislative authority (refer Annex E), then a recommendation is required
agreeing:
·
to include the proposed change in expenditure in the Supplementary
Estimates, and
·
for any increase in expenditure to be incurred under the authority of
an Imprest Supply Act. [This is to ensure parliamentary financial
authority for any additional expenditure, prior to passage of the
Appropriation (Supplementary Estimates) Bill.]
In most instances a text recommendation combining both of these should
be used, as shown in Annex B, Example 1.
10 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
How to Write Financial Recommendations
Eight Steps in Writing Financial Recommendations
The best way to ensure that a set of financial recommendations achieves the desired result is
to approach the drafting process in a methodical fashion. Financial recommendations are
usually part of a larger suite of recommendations in a paper and should logically follow the
recommendations which seek agreement to relevant overall policies. As well as helping
ensure that the resulting minute is complete and unambiguous and functions as a stand-alone
document, this is consistent with the good-practice principle that policy and funding decisions
should be taken together.
A set of recommendations should be presented in the eight-step order as set out below.
[Though note that not all of these steps will necessarily be required in all instances.]
Step
1
Format
Agree the policy decision (or note the circumstance)
Text
Describe in plain English what policy decision Ministers are
being asked to agree to (or what circumstance Ministers are
being asked to note).
2
Agree, where relevant, the expected results of the policy
change and how these will be determined
Text
3
Agree to establish new appropriations, where necessary
Text or table, though table
is preferred where a
number of Votes or line
items are involved.
Agree establishment of any new Estimates items (including
Votes and appropriation titles, types and scopes) and any
changes to the scopes of existing appropriations.
4
Approve changes to appropriations and/or net assets
necessary to give effect to the policy decision/provide for the
circumstance, and corresponding impacts on the operating
balance and/or debt
[Note: where there are multiple initiatives, or where changes
do not fully impact on the operating balance and/or debt, then
an agree recommendation with a summary impacts table
should be included before step 3 above.]
5
Agree inclusion in Supplementary Estimates and use of
Imprest Supply (if required)
Text and Appropriation
table(s)
Summary Table(s)
Text
Agree inclusion of proposed changes in the Supplementary
Estimates and use of Imprest Supply, where current year
baselines are affected and/or where a change involves
additional expenditure.
6
Agree, for changes to appropriations and/or net assets which
impact on the operating balance and/or debt, how this
spending is to be managed (ie, charged against a betweenBudget contingency or against a “tagged” contingency)
Text
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 11
7
Agree or note any other conditions, restrictions
Text
Agree or note any conditions, limitations or restrictions on the
appropriation changes (eg, where the changes are subject to a
report-back on an outstanding issue).
This includes authorising joint Ministers to make further
decisions within the context of the agreed policy (eg, agreeing
to an additional increase in appropriations up to a specified
maximum level, if necessary).
8
Direct (officials) or invite (of Ministers) any further work
Text
Agree any further decisions or report-backs (eg, the reportback referred to above).
Impact on the Operating Balance and/or Debt
Financial recommendations must include a statement setting out the impact of the baseline
changes on the government’s operating balance and/or debt. Most changes to baselines will
usually impact on the operating balance and/or debt. However, “technical” changes which
joint Ministers have delegated authority to approve (eg, fiscally neutral adjustments, including
operating and capital swaps, expense and capital transfers, and third-party funded spending)
do not impact on the operating balance and/or debt.
In most simple cases, the impact of a proposal can be included as part of the approval of the
baseline changes by use of text in a combined recommendation, eg:
“..., with a corresponding impact on the operating balance” (operating initiatives)
“..., with a corresponding impact on debt” (capital initiatives)
“..., with a corresponding impact on the operating balance and debt” (initiatives with
both operating and capital impacts), or
“..., with no impact on the operating balance or debt” (initiatives which are neutral from
an operating balance and debt perspective, even if they involve changes to operating
or capital appropriations – eg, “technical” items such as fiscally neutral adjustments).
Where the impact of the baseline change(s) is only partial, an impact table is used in place of
the above appendages. Refer to Example 3 or Example 4.
Supplementary Estimates and Imprest Supply
Where proposed baseline changes involve changes to appropriations and/or departmental
net assets affecting the financial year of the Estimates currently in force, agreement
also needs to be sought for the changes to be included in Supplementary Estimates and, in
the interim, any spending increases be met from Imprest Supply.
12 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Imprest Supply agreement is necessary to provide interim Parliamentary authority for a
government to incur expenses and capital expenditure in advance of passage of an
Appropriation Act (“Mains” or “Supps”). There are usually two imprest supply acts each year:
· The first is passed before the start of the financial year (normally when “Supps” for the
previous year are passed, in June).
· The second is passed when the first Appropriation Act (“Mains”) for the new financial year
is passed (must be no later than three months after Budget).
An agreement for inclusion in Supplementary Estimates recommendation is necessary to
ensure that the change(s) get incorporated in the Supplementary Estimates legislation and
passed by Parliament.
Typically both the Supplementary Estimates and Imprest Supply proposals are combined in a
single recommendation as follows:
agree that the proposed change(s) to [appropriations and/or projected balances of net
assets] for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in
the interim, the increase(s) be met from Imprest Supply
The word “proposed” reflects the fact that Cabinet (or joint Ministers) do not change the
appropriations of projected balances of net assets, but rather Parliament does.
Where the change(s) affect only appropriations, ie, there is no change to the net asset
schedule of a department, then the text “and/or projected balances of net assets” should be
deleted.
Similarly, where the change(s) affect only the net asset schedule of a department, ie, there is
no change to appropriations, then the text “appropriations and/or” should be deleted.
Where the changes affect both appropriations and the net asset schedule of a department,
then “and/or” should be collapsed to “and”.
Impact on Contingencies
As part of its overall approach to managing its fiscal position, the government typically sets
aside at Budget time limited amounts of funding to provide for new operating and capital
spending which may be incurred ahead of the next Budget. These amounts, known as
“contingencies”, comprise:
·
Between-Budget contingencies – used for ‘general’ new operating or capital spending
pressures that arise throughout the year.
·
Tagged contingencies – where Cabinet sets aside and ‘ring-fences’ funding (operating
and/or capital) for specific purposes, subject to further work being undertaken and
funding subsequently being approved.
Financial recommendations associated with policy decisions which involve new spending
should include a statement setting out how the proposed baseline changes impact on (ie,
reduce) these contingencies. Fiscally neutral changes to baselines and changes that result
in increased revenue (eg, increases to Crown revenue or capital receipts) do not impact on
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 13
contingencies as a rule, given contingencies are designed to track spending decisions –
though Cabinet may by exception agree that such an increase will result in more resource
being available for spending (ie, increase a contingency).
In most cases, the impact on contingencies of a proposal can be included by adding an
additional recommendation following the Supplementary Estimates/Imprest Supply
recommendation (where applicable) as follows:
Where the impact is to be managed against the between-Budget operating/capital
contingency:
agree that the [expenses and/or capital expenditure] incurred under recommendation X
above be a charge against the between-Budget operating and/or capital contingency,
established as part of Budget 20[XX].
Where the impact is to be managed against a “tagged” contingency:
agree that the [expenses and/or capital expenditure] incurred under recommendation X
above be a charge against the [name of “tagged” contingency], established as part of
Budget 20[XX].
Where an explicit decision is taken that there is no impact to be managed against
contingencies:
agree that the [expenses and/or capital expenditure] incurred under recommendation X
above have no impact on [EITHER] the between-Budget operating and/or capital
contingency [OR] [name of “tagged” contingency], established as part of Budget 20[XX].
Note that a recommendation specifying impact on contingencies is not required for
“technical” changes to baselines which joint Ministers have delegated authority from Cabinet
under CO (11) 6 to approve, as these by definition do not include policy decisions involving
new spending.
Numbering of Recommendations
All text recommendations should be numbered consecutively, starting from 1. If a paper
contains split recommendations, the alternative sets of recommendations should be included
as EITHER and OR subsets of the relevant recommendation number (eg, EITHER 5.1 ... OR
5.2 ...). When preparing the minute, Cabinet Office can then remove the subset(s) of
recommendations that are not adopted, with disruption to the numbering of other
recommendations avoided.
Numbering should be applied to text preceding Impact and Appropriation tables, but not to
the tables themselves (as these combine with the preceding text to form the
recommendation).
Numbering should not be applied to Summary tables, as these are for information only.
14 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Four Common Scenarios
The following table provides guidance for determining the most appropriate ‘set’ of text and
table recommendations to use in four typical scenarios. The numbered examples are listed
in Annex B.
Single Baseline
Change (ie, only
one line item
affected)
Changes either ALL fully impact
or have no impact on the
operating balance and/or debt
Changes PARTIALLY impact on
the operating balance and/or
debt
Paper needs:
Paper needs:
a text recommendation agreeing
the policy decision or noting the
circumstance giving rise to the
requirement for a baseline change
a text recommendation agreeing
the policy decision or noting the
circumstance giving rise to the
requirement for a baseline change
if necessary, text
recommendations establishing a
new appropriation (or alternatively
a single agree recommendation
with table)
if necessary, text
recommendations establishing a
new appropriation (or alternatively
a single agree recommendation
with table)
a text recommendation approving
the baseline change and impact
on operating balance and/or debt
(combined)
a summary table showing impact
on operating balance and/or debt
an appropriation table
a text recommendation approving
the baseline change
a text recommendation agreeing
inclusion in Supplementary
Estimates/use of Imprest Supply,
where applicable
an appropriation table, including
separate lines showing different
funding sources and a line
showing the total operating or
capital change
a text recommendation agreeing
impact on contingencies (ie, how
sending is being managed), where
applicable.
a text recommendation agreeing
inclusion in Supplementary
Estimates/use of Imprest Supply,
where applicable
a text recommendation agreeing
impact on contingencies (ie, how
sending is being managed), where
applicable.
See Example 1
See Example 3
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 15
Multiple Baseline
Changes (ie, more
than one line item
affected)
Changes either ALL fully impact
or have no impact on the
operating balance and/or debt
Changes PARTIALLY impact on
the operating balance and/or
debt
Paper needs:
Paper needs:
a text recommendation agreeing
the policy decision or noting the
circumstance giving rise to the
requirement for a baseline change
a text recommendation agreeing
the policy decision or noting the
circumstance giving rise to the
requirement for a baseline change
if necessary, text
recommendations establishing a
new appropriation (or a single
agree recommendation with table
for multiple new appropriations)
if necessary, text
recommendations establishing a
new appropriation (or a single
agree recommendation with table
for multiple new appropriations)
a text recommendation approving
the baseline changes and impacts
on operating balance and/or debt
(combined)
separate summary tables showing
impacts on operating balance
and/or debt
an appropriation table
a text recommendation agreeing
inclusion in Supplementary
Estimates/use of Imprest Supply,
where applicable
a text recommendation agreeing
impact on contingencies (ie, how
spending is being managed),
where applicable.
a text recommendation approving
the baseline changes
an appropriation table, including
separate lines showing different
funding sources and a line(s)
showing the total operating and/or
capital change(s)
a text recommendation agreeing
inclusion in Supplementary
Estimates/use of Imprest Supply,
where applicable
a text recommendation agreeing
impact on contingencies (ie, how
sending is being managed), where
applicable.
See Example 2
See Example 4
Forecasting Changes
The standard text and tabular format for baseline changes should be used to record the
impact of forecasting changes, including forecast changes to amounts incurred under
permanent legislative authority (PLA).
This is necessary so the Minister of Finance and Treasury can monitor the impact of the
changes on the between-Budget contingencies.
16 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Recognition of Crown Liabilities (eg, Legal Liabilities)
Crown liabilities must be recognised when they arise, and the associated expenses
appropriated. The standard text and tabular format for appropriation changes should be
used. Note that whether there is any impact or not on the between-Budget operating
contingency will need to be determined on a case-by-case basis.
Baseline Reductions
The format for financial recommendations used to effect baseline reductions (eg, the return
of cost savings to the Crown) is the same as for increases to appropriations. The major
differences are that all numbers should be shown as negatives to indicate a reduction in
baselines, and there is no need for an Imprest Supply recommendation.
Technical Accounting Adjustments
Technical accounting adjustments will normally be submitted as part of a baseline update for
agreement by joint Ministers. Where it is necessary or desirable to obtain agreement for a
technical accounting adjustment at other times (either from joint Ministers under delegation
per CO (11) 6 or incidentally in a Cabinet paper), supporting information should clearly
outline the reasons for the adjustment (eg, in a separate noting recommendation). Financial
recommendations should follow the standard formats.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 17
18 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Annex A: Anatomy of Financial Recommendations
Anatomy of a Text Recommendation and Appropriation Table
Year(s) affected by the baseline changes –
information shown should be for current year or
first upcoming financial year, then each of the next
three individual years, and finally the fourth and all
subsequent outyears combined
Action to be taken
Vote Name and
Minister
responsible for
appropriation
Appropriation
Type
Appropriation
name
Revenue source
(for departmental
output expense
appropriations
only)
Purpose of the baseline
change (where able to be
encapsulated concisely;
otherwise action X policy
as a stand-alone
recommendation)
2 approve the following changes to [appropriations and/or net assets] to give effect to the policy
decision in recommendation 1 above, with a corresponding impact on [the operating balance
and/or debt]:
$m – increase/(decrease)
Vote Name
Minister of/for
Portfolio
Departmental Output
Expenses:
Output Expense Name1
(funded by revenue
Crown)
Non-departmental
Output Expenses:
Output Expense
Name2
Total Operating
Total Capital
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.500
2.000
2.000
2.000
2.000
1.000
1.500
1.500
1.500
1.500
1.500
3.500
3.500
3.500
3.500
-
-
-
-
-
Amount of change and
direction of change for
each line item for each
year
Impact clause –
not required if an
Impact table is
included
Monetary units
and direction of
change
Totals lines are
required if there is
more than one
line item for a
Vote, and/or if
more than one
Vote included in
the table
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 19
Anatomy of a Summary Table (for Use with Multiple Initiatives)
This example shows a summary table for operating expenditure. The same format should also be used for a capital summary table. If a proposal
includes both operating and capital expenditure, the capital table should follow the operating example and state “Capital Initiatives (Impact on
Debt)” in the header information. No text statement is required in either case.
Summary of Initiatives
Year(s) affected by the baseline changes –
information shown should be for current year or
first upcoming financial year, then each of the next
three individual years, and finally the fourth and all
subsequent outyears combined
Monetary units
and direction of
change
Operating Initiatives (Impact on Operating Balance)
Header information
$m – increase/(decrease)
Ref.
Vote names
and Ministers
responsible for
appropriations
“Approve”
recommendation
reference number
Initiative
Vote Name1
Minister of/for Portfolio1
x
Initiative A
x
Initiative B
Vote Name2
Minister of/for Portfolio2
x
Initiative B
Minister of/for Portfolio3
x
Initiative B
Total Operating
Initiative names
2012/13
0.250
0.400
2013/14
1.000
0.500
2014/15
1.000
0.500
2015/16
1.000
0.500
2016/17 &
Outyears
Separating line
where more than
one vote
1.250
0.500
-
0.500
0.500
0.500
0.500
-
0.100
0.100
0.100
0.100
0.650
2.100
2.100
2.100
2.350
Fiscal impact of
baseline changes
for each initiative
Total amount of impact of baseline changes on
the operating balance. If changes partially impact,
a separate impact table is required.
20 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Anatomy of an Impact Table (for Use where Changes Partially Impact)
Year(s) affected by the baseline changes –
information shown should be for current year or
first upcoming financial year, then each of the next
three individual years, and finally the fourth and all
subsequent outyears combined
Funding statement
Vote name – ignore if
the initiatives span
more than one vote
Monetary units
and direction of
change
2 agree to increase expenditure to provide for costs associated with X policy described in recommendation 1
above, with the following impact(s) on [the operating balance and/or debt]:
Impacts should
correspond with totals
from summary tables
Baseline changes that
have no impact on
either the operating
balance or debt, eg,
third party-funded
outputs or capital
charge funding
$m – increase/(decrease)
Vote Name
2012/13
2013/14
2014/15
2015/16
Operating Balance Impact
Debt Impact
No Impact
Total
0.750
0.100
0.500
1.350
3.600
0.150
0.450
4.200
3.350
0.150
0.450
3.950
3.350
0.450
3.800
2016/17 &
Outyears
3.350
0.450
3.800
Total amount of changes – these figures
usually correspond to the total baseline
changes, but may differ (eg, where there
are changes in Crown non-tax revenue)
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 21
Annex B: Examples of Typical Financial Recommendations
The following examples contain explanatory wording relevant for each example. Actual wording should be tailored to each case and comply
with Cabinet Office guidance.
Example 1 – Combined Approval and Impact Statement for a Single Baseline Change
This example illustrates the provision of departmental operating funding for an initiative funded by revenue Crown in a new line item in Vote
Name. A single recommendation combining approval of the baseline change and impact statement should be used where the impact from a
single initiative or baseline change either fully impacts or does not impact on the operating balance or debt.
22 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
New policy statement
1
Establish new line item
2 agree to establish a new Departmental Output Expense appropriation “Monitoring of Funded
Agencies” in Vote Name;
3
Combined approval and impact
statement
agree to X policy;
agree that the scope of this appropriation be “This appropriation is limited to ...”;
4 approve the following changes to appropriations to give effect to the policy decision in
recommendation 1 above, with a corresponding impact on the operating balance:
…followed by
Appropriation table
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Monitoring of Funded Agencies
(funded by revenue Crown)
2012/13
0.500
2013/14
0.500
2014/15
0.750
2015/16
0.750
2016/17 &
Outyears
0.750
Supplementary Estimates and
Imprest Supply statement
5 agree that the proposed change to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increase be met from Imprest
Supply
Impact on contingencies statement
6 agree that that the expenses incurred under recommendation 4 above be a charge against the
between-Budget operating contingency, established as part of Budget 2012.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 23
Points to Note:
·
The “approve” recommendation contains a specific explanation of what the baseline change is for – in this case to give effect to a new policy
decision that was itself the subject of an earlier “agree” recommendation. It is generally tidiest to make any discrete policy decision the
subject of a stand-alone, plain-language “agree” recommendation, rather than bundle it together into the “approve” recommendation.
·
As this example involves a baseline change that impacts on the operating balance only, the text “...and/or net assets” and “...and/or debt”
has been deleted in the combined approval and impact recommendation.
·
In this example, the new appropriation is assumed to be a single-class departmental output expense appropriation. For presentation of
multi-class output expense appropriations, refer to Annex D.
·
As this example involves a departmental output expense appropriation, the source of revenue (revenue Crown, revenue department,
revenue other) is specified in the table. There is no requirement to state the revenue or funding source for any other appropriation type.
·
In this example, it is assumed that the new policy decision involves spending which impacts on the between-Budget operating contingency.
If the impact is on a “tagged” contingency, then the text should be changed to read “...be a charge against the [name of “tagged’
contingency]...”.
·
As this example involves a baseline change that impacts on operating only, the text “...and/or capital expenditure” has been deleted in the
impact on contingencies recommendation.
·
This example assumes only one Portfolio Minister. Where there are changes to appropriations affecting more than one Portfolio Minister,
the Appropriation table must include all the Ministers responsible for appropriations involved (ie, the title of the relevant Portfolio Minister
must precede each appropriation line).
·
Where a new appropriation is being created as in Example 1, an alternative to the two “agree” recommendations 2 and 3 above would be a
single “agree” recommendation with table, as illustrated below. Where there is more than one appropriation being created, it is preferable
for a single “agree” recommendation with table to be used (adding an extra row for each new appropriation).
24 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
2
agree to establish the following new appropriation(s):
Vote
Title
Type
Scope
Name
Monitoring of Funded
Agencies
Departmental Output
Expense
This appropriation is
limited to XYZ.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 25
Example 2 – Combined Approval and Impact Statement for Multiple Baseline Changes
All Impacting on Operating Balance and/or Debt
This example provides for operating and capital funding for an initiative funded through two Votes, and assumes the line items already exist in
the Estimates. A combined approval and impact text statement should be used where the impacts from multiple initiatives or baseline changes
either fully impact (as shown in the wording) or have no impact on the operating balance and/or debt.
26 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
New policy statement
1
agree to X policy;
Combined approval and impact
statement
2 approve the following changes to appropriations and net assets to give effect to the policy
decision in recommendation 1 above, with a corresponding impact on the operating balance and
debt:
$m – increase/(decrease)
… followed by
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
Appropriation table
Vote Name1
Minister of/for Portfolio1
Departmental Output Expense:
Monitoring of Funded Agencies
(funded by revenue Crown)
Net Asset Schedule of the
[Department name]:
Capital Injection
0.500
0.750
0.750
0.750
0.750
1.000
2.000
0.500
-
-
(0.250)
0.500
0.250
0.250
0.250
Total Operating
0.250
1.250
1.000
1.000
1.000
Total Capital
1.000
2.000
0.500
-
-
Vote Name2
Minister of/for Portfolio2
Departmental Output Expense:
Ministerial Services
(funded by revenue Crown)
Supplementary Estimates and
Imprest Supply statement
Impact on contingencies statement
3 agree that the proposed changes to appropriations and projected balances of net assets for
2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the interim, the
increases be met from Imprest Supply
4 agree that the expenses and capital expenditure incurred under recommendation 2 above be
charges against the between-Budget operating and capital contingencies, established as part of
Budget 2012.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 27
Points to Note:
·
As there is only one initiative, no summary table is required.
·
The “approve” recommendation contains a specific explanation of what the baseline change is for – in this case to give effect to a new policy
decision that was itself the subject of an earlier “agree” recommendation. It is generally tidiest to make any discrete policy decision the
subject of a stand-alone, plain-language “agree” recommendation, rather than bundle it together into the “approve” recommendation.
·
Where a new line item needs to be established, text recommendations agreeing to the new appropriation (type and title, and specifying the
vote) and scope statement should precede the financial recommendations. Where multiple new line items need to be established, it is
preferable to include a single recommendation with table setting out for each new line item the relevant vote, and appropriation title, type
and scope statement (refer to Example 1 above).
·
The “Totals” lines in the table show the respective operating and capital totals across all affected Votes – in this example, these totals
correspond to the respective impacts on the operating balance and debt.
·
A reduction in the Crown’s investment in an entity would be labelled “capital withdrawal”, and the amount would be shown as a negative (ie,
in brackets).
·
As the initiative affects both appropriations and the net asset schedule of a department, “and/or” has been collapsed to “and” in the
Supplementary Estimates and Imprest Supply Recommendation.
·
In this example, it is assumed that the new policy decision involves spending which impacts on the between-Budget operating and capital
contingencies. If the operating and/or capital spending impacts on a “tagged” contingency, then the text should be changed to read “...be a
charge against the [name(s) of “tagged’ contingency/(ies)]...”.
28 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 3 – Separate Impact Table where a Single Baseline Change Partially Impacts
on the Operating Balance and/or Debt
This example illustrates the provision of departmental operating funding for an initiative where costs are intended to be 75% cost-recovered – ie,
funded 25% from revenue Crown and 75% from revenue other. Although only one line item in the Estimates is affected, two entries are
required in the appropriation table to reflect the different funding sources. An impact table is also required in this instance, to illustrate how
much impacts/does not impact on the operating balance.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 29
New policy statement
1
Funding Statement
2 agree to increase expenditure to provide for costs associated with the policy decision in
recommendation 1 above, with the following impact on the operating balance:
...followed by
agree to X policy;
$m – increase/(decrease)
Impact table
Vote Name
Approval statement
…followed by
2012/13
2013/14
2014/15
2015/16
Operating Balance Impact
No Impact
0.250
0.750
0.300
0.900
0.300
0.900
0.300
0.900
2016/17 &
Outyears
0.400
1.200
Total
1.000
1.200
1.200
1.200
1.600
3 approve the following changes to appropriations to give effect to the policy decision in
recommendation 1 above:
$m – increase/(decrease)
Appropriation table
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Line Item Name
(funded by revenue Crown)
Line Item Name
(funded by revenue other)
Total Operating
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.250
0.300
0.300
0.300
0.400
0.750
0.900
0.900
0.900
1.200
1.000
1.200
1.200
1.200
1.600
Supplementary Estimates and
Imprest Supply statement
4 agree that the proposed changes to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increases be met from Imprest
Supply;
Impact on contingencies statement
5 agree that the operating balance impact in recommendation 2 above of expenses incurred
under recommendation 3 above be a charge against the between-Budget operating contingency,
established as part of Budget 2012.
30 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Points to Note:
·
The impact recommendation is used to agree the overall effects of the changes and how these will impact on the operating balance and/or
debt. The “Total” row in the impact table represents total changes to the baseline. This total typically matches the total of changes in the
appropriation table, though some changes can impact on the operating balance and not result in changes to appropriation – refer to
Example 13.
·
This example illustrates a baseline change that impacts on the operating balance. If the change also impacted on debt, then an additional
line in the impact table would be required below “Operating Balance Impact”, labelled “Debt Impact”. Refer to Anatomy of an Impact Table.
Also, the preceding text of the recommendation would read “..., with the following impacts on the operating balance and debt:”.
·
The approval statement still contains an explanation of why the changes are being made (“...to give effect to the policy decision in
recommendation 1 above”), but in this instance does not include an impact statement (as this aspect is covered by the preceding, separate
impact table).
·
Separate lines are required in the appropriation table to illustrate the different revenue sources.
·
Where a new line item needs to be established, text recommendations agreeing to the new appropriation (type and title, and specifying the
vote) and scope statement should precede the financial recommendations (ie, after the impact table, but before the appropriation
statements and tables). Where multiple new line items need to be established, it is preferable to include a single recommendation with table
setting out for each new line item the relevant vote, and appropriation title, type and scope statement (refer to Example 1 above).
·
As the initiative in this example affects appropriations but not the net asset schedule of the department, the text “...and/or projected
balances of net assets...” has been deleted in the Supplementary Estimates and Imprest Supply Recommendation.
·
In this example, it is assumed that the new policy decision involves spending which impacts on the between-Budget operating contingency.
If the impact is on a “tagged” contingency, then the text should be changed to read “...be a charge against the [name of “tagged’
contingency]...”.
·
If this example involved a baseline change that also impacted on debt, the text “operating balance impact” would need to be expended to
“operating balance and debt impacts”, and “expenses” would need to be expanded to “expenses and capital expenditure” in the impact on
contingencies recommendation.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 31
Example 4 – Separate Impact and Summary Tables where Multiple Baseline Changes
Partially Impact on the Operating Balance and/or Debt
This example illustrates two initiatives (A and B), each with operating and capital appropriations that affect two Votes (VoteName1 and
VoteName2). It assumes that 75% of operating costs for Initiative A in Vote Name1 are cost-recovered and so funded by revenue other. A
summary table for all initiatives is therefore required, as well as separate impact and appropriation tables.
New policy statements
1
agree to X policy (Initiative A);
2
agree to Y policy (Initiative B);
Summary of Initiatives
Summary tables
Separate tables for operating …
Operating Initiatives (Impact on Operating Balance)
$m – increase/(decrease)
Ref.
Initiative
2012/13
2014/15
2015/16
2016/17 &
Outyears
Vote Name1
4
Initiative A
4
Initiative B
1.000
0.500
1.000
0.500
1.000
0.500
1.000
0.500
1.000
0.500
Vote Name2
4
Initiative B
-
0.750
0.750
0.750
0.750
1.500
2.250
2.250
2.250
2.250
Total Operating
and capital components
2013/14
Capital Initiatives (Impact on Debt)
$m – increase/(decrease)
Ref.
Initiative
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
Vote Name1
4
Initiative B
2.000
1.500
-
-
-
Vote Name2
4
Initiative A
-
0.100
0.100
-
-
2.000
1.600
0.100
-
-
Total Capital
32 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Funding statement
...followed by
3 agree to increase expenditure to provide for initiatives A and B, with the following impacts
on the operating balance and debt:
$m – increase/(decrease)
Impact table
(shows the total cost of all initiatives, including any
changes that impact/do not impact on the
operating balance and/or debt
Approval statement:
…followed by
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
Operating Balance Impact
Debt Impact
No Impact
1.500
2.000
3.000
2.250
1.600
3.000
2.250
0.100
3.000
2.250
3.000
2.250
3.000
Total
6.500
6.850
5.350
5.250
5.250
4 approve the following changes to appropriations and net assets to give effect to the policy
decisions in recommendations 1 and 2 above :
$m – increase/(decrease)
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
Appropriation tables
(check that all initiatives are correctly accounted for
by testing whether Total Operating and Total
Capital sum to the “Total” line in the impact table)
Vote Name1
Minister of/for Portfolio
Departmental Output Expense:
Line Item Name
(funded by revenue Crown)
Departmental Output Expense:
Line Item Name
(funded by revenue other)
Net Asset Schedule of the [Department name]:
Capital Injection
Vote Name2
Minister of/for Portfolio
Departmental Output Expense:
Line Item Name
(funded by revenue Crown)
Net Asset Schedule of the [Department
name]:
Capital Injection
1.500
1.500
1.500
1.500
1.500
3.000
3.000
3.000
3.000
3.000
2.000
1.500
-
-
-
-
0.750
0.750
0.750
0.750
-
0.100
0.100
-
-
Total Operating
4.500
5.250
5.250
5.250
5.250
Total Capital
2.000
1.600
0.100
-
-
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 33
Supplementary Estimates and
Imprest Supply statement
Impact on contingencies statement
5 agree that the proposed changes to appropriations and/or projected balances of net assets for
2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the interim, the
increases be met from Imprest Supply;
6 agree that that the operating balance and debt impacts in recommendation 3 above of
expenses and capital expenditure incurred under recommendation 4 above be charges against the
between-Budget operating and capital contingencies, established as part of Budget 2012.
Points to Note:
·
Summary tables are used to provide the initiative-by-initiative analysis of impacts on the operating balance and/or debt (the numbers in the
“Ref.” column should match the recommendation numbers for individual initiatives).
·
The impact recommendation (recommendation 3 above) is used to agree the overall effects of the changes. The table shows the impacts
on the operating balance and/or debt and the total changes to baselines.
·
The “approve” recommendation statement contains a specific explanation of the reason for the baseline change – in this case to give effect
to new policy decisions X and Y, themselves the subject of earlier “agree” recommendations. However, in this instance it does not include
an impact statement, as this aspect is covered by the preceding, separate impact table.
·
Where a new line item needs to be established, text recommendations agreeing to the new appropriation (type and title, and specifying the
vote) and scope statement should precede the financial recommendations (ie, after the impact table, but before the appropriation
statements and tables). Where multiple new line items need to be established, it is preferable to include a single recommendation with table
setting out for each new line item the relevant vote, and appropriation title, type and scope statement (refer to Example 1 above).
·
The totals lines in the summary, impact and appropriation tables should typically correspond. Note that there may be rare instances where
the totals do not match, eg, where there are revenue changes that affect baselines but do not result in changes to appropriations.
·
In this example, it is assumed that the new policy decision involves spending which impacts on the between-Budget operating and capital
contingencies. If the operating and/or capital spending impacts on a “tagged” contingency, then the text should be changed to read “...be a
charge against the [name(s) of “tagged’ contingency/(ies)]...”.
Example 5 – Expense and/or Capital Transfers within an
appropriation across financial years (ECTs)
An ECT is a technical change through which baseline funding is transferred from the current
year to one of more of the next three financial years, necessitated by external factors resulting
in the delay or deferral of the specific project to which the funding applies. Refer to Cabinet
Office Circular CO (11) 6 for further details about ECTs.
While most changes to baselines that are technical in nature may be approved by joint
Ministers and do not require Cabinet approval (typically ECTs are made as part of a baseline
update process), the same format for financial recommendations should be used for changes
submitted to Joint Ministers as applies for Cabinet papers. This is to ensure consistency of
presentation for all types of baseline changes, irrespective of the level of approval required.
Consider an expense transfer of $0.500 million within a departmental output expense from
2012/13 to 2013/14. Where the amount to be transferred from one year to the next is known,
the standard format wording and appropriation table for recommendations may be used. The
appropriation changes will decrease available resources for the current year and increase
resources for the following year by a corresponding amount.
1 approve the following changes to [appropriations and/or net assets], to reflect delays in
the implementation of XYZ, with no impact on [the operating balance and/or debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name
(funded by revenue Crown)
2012/13
(0.500)
2013/14
0.500
2014/15
2015/16
-
2016/17 &
Outyears
-
-
2 agree that the change to [appropriations and/or projected balances of net assets] for
2012/13 above be included in the 2012/13 Supplementary Estimates.
Points to Note:
·
As the decreases to expenditure line items (ie, reductions in appropriations or capital
withdrawals reducing departmental net assets) for the current year need to be included in
the Supplementary Estimates, a Supplementary Estimates recommendation is required.
However, as there is no increased expenditure in the current year, there is no requirement
for an Imprest Supply recommendation.
·
“Technical” changes to baselines such as ECTs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
·
The example shown is a simple transfer of department output expense appropriation from
the current financial year to the next. Any other appropriation type would be essentially
similar, though with no revenue source stated.
·
A transfer of departmental capital would follow the format for changes to the net asset
schedule of a department. Note that a department’s baselines are not adjusted
34 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
downwards for associated capital charge during the period in which its net assets are
reduced as a result of a departmental capital transfer.
·
It is possible to spread resources from the current financial year to one or more of the next
three outyears. An example of where this might occur would be a delay to a multi-year
project resulting in a change to the original spending profile.
Example 6 – In-Principle Expense and/or Capital
Transfers within an appropriation across financial years
(IPECTs)
There will be some occasions where the exact amount of operating or capital resource
needing to be transferred to the subsequent financial year cannot be quantified with any
certainty until relatively late in the current financial year (eg, because of uncertainty as to
whether a planned delivery of outputs or purchase of an asset will be delayed or not). In these
instances there is a risk that any ‘early’ ECT submission (eg, made in the final baseline update
process for the current year) would under- or over-estimate the amount actually requiring to be
transferred, neither of which is desirable: an under-estimate would result in insufficient
resources and authority to incur the operating or capital expenditure in the subsequent year,
should the delay eventuate; while an over-estimate would result in insufficient resources and
authority to incur the operating or capital expenditure in the current year, should the delay not
eventuate.
Where such uncertainty exists, a Vote Minister may seek agreement for an in-principle
expense or capital transfer. Typically (and desirably) such requests should be submitted
through the final baseline update process for the financial year (usually in March), though
requests may be actioned up until the time that final Budget decisions are taken (usually early
April) and then, following the pre-Budget “moratorium”, from the day after Budget Day up until
a final deadline. This deadline will be notified each year by Treasury, but is usually around
mid June.
Unlike for ECTS, no adjustments are being made to appropriations and/or net assets for either
the current year (2012/13) or following year(s) (2013/14 – 2015/16) at the time IPECTs are
sought. To reflect this, a noting recommendation is used.
Before any operating or capital expenditure relating to the in-principle transfer may be incurred
in the subsequent financial year, the final amount needs to have been confirmed by the
Minister responsible for the appropriation or department, as appropriate, and jointly agreed
with the Minister of Finance (along with agreement for inclusion in the Supplementary
Estimates and interim use of Imprest Supply), once the audited financial results for the
previous financial year have been completed. This confirmation/agreement process usually
takes place through the October baseline update (OBU). If the operating or capital
expenditure needs to be incurred prior to the completion of the OBU process, then in order to
avoid incurring unappropriated expenditure the relevant Minister should write to the Minister of
Finance confirming and seeking agreement to the final amount for transfer (including inclusion
in the Supplementary Estimates and interim use of Imprest Supply). Refer to CO (11) 6 for
further details about IPECTs.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 35
In-principle transfers are not able to be reflected in relevant appropriation lines or net asset
schedules in the Estimates documents until the amounts been confirmed and agreed. This
means that the earliest (and only) Parliamentary record of the changes to appropriations or net
assets is the following year in the Supplementary Estimates, following confirmation and
agreement. Therefore, in order to preserve the integrity of the Estimates documents as
accurate records of government spending decisions, it is desirable that the magnitude of inprinciple expense or capital transfers be kept to a minimum wherever possible. Ideally
Ministers should look to submit for ECT through the baseline update process that proportion of
funding where it is almost certain that the incurring of expenditure will be delayed (so as to
enable the associated changes to baselines to be reflected in the Estimates), and seek
agreement for IPECT only that portion of funding where there is uncertainty.
Given the inherent uncertainty surrounding IPECTs, the financial recommendations need to allow
some flexibility in determining the actual amount of operating or capital expenditure that will
eventually transfer. This is achieved by establishing an upper limit, based on the best estimate of
the maximum amount of operating or capital expenditure that may need to be transferred.
Consider the previous example, but now assume that of the $0.500 million of departmental output
expense, $0.300 million of spending is certain to be delayed (and so a candidate for ECT) but
there is uncertainty about whether the $0.200 million balance of spending will be delayed. The
latter should appropriately be dealt with as an IPECT, using the following format:
1 note that potential delays in the implementation of XYZ require the in-principle transfer
of up to the following maximum amount[s] of [operating and/or capital] from 2012/13 to
2013/14:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name
(funded by revenue Crown)
2012/13
(0.200)
2013/14
0.200
2014/15
2015/16
-
2016/17 &
Outyears
-
-
2 authorise the Minister of Finance and the Minister of Portfolio jointly to determine the
final amount to be transferred, following completion of the 2012/13 audited financial
statements, with no impact on [the operating balance and/or debt].
Points to Note:
·
The word “potential” has been included in the approve recommendation, to emphasise the
ex ante uncertainty around whether the spending will be incurred in the current financial
year or not.
·
A Supplementary Estimates and Imprest Supply recommendation is not required for an
IPECT – though is required at the time the transfer is confirmed (usually in the following
OBU process, unless the expenditure needs to occur before then, in which case the
Minister responsible for the appropriation or department would need to write to the Minister
of Finance requesting confirmation of the IPECT).
·
“Technical” changes to baselines such as IPECTs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
36 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
recommendation specifying impact on contingencies (either at this stage or later in the
process when they are confirmed), as by definition they are not associated with policy
decisions involving new spending.
·
Any expenditure in the following financial year of operating or capital approved for IPECT
but not yet confirmed (and therefore lacking the necessary Supplementary Estimates and
Imprest Supply agreement) would be unappropriated.
·
The example shown is a simple transfer of department output expense appropriation from
the current financial year to the next. Any other appropriation type would be essentially
similar, though with no revenue source stated. A transfer of departmental capital would
follow the format for changes to the net asset schedule of a department.
·
It is possible to spread resources from the current financial year to one or more of the next
three outyears. An example of where this may occur is a delay to a multi-year project
resulting in a change to the original spending profile.
·
When updating forecast information for the current financial year, departments should use
their best estimate of anticipated spending (ie, account for any IPECTs).
Example 7 – Retention of Underspends (RoUs), where
approval is sought prior to or at March Baseline Update
A RoU is a technical change in which underspends resulting from savings within departmental
output expense appropriations may be transferred to any departmental output expense
appropriations within the same department in the following financial year. Refer to CO (11) 6
for further details about RoUs, including definition of underspends.
Where approval to retain underspends is sought prior to or at the March baseline update
(MBU), the full amount requested can be retained. The underspends must be confirmed by
showing a decrease in the Supplementary Estimates and corresponding increase(s) in the
Main Estimates for the following year.
Consider a request for RoU of $0.300 million within a single departmental output expense
appropriation in 2012/13, to be applied equally across two other departmental output expense
appropriations within the department in 2013/14. The appropriation table for
recommendations will show the departmental output expense appropriation in which there is
an underspend reducing in the current year (2012/13), and the two departmental output
expense appropriations to which that underspend is being applied increasing commensurately
in the following year (2013/14).
1 approve the following changes to appropriations reflecting retention of departmental
underspends in 2012/13, with no impact on the operating balance:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Output Expense Name2
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.300)
-
-
-
-
-
0.150
-
-
-
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 37
(funded by revenue Crown)
Output Expense Name 3
(funded by revenue Crown)
-
0.150
-
-
-
2 agree that the proposed changes to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates.
Points to Note:
·
A Supplementary Estimates recommendation is required to provide for the reduction in the
departmental output expense appropriation for the current year being included in the
Supplementary Estimates. However, as no additional expenses are being incurred in the
current year, there is no requirement for an Imprest Supply recommendation.
·
As there is no impact on debt (RoUs relate to departmental output expenses only),
references to net assets and debt have been collapsed in the recommendation containing
the combined approval/impact statement, and reference to net assets collapsed in the
recommendation relating to Supplementary Estimates.
·
“Technical” changes to baselines such as ROUs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
Example 8 – Retention of Underspends (RoUs), where
approval is sought after March Baseline Update
Where approval to retain underspends is sought after the March baseline update (MBU), only
half of the full amount requested can be retained. This distinction reflects the fact that the
government’s borrowing requirement has been determined on the basis of MBU baselines,
and a desire to incentivise departments to manage baselines proactively.
Any requests for RoUs received by the Minister of Finance after 30 June will be declined.
Consider the same request for RoU as in the previous example, but sought after MBU and
before 30 June. In this instance, instead of a recommendation seeking approval for the
appropriations for the current year (2012/13) to be reduced and following year (2013/14) to be
increased, a noting recommendation should be used. This means that, similar to the
treatment for IPECTs, there is no adjustment to either the current year appropriation in the
Supplementary Estimates or following year appropriations in the Estimates.
Also, before any departmental operating expense relating to RoU may be incurred in the
following financial year, the underspend is required to have been confirmed by the Minister
responsible for the appropriation and retention thereof jointly agreed with the Minister of
Finance (along with agreement for inclusion in the Supplementary Estimates and interim use
of Imprest Supply), once the audited financial results for the previous financial year have been
completed. Again, this is similar to the treatment for IPECTs.
1 note that [Department name] is anticipating departmental underspends in 2012/13 as
follows:
38 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name
(funded by revenue Crown)
2012/13
2013/14
(0.300)
2014/15
-
2015/16
-
2016/17 &
Outyears
-
-
2 authorise the Minister of Finance and relevant Ministers responsible for appropriations
jointly to increase departmental output expense appropriations for 2013/14 in votes
administered by [Department name] by up to a maximum of half of the above amount,
following completion of the 2012/13 audited financial statements, with no impact on the
operating balance.
Points to Note:
·
A Supplementary Estimates and Imprest Supply recommendation is not required in this
instance as appropriations are not being adjusted for the current year. However, a
Supplementary Estimates and Imprest Supply recommendation will be required at the time
the RoU is confirmed (usually in the following OBU process, unless expenditure is required
before then, in which case the Minister responsible for the appropriation would need to
write to the Minister of Finance confirming the underspend and seeking agreement to the
RoU, though not before completion of year-end audited financial results for the
department).
·
“Technical” changes to baselines such as RoUs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies (either at this stage or later in the
process when they are confirmed), as by definition they are not associated with policy
decisions involving new spending.
·
Any expenditure of departmental operating in the new financial year (2013/14) relating to,
but prior to confirmation of, underspends in the previous financial year (and therefore
lacking the necessary Supplementary Estimates and Imprest Supply agreement) would be
unappropriated.
Example 9 – Front-loading of Spending (FLoS)
FLoS is a technical change in which any departmental output expense appropriation can be
brought forward within the forecast period for specific investments or projects that will
permanently and sustainably reduce spending in outyears. Refer to CO (11) 6 for further
details about FLoS.
1 approve the following front-loading of spending to provide for X as described in
recommendation x above, with no impact on the operating balance:
$m – increase/(decrease)
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
Vote Name1
Minister of/for Portfolio
Departmental Output Expense:
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 39
Output Expense Name1
(funded by revenue Crown)
0.600
(0.200)
(0.200)
(0.100)
(0.100)
2 agree that the proposed change to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increase be met from Imprest
Supply.
Points to Note:
·
The transaction is fiscally neutral across the forecast period, but fiscally positive into
outyears.
·
As there is no impact on debt (FLoS relates to departmental output expenses only),
references to debt/net assets have been collapsed in the recommendation containing the
impact statement and recommendation relating to Supplementary Estimates and Imprest
Supply, respectively.
·
“Technical” changes to baselines such as FLoS which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
Example 10 – Fiscally Neutral Adjustments (FNAs)
Within a Vote
An FNA is a technical change to existing baselines involving a reallocation of funding within a
single financial year, and is typically made as part of a baseline update process. Refer to CO
(11) 6 for a full description of rules applying to FNAs.
Consider an FNA of $0.500 million between two departmental output expense appropriations
within a single Vote:
1 approve the following fiscally neutral adjustments to provide for X, with no impact on
[the operating balance and/or debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Output Expense Name2
(funded by revenue Crown)
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.500)
-
-
-
-
0.500
-
-
-
-
2 agree that the proposed changes to [appropriations and/or projected balances of net
assets] for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in
the interim, the increase be met from Imprest Supply.
40 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Points to Note:
·
“Technical” changes to baselines such as FNAs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
Example 11 – Fiscally Neutral Adjustments (FNAs)
Between Votes
Consider an FNA of $0.500 million between two departmental output expense appropriations
in separate Votes:
1 approve the following fiscally neutral adjustments to provide for X, with no impact on
[the operating balance and/or debt]:
$m – increase/(decrease)
2012/13
Vote Name1
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Vote Name2
Minister of/for Portfolio
Output Expense Name2
(funded by revenue Crown)
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.500)
-
-
-
-
0.500
-
-
-
-
2 agree that the proposed changes to [appropriations and/or projected balances of net
assets] for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in
the interim, the increase be met from Imprest Supply.
Points to Note:
·
Joint Ministerial agreement (as opposed to Cabinet agreement) in the above example
would involve three Ministers – namely the Minister of Finance and both Ministers
responsible for their respective appropriations.
·
“Technical” changes to baselines such as FNAs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 41
Example 12 – Changes in Funding Source
From time to time it may be necessary to switch funding sources for an output. For example,
consider an increase in third-party funding for a departmental output expense with a
corresponding decrease in revenue Crown, and therefore a positive impact on (ie, increase in)
the between-Budget operating contingency. In this instance an impact table is required.
1 agree to a decrease/increase in revenue Crown and a corresponding increase/decrease in
third party revenue to provide for X, with the following impact on the operating balance:
$m – increase/(decrease)
Vote Name
Operating Balance Impact
No Impact
2012/13
(0.500)
0.500
(0.500)
0.500
(0.500)
0.500
(0.500)
0.500
2016/17 &
Outyears
(0.500)
0.500
-
-
-
-
-
Total
2013/14
2014/15
2015/16
2 approve the following changes to baselines to reflect the revenue changes in paragraph
1 above:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Output Expense Name1
(funded by revenue other)
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.500)
(0.500)
(0.500)
(0.500)
(0.500)
0.500
0.500
0.500
0.500
0.500
Points to Note:
·
Although there is a positive impact in the operating balance as a result of the reduced
Crown funding, there is no overall change in baselines.
·
The “approve” recommendation and table (even though the changes to baselines sum to
nil in each year) is required to provide clarity for Ministers and to approve the changes in
funding source.
·
As there are no changes to appropriations or additional expenses being incurred, there is
no requirement for a Supplementary Estimates/Imprest Supply recommendation.
·
Changes to baselines associated with a policy decision to change revenue source typically
do not require a separate recommendation specifying impact on contingencies, as there is
no net new spending occurring. However, Cabinet may agree by exception that the
additional (as in this example) or reduced revenue should be used to increase or decrease
an available contingency. If so, there should be recommendation explicitly stating this.
·
Note that where the amount of third-party revenue received can be expected to differ from
the full cost of delivering the service in any year, the department will need to operate a
memorandum account to inform timing and level of any necessary changes to fees.
42 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 13 – Changes to Crown Revenue or Capital
Receipts
Policy and regulatory changes that affect taxes, duty and other sums payable to the Crown
can directly impact the expected level of revenue or receipts from those sources. Changes in
the level of enforcement activity undertaken by departments can have a similar effect, with
increased enforcement usually resulting in additional Crown revenue or receipts.
Given that it is generally not possible to ascertain ex ante what the exact impact of an initiative
affecting Crown revenue/receipts will be in terms of the amount collected, recommendations
need to signal that the amounts shown are indicative only and based on officials’ best
estimates of increases or decreases.
1
agree to initiative X;
2 note the following changes as a result of the decision in recommendation 1 above, with
a corresponding impact on the [operating balance or debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Non-Tax Revenue:
Infringements
Total Operating
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.500)
(0.500)
(0.500)
(0.500)
(0.500)
0.500
0.500
0.500
0.500
0.500
Points to Note:
·
This example refers to Non-Tax revenue. Other types of Crown revenue are Tax Revenue
and Capital Receipts.
·
If the change is to Capital Receipts, choose the “debt” option in recommendation 2.
·
The fact that recommendation 2 is a “noting” rather than an “agree” recommendation
signals that the amounts are indicative only.
·
As there are no changes in appropriations, there is no need for an appropriation statement,
appropriation table or a recommendation covering Supplementary Estimates / Imprest
Supply.
·
Policy decisions that increase revenue or capital receipts typically do not require a
separate recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending. However, Cabinet may agree by
exception that the additional revenue or capital receipts should be used to increase an
available contingency. If so, there should be recommendation explicitly stating this.
·
In this example there is an adverse impact on the operating balance as a result of the
decreased Crown non-tax revenue. [Conversely, an increase in Crown non-tax revenue
would impact positively on the operating balance.]
·
As the negative impacts on the operating balance and debt of increased expenses and
capital expenditure, respectively, are shown as positive figures in financial
recommendations (and the positive impacts shown as negatives), in order to ensure
consistency it is necessary also to show the negative operating/debt impacts of decreased
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 43
Crown revenue/capital receipts as positives (and the positive operating/debt impacts of
increased Crown revenue/capital receipts as negatives) in the “Total” row. In other words,
for Crown revenue/capital receipts the signs of the line item are reversed for the “Total”
row.
·
This fact can present problems when changes to Crown revenue/receipts are included with
changes to appropriations and net assets in summary tables (ie, totals will not appear to
reflect the sum of line items). One way around this would be to show subtotals of
expenses/revenue and/or net assets/receipts, with the signs of revenue and/or receipts
reversed, immediately before the operating and/or capital totals.
Example 14 – Specifying Baselines beyond the Forecast
Period
While it is relatively uncommon for Cabinet agreement to be sought for initiatives with baselines
that either cease or continue to vary beyond the current forecast period, where this does occur it is
essential to ensure clarity around exactly when baselines are expected to cease or vary. This can
be achieved relatively simply by extending the appropriation table to show the required number of
additional financial years.
The use of long-lived, finite appropriations is not encouraged, particularly when the same result
can be achieved by agreeing regular policy reviews as part of the original funding decision.
The following example assumes a twelve-year expenditure programme for a new policy
initiative funded by revenue Crown, where expenditure increases, stabilises, reduces and then
ceases at the end of the agreed period.
44 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
1
agree to X policy;
2 approve the following changes to appropriations to give effect to the policy decision in
recommendation 1 above, with a corresponding impact on [the operating balance and/or
debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
2012/13
1.000
2017/18
1.600
2022/23
1.200
2013/14
2014/15
1.300
2018/19
1.600
2019/20
1.200
2023/24
2015/16
1.600
2020/21
1.200
1.200
2016/17
1.600
2021/22
1.200
2024/25 &
Outyears
0.800
-
3 agree that the proposed change to [appropriations and/or projected balances of net
assets] for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in
the interim, the increase be met from Imprest Supply;
4 agree that that the expenses and/or capital expenditure incurred under recommendation
2 above be a charge against the between-Budget operating and/or capital contingency,
established as part of Budget 2012.
Points to Note:
·
The tabular format makes Cabinet’s intentions very clear.
·
Unlike in ‘standard’ tables, the figure shown in the fourth (and typically final) outyear is the
figure for that financial year only – indicated by the removal of the usual “& Outyears” suffix
from the header information.
·
If a summary table is being used, the notation “detailed below” should be used in the text
to draw attention to different outyear impacts. The “& Outyears” column should be
amended to record the final year in which baseline spending is agreed to be changed.
Judgment is required about the amount to be shown in the “& Outyears” column. A
footnote to the summary table may be useful. The amount shown in the “& Outyears”
column in the summary table should not be the cumulative amount of spending over the
agreed period.
·
For added clarity, the final year to be shown in the table (which includes the suffix “&
Outyears”) should be the first year in which funding permanently ceases.
·
In this example, it is assumed that the new policy decision involves spending which
impacts on the between-Budget operating and/or capital contingency. If the impact is on a
“tagged” contingency, then the text should be changed to read “...be a charge against the
[name of “tagged’ contingency]...”.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 45
Annex C: Financial Recommendations for
Multi-year Appropriations (MYAs)
Section 10(3) of the Public Finance Act 1989 permits the use of appropriations with a life of
more than one financial year, up to a maximum of five financial years.
MYAs are intended for specific, time-bound (ie, not ongoing) activities where total costs are
well-defined but timing of expenditure is uncertain. An MYA provides the Vote Minister with
greater flexibility to incur expenditure, up to the total level of the appropriation, at the time the
output is delivered or activity or capital item ready to be purchased, and without the need to
seek an ECT or IPECT as in the case of actual or potential delays.
As it is the total amount of an MYA that needs to be appropriated (not just the current or
upcoming financial year’s forecast share), MYAs tends to ‘skew’ upwards the quantum of the
government’s operating or capital requirement that requires Parliamentary approval. Also,
MYAs are by their nature difficult to monitor and report and so less transparent for
accountability purposes than annual appropriations. For both these reasons MYAs should be
used sparingly and not simply as a convenient substitute where use of usual annual
appropriations would be sufficient or indeed more appropriate.
Examples of MYAs are the 2013 Census of Population and Dwellings (Vote Statistics) and
Implementation of Mixed Ownership Model (Vote Finance).
This annex outlines the form of financial recommendations required to give effect to:
·
establishing a new MYA
·
converting an existing annual appropriation into an MYA.
46 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 15 – Establishing a New MYA
1
agree to X policy;
2 agree to establish a new Departmental Output Expense “Output Expense Name1” as a
three-year multi-year appropriation in Vote Name;
3
agree that the scope of this appropriation be “This appropriation is limited to... ”;
4 approve the following change to appropriations to give effect to the policy decision in
recommendation 1 above, with a corresponding impact on [the operating balance and/or
debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
2012/13
2013/14 to 2015/16
-
2016/17 &
Outyears
1.500
-
5 note that the indicative spending profile for the new multi-year appropriation described
in recommendation 4 above is as follows:
$m – increase/(decrease)
Indicative annual spending profile
2012/13
-
2013/14
0.200
2014/15
0.800
2015/16
0.500
2016/17 &
Outyears
-
6 agree that that the expenses and/or capital expenditure incurred under recommendation
4 above be a charge against the between-Budget operating and/or capital contingency,
established as part of Budget 2012.
Points to Note:
·
The start or end of an MYA need not coincide with the start or end of a financial year.
However, an MYA may not span more than five financial years. If an MYA is, say, agreed
by Cabinet to commence in December 2013 and exist for three years, then it technically
ends in December 2016, not June 2017. Note though that MYAs may also specifically be
created for parts of years (eg, 18 months, 30 months, etc).
·
Where the period of the proposed MYA does not correspond with the start or end of the
relevant financial years, this needs to be stated explicitly in the recommendation. For
example, “agree to establish a new Departmental Output Expense “Output Expense
Name1” as a multi-year appropriation in Vote Example, commencing 1 January 2014 and
expiring 30 June 2016”.
·
Most MYAs will not continue beyond their term (ie, they are for time-limited, and usually
new activities), and so the outyears number will be blank as in the example above.
·
An indicative spending profile table (similar to a summary or impact table) should also be
included. Departments should take into account any potential front-loading or delayed
spending and adjust the funding profile accordingly. In many cases involving operating
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 47
(though not necessarily capital), the funding profile will simply be an equal division of the
total MYA amount across the number of years.
·
In this example there is no need for a Supplementary Estimates and Imprest Supply
recommendation, as there is no impact on the current financial year.
·
In this example, it is assumed that the new policy decision involves spending which
impacts on the between-Budget operating and/or capital contingency. If the impact is on a
“tagged” contingency, then the text should be changed to read “...be a charge against the
[name of “tagged’ contingency]...”.
Example 16 – Converting an Existing Annual
Appropriation into an MYA
1
agree to X policy;
2 agree to establish a new Departmental Output Expense “Output Expense Name1” as a
three-year multi-year appropriation in Vote Name;
3
agree that the scope of this appropriation be “This appropriation is limited to... ”;
4 approve the following changes to appropriations to give effect to the policy decision in
recommendation 1 above, with no impact on [the operating balance and/or debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
2012/13
2013/14 to 2015/16
-
Departmental Output Expense:
Output Expense Name2
(funded by revenue Crown)
-
2016/17 &
Outyears
1.500
(0.500)
(0.500)
-
(0.500)
-
5 note that the indicative funding profile for the new multi-year appropriation described
in recommendation 4 above is as follows:
$m – increase/(decrease)
Indicative annual spending profile
2012/13
-
2013/14
0.200
2014/15
0.800
2015/16
0.500
2016/17 &
Outyears
-
Points to Note:
·
Where the existing appropriation is set to continue beyond the term of the MYA, then the
outyear figures in the table should be left blank (as in this example); otherwise, if the
existing appropriation is to be discontinued then the outyear figures will need to ‘back out’
the relevant amounts. Note that in the latter case this implies an impact (positive) on the
operating balance or debt, so the table in recommendation 4 will need to have added at
the bottom either a Total Operating or Total Capital row and the appendage altered to read
“...with a corresponding impact on [the operating balance and/or debt]”.
48 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
·
Transfers into and out of MYAs during the term of the MYA are not encouraged because
they potentially undermine controls on annual appropriations. Such movements also call
into question the applicability of the MYA, especially the criteria regarding total costs being
well-defined and unlikely to alter over time.
·
As in the earlier example, an indicative spending profile table (similar to a summary or
impact table) would also be included.
·
In this example there is no need for a Supplementary Estimates and Imprest Supply
recommendation, as there is no impact on the current financial year.
·
As in this example the new policy decision essentially involves the fiscal neutral transfer of
three years’ of annual appropriation into a new three-year multi-year appropriation, a
separate recommendation specifying impact on contingencies is not required. Nor would
there typically be any impact on contingencies if the policy decision included discontinuing
the existing annual appropriation in outyears (despite the resultant positive impact on the
operating balance): changes that result in increased revenue (eg, increased revenue
Crown due to or decreased spending) do not impact on contingencies as a rule (given
contingencies are designed to track spending decisions) – though Cabinet may by
exception agree that such an increase will result in more resource being available for
spending (ie, increase a contingency).
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 49
Annex D: Financial Recommendations for
Multi-class Output Expense Appropriations
(MCOAs)
Section 7(3)(b) of the Public Finance Act 1989 permits multi-class output expense
appropriations, ie, supplying more than one class of outputs. Any MCOAs must be approved
by the Minister of Finance, and the information supporting the Estimates must include an
explanation of why the various classes of outputs have been grouped under the one
appropriation. MCOAs may be either departmental or non-departmental.
This provision permits the Crown to reallocate resources between classes of outputs within an
MCOA without the need to seek further Parliamentary approval. This in turn allows more
flexibility in resource allocation decisions and, where a range of outputs contribute to an
outcome, permits a greater focus on outcomes. Full transparency is maintained by providing
Parliament with information on each of the individual output classes, both at the tabling of the
Estimates and supporting information and when reporting actual results against ex ante
authorisations.
This annex outlines the form of financial recommendations required to give effect to:
·
Establishing a new MCOA
·
Adding or removing output expenses to/from an MCOA
·
Fiscally Neutral Transfers to/from an MCOA
·
Fiscally Neutral Transfers within an MCOA
Cabinet requirements around application and establishment criteria for MCOAs are set out in
EXG Min (07) 1/1 and CAB Min (12) 16/10. Note that CAB Min (12) 16/10 removes two
restrictions in EXG Min (07) 11 which previously applied, as follows:
Previous Restriction
New Rule (effective 1 July 2012)
Cabinet agreement required to establish an MCOA
in excess of $50 million
Where a Minister and their department seek to
establish an MCOA, regardless of the total
amount, they require the approval of the Minister
of Finance only
Only 10 per cent of the output class able to be
transferred between output classes without joint
Ministerial approval
The Minister responsible for the MCOA is able to
transfer between output classes without joint
Ministerial approval, unless there are conditions
for transfers imposed by the Minister of Finance or
as arranged between the Minister responsible for
the MCOA and other Ministers
50 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 17 – Establishing a New MCOA
This example demonstrates the requirements for establishing a departmental MCOA with
three classes of outputs – two to be funded from transfers from existing departmental output
expense appropriations and one requiring new funding. For simplicity, all of the line items are
assumed to be the responsibility of a single Portfolio Minister and within the same Vote.
1 note that the Minister of Finance has agreed the establishment of a new Departmental
Multi-class Output Expense appropriation “Name1” in Vote Name;
2
agree that the scope of the appropriation be as follows:
Departmental Output Class Name
Output Class Name1
Scope Statement
This output class is limited to ...
Output Class Name2
This output class is limited to ...
Output Class Name3
This output class is limited to ...
3 approve the following changes to appropriations to provide for the new Multi-class
Output Expense appropriation, with a corresponding impact on the operating balance:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Multi-class Output
Expense:
Name1 MCOA
Output Class Name1
(funded by revenue Crown)
Output Class Name 2
(funded by revenue Crown)
Output Class Name 3
(funded by revenue Crown)
Total Multi-class output expense
appropriation: Name1 MCOA
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Departmental Output Expense:
Output Expense Name 2
(funded by revenue Crown)
Total Operating
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.500
0.500
0.750
0.750
0.750
0.100
0.100
0.100
0.150
0.150
0.050
0.100
0.150
0.200
0.200
0.650
0.700
1.000
1.100
1.100
(0.500)
(0.500)
(0.750)
(0.750)
(0.750)
(0.100)
(0.100)
(0.100)
(0.150)
(0.150)
0.050
0.100
0.150
0.200
0.200
4 agree that the Minister of Portfolio and the Minister of Finance must approve any
movement of funds between output classes in the above multi-class output expense
appropriation if/where [specify condition(s)];
agree that the proposed changes to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increase be met from Imprest
Supply
5
agree that that the expenses incurred under recommendation 3 above be a charge
against the between-Budget operating contingency, established as part of Budget 2012.
6
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 51
Points to Note:
·
As there is no impact on debt (MCOAs relate to outputs), references to debt/net assets
have been collapsed in the recommendation containing the impact statement and the
recommendation relating to Supplementary Estimates and Imprest Supply, respectively.
·
The suffix “MCOA” is included after the title of the multi-class output expense appropriation
(in this case “Name1”) to signify that it is this type of appropriation.
·
Section 9(2)(a) of the Public Finance Act 1989 provides that the scope of a multi-class
output expense appropriation is the scope of each of the individual classes of outputs
included in that appropriation. Hence in recommendation 2 it is the scope of each of the
individual output classes that need to be agreed.
·
Recommendation 4 is only required where the Minister of Finance and Minister responsible
for the appropriation jointly set conditions or limits on the amount that can be transferred
between the output classes of the MCOA. Situations where joint Ministers may wish to set
(or amend) conditions include:
·
Where the MCOA includes important output classes which need to be protected from full
reprioritisation
·
Where the MCOA is relatively large and so greater transparency around transfers between
the output classes is desirable
·
Where the MCOA involves output classes corresponding to different portfolios, and thus
the Minister responsible for the appropriation needs to consult and coordinate with the
other relevant portfolio Ministers.
·
The changes to appropriation table in recommendation 3 lists the relevant output classes
of the new MCOA, followed by the existing output class appropriations that are being
reduced to fund (in part) the MCOA. The effect of this is to disestablish the old output
expense appropriations and then recreate them as output classes within the MCOA.
·
This approach is consistent with the procedural steps required to create new lines for an
MCOA in CFISnet.
·
In this example, it is assumed that the new policy decision involves spending which
impacts on the between-Budget operating contingency. If the impact is on a “tagged”
contingency, then the text should be changed to read “...be a charge against the [name of
“tagged’ contingency]...”.
·
Where all other decisions around the MCOA are being taken by joint Ministers, Minister of
Finance agreement to establish the MCOA can be built in to the financial
recommendations, so as to avoid the need for a two-step process. In the above example
this could be facilitated be changing recommendation 1 to an “agree / disagree”
recommendation for Minister of Finance signature. Note that in such an instance it would
be useful to include a preceding, noting recommendation explaining why the various
classes of outputs are being grouped under the one appropriation.
52 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 18 – Fiscally Neutral Transfer to or from an
MCOA
The following form of recommendation should be used where there is an increase to an
existing MCOA provided for through a transfer of funding from elsewhere within the Vote or
from a different Vote. [For a fiscally neutral transfer out of the MCOA, this form of
recommendation would simply be reversed.]
1
approve the following fiscally neutral adjustments to fund Output Class Name 1 within
Departmental Multi-class Output Expense appropriation “Name 1”, with no impact on the
operating balance:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Departmental Multi-class Output
Expense:
Name 1 MCOA
Output Class Name 1
(funded by revenue Crown)
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.500)
-
-
-
-
0.500
-
-
-
-
2 agree that the proposed changes to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increase be met from Imprest
Supply.
Points to Note:
·
See relevant Points to Note for Example 17 above.
·
“Technical” changes to baselines such as FNAs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 53
Example 19 – Adding an Output Class to an Existing
MCOA
The following form of recommendation should be used where an additional output class is
being added to an existing MCOA. It is assumed that funding is provided from elsewhere
within the Vote.
1 note that the Minister of Finance has agreed that a new Output Class “Output Class
Name 4” be added to the Multi-class Output Expense appropriation “Name 1” in Vote
Name, in order to [state rationale];
2 agree that the scope of the Multi-class Output Expense appropriation “Name1” be
extended as follows:
Departmental Output Class Name
Output Class Name4
Scope Statement
This output class is limited to ...
3 approve the following changes to appropriations, with no impact on the operating
balance:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Multi-class Output
Expense:
Name 1 MCOA
Output Class Name 4
(funded by revenue Crown)
Departmental Output Expense:
Output Expense Name 2
(funded by revenue Crown)
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.050
0.100
0.100
0.100
0.100
(0.050)
(0.100)
(0.100)
(0.100)
(0.100)
4 agree that the Minister of Portfolio and the Minister of Finance must approve any
movement of funds between output classes in the above multi-class output expense
appropriation if/where [specify condition(s)];
5 agree that the proposed changes to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increase be met from Imprest
Supply.
Points to Note:
·
See relevant Points to Note for Example 17 above.
·
Section 9(2)(a) of the Public Finance Act 1989 provides that the scope of a multi-class
output expense appropriation is the scope of each of the individual classes of outputs
included in that appropriation. Hence in recommendation 2 it is the scope of the new
output class that needs to be agreed.
·
“Technical” changes to baselines such as FNAs which joint Ministers have delegated
authority from Cabinet under CO (11) 6 to approve do not require a separate
recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
54 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Annex E: Financial Recommendations for
Permanent Legislative Authorities (PLAs)
There is no requirement for Joint Ministers or Cabinet to approve changes in appropriations
where the appropriation already has permanent authority under legislation.
Well-known examples of PLAs include payment of remuneration to members of the judiciary
(authorised under the Judicature Act 1908), remuneration to officers of Parliament (authorised
under various Acts) and Transport non-departmental expenditure dependent on transport
revenue (authorised under the Land Transport Management Act 2003). The Public Finance
Act 1989 also includes a number of PLAs, including GST (authorised under section 6) and
interdepartmental purchase of outputs (authorised under section 20).
In such cases it is sufficient for Cabinet to note the impact of the change that is authorised in
legislation, as in the following two examples.
Example 20 – Changes in Appropriation where
Permanent Legislative Authority Exists
1
note that costs in Area X are expected to increase/decrease as a result of Factor Y;
2 note the following changes to appropriations in accordance with [state relevant section
and title of legislative authority], reflecting the changed costs described in recommendation
1 above, with a corresponding impact on [the operating balance and/or debt]:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Non-departmental Output Expense:
Output Expense Name PLA
2012/13
0.500
2013/14
0.500
2014/15
0.500
2015/16
2016/17 &
Outyears
0.500
0.500
note that the above changes to appropriations for 2012/13 will be reported and
disclosed in the 2012/13 Supplementary Estimates.
3
Points to Note:
·
The use of the ‘noting’ recommendations signals that the changes to appropriations are
being made under permanent legislative authority (ie, do not need further approval).
·
The suffix “PLA” is included after the title of the appropriation (in this case “Output Expense
Name”) to signify that it is this type of appropriation.
·
Separate appropriation tables should be used to distinguish between financial
recommendations relating to appropriations under PLA and annual or other (non-PLA)
appropriations, even where these relate to the same initiative.
·
Given appropriations under PLA have a tendency to increase simply as a result of forecast
changes, any forecast reductions in PLAs may not be used to justify an increase in another
appropriation as a fiscally neutral transfer.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 55
·
As the expense or capital expenditure does not require passage of an Appropriation Bill,
there is no requirement for agreement that funding increases for the current financial year
be met from Imprest Supply.
·
Similarly there is no requirement for agreement that changes for the current financial year
be included in the Supplementary Estimates, though it is appropriate for Cabinet to note
that any such change will be reported and disclosed in the Supplementary Estimates.
·
Financial recommendations noting changes to appropriations or net assets under PLA do
not require a separate recommendation specifying impact on contingencies, as by
definition these are outside Ministers’ control (ie, there is no policy decision involving new
spending).
·
Note that even though joint Ministerial/Cabinet approval is not required, the changes to
baseline still need to be advised to Treasury (usually through the next baseline update
process).
Example 21 – Inter-departmental Purchase of Outputs
Previously, when a department was supplying services paid for by another department, the
supplying department needed to have its own approval from Parliament to incur expenses.
Now the department supplying the services can operate under a permanent legislative
authority under section 20 of the Public Finance Act 1989 to incur expenses up to the level of
revenue earned from the other department. This provision reduces transaction costs where a
number of departments are contributing to the production of the same output, by allowing a
single department to contract with a third party on behalf of a number of departments.
The following form of financial recommendation should be used when changing the baselines
for the supplying agency:
1 note the following Department-to-Department appropriation to provide for the supply of
X services from Department A to Department B, with no impact on the operating balance:
$m – increase/(decrease)
Vote Name (DeptA)
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name DDA
(DeptA)
(funded by revenue department)
2012/13
0.250
2013/14
0.250
2014/15
0.250
2015/16
2016/17 &
Outyears
0.250
0.250
2 note that the above changes to appropriations for 2012/13 will be reported and
disclosed in the 2012/13 Supplementary Estimates.
Points to Note:
·
The use of the ‘noting’ recommendations signals that the changes to appropriations are
being made under permanent legislative authority (ie, do not need further approval).
·
The suffix “DDA” is included after the title of the appropriation (in this case “Output
Expense Name”) to signify that it is this type of appropriation.
56 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
·
Reference to “DeptA” is included (italicised) in the above example to remind readers that it
is DeptA whose appropriations are changing, not DeptB’s. This reference should be
deleted from the appropriation table for the purposes of preparing actual financial
recommendations.
·
As the expense or capital expenditure does not require passage of an Appropriation Bill,
there is no requirement for agreement that funding increases for the current financial year
be met from Imprest Supply.
·
Similarly there is no requirement for agreement that changes for the current financial year
be included in the Supplementary Estimates, though it is appropriate for Cabinet to note
that any such change will be reported and disclosed in the Supplementary Estimates.
·
Financial recommendations noting changes to appropriations or net assets under PLA do
not require a separate recommendation specifying impact on contingencies, as by
definition there is no policy decision involving new spending.
·
Note that even though joint Ministerial/Cabinet approval is not required, the changes to
baseline of the supplying department still need to be advised to Treasury (usually through
the next baseline update process).
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 57
Annex F: Financial Recommendations for
Capital
Departmental capital contributions (injections) are not appropriated by Vote, but rather are
included in departments’ net assets schedules. These are published in the Estimates and
authorised through a Schedule of Net Assets in the Appropriation Bill.
A capital contribution to a department increases the Crown’s net investment in that entity.
Responsibility for departmental capital contributions rests with the Responsible Minister for the
department, even where it is associated with operating funding that is the responsibility of a
different Portfolio Minister.
Rules and expectations relating to new capital investments are set out in CO (10) 2
http://www.dpmc.govt.nz/cabinet/circulars/co10/2. This circular contains information on
decision rights, which affect business case and project assurance requirements.
58 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 22 – Capital Injections to Departments
The following simple example may be used if there are no associated operating funding
implications:
1
agree to X policy;
2 approve the following capital injections to the [Department name] to give effect to the
policy decision in recommendation 1 above, with a corresponding impact on debt:
$m – increase/(decrease)
2012/13
Department Name
Net Asset Schedule of the
[Department name]:
Capital Injection
10.000
2013/14
2.000
2014/15
2015/16
-
2016/17 &
Outyears
-
-
3 note that as a result, the projected net asset position of the [Department name] will
increase by a commensurate amount;
4 agree that the proposed change to the projected balance of net assets for 2012/13 above
be included in the 2012/13 Supplementary Estimates and that, in the interim, the increase be
met from Imprest Supply;
5 agree that the capital expenditure under recommendation 2 above be a charge against
the between-Budget capital contingency, established as part of Budget 2012.
Points to Note:
·
Capital injections to departments are not appropriations and do not form part of a Vote.
Rather, they impact on the net asset schedule of the relevant administering department (or
in other words on the net asset schedule of the Vote of the Responsible Minister for the
department).
·
There is no need to show the funding source for a departmental capital injection, because
only the Crown can supply capital to a department.
·
Cabinet has agreed that departments will be presumed to fund additional charge expenses
due to new capital contributions from existing revenue [CAB Min (10) 41/9 paragraph 4.1.2
refers].
·
In this example, it is assumed that the new policy decision involves spending which
impacts on the between-Budget capital contingency. If the capital spending impacts on a
“tagged” (capital) contingency, then the text should be changed to read “...be a charge
against the [name(s) of “tagged’ contingency]...”. .
·
There is another fiscal impact not recorded here, namely the ‘positive’ impact of the Crown
now receiving capital charge from the department in respect of its increased net assets,
amounting to $0.960 million per annum once the full impact is realised, which the Crown
has not separately funded the department for. This ‘positive’ impact will be picked up by
Treasury as part of its in-year revisions to the Crown’s fiscal forecasts.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 59
Example 23 – Capital Injections to Departments with
Associated Operating Implications
In some instances a capital contribution to a department may involve associated operating
expense increases for items associated with the use and maintenance of capital assets, such as:
·
Ongoing depreciation (on all fixed assets)
·
Allowances for repairs and maintenance (eg, as a result of increasing the size of a vehicle
fleet)
·
Consumables (eg, computer supplies)
·
Capital charge (this will occur whenever the Crown’s net investment in a department
increases – but note that Cabinet has agreed that additional funding for additional capital
charge due to new capital contributions will only be granted on a case-by-case basis, and
that the presumption is that departments will fund additional capital charge expenses from
existing revenue [CAB Min (10) 41/9 paragraph 4.1 refers]).
Where Ministers determine that associated increases in operating costs are unable to be
absorbed fully within existing baselines, the financial recommendations will also need to address
the operating baseline implications – see Example 2 for an illustration of the format used.
The following example demonstrates the recommendations required for an initiative that seeks
both capital and operating funding:
1
agree to X policy;
2 agree to increase expenditure to provide for costs associated with the policy decision in
recommendation 1 above, with the following impacts on the operating balance and debt:
$m – increase/(decrease)
Vote Name
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
Operating Balance Impact
Debt Impact
No Impact
10.000
0.400
2.000
0.880
0.960
0.960
0.960
Total
10.400
2.880
0.960
0.960
0.960
3 approve the following changes to appropriations and net assets to give effect to the
policy decision in recommendation 1 above:
$m – increase/(decrease)
Vote Name
Minister of Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Net Asset Schedule of the
[Department name]:
Capital Injection
Total Operating
Total Capital
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.400
0.880
0.960
0.960
0.960
10.000
2.000
-
-
-
0.400
0.880
0.960
0.960
0.960
10.000
2.000
-
-
-
60 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
4 note that as a result, the projected net asset position of the [Department Name] will
increase by the amount of capital injection;
5 agree that the proposed changes to appropriations and projected balances of net assets
for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the
interim, the increases be met from Imprest Supply;
6 agree that the debt impacts in recommendation 2 above of capital expenditure incurred
under recommendation 3 above be a charge against the between-Budget capital
contingency, established as part of Budget 2012.
Points to Note:
·
Capital injections to departments are not appropriations and do not form part of a Vote.
Rather, they impact on the net asset schedule of the relevant administering department (or
in other words on the net asset schedule of the Vote of the Responsible Minister for the
department).
·
There is no need to show the funding source for a departmental capital injection, because
only the Crown can supply capital to a department.
·
In this example the department is funded for the additional capital charge at 8 per cent of
the expected increase in Taxpayers’ Funds (the prevailing rate as at the time of writing).
The additional operating expense is treated as an output expense. Note though that the
expectation is that departments will absorb capital charge expenses due to new capital
contributions [CAB Min 10) 41/9 paragraph 4.1.2 refers].
·
As the Crown in this example both funds the department for its capital charge expenses
and receives capital charge from the department, there is nil impact on the operating
balance from this ‘money-go-round’.
·
Note though that any other expenses associated with new departmental capital that the
Crown funds (eg, depreciation) will impact on the operating balance.
·
Note that the operating impacts for the financial years in which the capital injections occur
in this example are only half of the full-year (ongoing) impact. This is because capital
charge is paid ex post in two instalments: the first based on a department’s accounts as at
the close of the previous financial year; and the second based on its mid-year accounts for
the current financial year. This means that even if a department receives a capital injection
from the start of a financial year, it is not billed for a first instalment of capital charge, as the
injection is not reflected in its year-end accounts for the previous financial year. However,
by the time of billing for the second instalment the injection will have been included in the
department’s mid-year accounts. It follows that any departmental capital injections
received after 31 December will not incur any capital charge for the current financial year.
·
In this example, it is assumed that the new policy decision involves spending which
impacts on the between-Budget capital contingency. If the capital spending impacts on a
“tagged” (capital) contingency, then the text should be changed to read “...be a charge
against the [name(s) of “tagged’ contingency]...”. .
·
It is possible for the impact on debt to be less than the amount of the capital injection, eg, if
the decision relates to transfers of functions between agencies and involves a partial (or
full) offset.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 61
Example 24 – Non-departmental Capital Expenditure
Non-departmental capital contributions generally relate to investments or advances where the
Crown has a subsequent equity interest or where the amount advanced is recoverable. These
types of payments include equity injections into Crown entities and Student Loans.
If the amount advanced is not recoverable (eg, a seeding grant to an organisation), then it is
essentially a grant and should be treated as a non-departmental other expense.
The standard tabular formal for financial recommendations is used.
1. agree to X policy;
2. approve the following changes to appropriations to give effect to the policy decision in
recommendation 1 above, with a corresponding impact on debt:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Non-departmental Capital
Expenditure:
Capital Expenditure Name
2012/13
0.500
2013/14
0.500
2014/15
2015/16
-
2016/17 &
Outyears
-
-
3. agree that the proposed change to appropriations for 2012/13 above be included in the
2012/13 Supplementary Estimates and that, in the interim, the increase be met from
Imprest Supply;
4. agree that the capital expenditure under recommendation 2 above be a charge against
the between-Budget capital contingency, established as part of Budget 2012.
Points to Note:
·
Unlike departmental capital injections, which are not appropriated but rather impact on the
net asset schedule of the relevant administering Department, non-departmental capital
expenditure is appropriated.
·
Even though capital expenditure usually results in the Crown acquiring an asset, it is
counted as impacting on debt from a fiscal management perspective as the Crown has to
borrow in order to fund the activity.
·
The name of individual line item is usually simply the name of the recipient organisation or
type of payment being made (eg, National War Memorial, Student Loans).
·
In this example, it is assumed that the new policy decision involves spending which
impacts on the between-Budget capital contingency. If the capital spending impacts on a
“tagged” (capital) contingency, then the text should be changed to read “...be a charge
against the [name(s) of “tagged’ contingency]...”. .
62 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Annex G: Capital and Operating Swaps and
Voluntary Capital Withdrawals
CO (11) 6 allows for fiscally neutral adjustments (or “swaps”) between capital and operating
appropriations.
Swaps between capital and operating are used to reflect a particular business decision by a
department (eg, leasing rather than owning an asset, or vice-versa, for the purposes of
producing an output) or an accounting requirement (eg, to expense or capitalise a particular
item).
Departments should discuss potential swaps between capital and operating with their Treasury
Vote Team in advance, as there may be associated policy issues (eg, a change in the mix of
activities) that will be of interest to joint Ministers or Cabinet.
The following rules apply:
·
Any resulting changes in depreciation and capital charge costs should be managed within
baselines.
·
For capital to operating, the total sum of capital must cover ten years’ of the proposed
operating expenses in order for the operating increase to continue into outyears.
·
For operating to capital, up to four years’ of operating expenses (the forecast period) may
be converted into a single lump sum of capital, but the ongoing operating funding for
outyears is removed.
The latter two rules reflect the government’s fiscal management approach for capital (ten-year
horizon) and operating (four-year, or ‘forecast period’ horizon), respectively.
Cabinet has agreed that departments’ baselines are not adjusted downwards if they voluntarily
decrease their total net assets (eg, by returning surplus cash to the centre) unless the
decrease is due to a capital to operating swap [CAB Min (10) 41/9 paragraph 4.2 refers].
Whereas capital to operating swaps are used to reflect a particular business decision by a
department (eg, leasing rather than owning an asset for the purposes of producing an output)
or an accounting requirement (eg, to expense a particular item), voluntary capital withdrawals
are used in situations where a department has surplus capital that is not used in the
production of an output. If the department did not get to ‘keep’ the associated capital charge,
there would be no incentive for it to return (and so free up) the capital.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 63
Example 25 – Operating to Capital Swaps within a
Single Financial Year
Consider an operating to capital swap of $0.100 million within a single Vote/department and
within a single financial year:
1 agree to the following operating to capital swap to provide for X, with the following
impacts on the operating balance and debt:
$m – increase/(decrease)
Vote Name
Operating Balance Impact
Debt Impact
No Impact
2012/13
2014/15
2015/16
2016/17 &
Outyears
(100)
100
-
-
-
-
-
-
-
-
-
-
Total
2
2013/14
approve the following changes to appropriations and net assets:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Net Asset Schedule of the
[Department name]:
Capital Injection
Total Operating
Total Capital
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
(0.100)
-
-
-
-
0.100
-
-
-
-
(0.100)
-
-
-
-
0.100
-
-
-
-
3 note that as a result, the projected net asset position of the [Department name] will
increase by the amount of capital injection;
agree that the proposed changes to appropriations and projected balances of net assets
for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the
interim, the increase be met from Imprest Supply.
4
Points to Note:
·
For operating to capital swaps, consequential capital charge and any depreciation
expenses will have to be absorbed within existing Vote baselines. In practice this suggests
that any operating to capital swaps will realistically only be for relatively small amounts.
·
While neither the operating nor debt impacts are nil, they offset each other so (in cash
terms) the overall (or “total”) impact is nil.
·
“Technical” changes to baselines such as capital and operating swaps which joint Ministers
have delegated authority from Cabinet under CO (11) 6 to approve do not require a
64 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
separate recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
·
There is another fiscal impact not recorded here, namely the ‘positive’ impact of the Crown
now receiving capital charge from the department in respect of its increased net assets,
amounting to $0.008 million per annum (or $0.004 million in the initial year, if the swap
occurs in the second half of that year, reflecting the fact that the department would only be
invoiced for one instalment of capital charge relating to the $0.100 million of capital for that
year). This ‘positive’ impact will be picked up by Treasury as part of its in-year revisions to
the Crown’s fiscal forecasts.
Example 26 – Capital to Operating Swaps within a
Single Financial Year
Consider a capital to operating to capital swap of $0.100 million within a single
Vote/department and within a single financial year:
1 agree to the following capital to operating swap to provide for X, with the following
impacts on the operating balance and debt:
$m – increase/(decrease)
Vote Name
Operating Balance Impact
Debt Impact
No Impact
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
100
(100)
-
-
-
-
-
-
-
-
-
-
Total
2 note that Cabinet has agreed that, where a decrease in net assets is due to a capital to
operating swap, departments’ baselines are to be adjusted downwards by the amount of the
associated capital charge [CAB Min (10) 41/9 refers];
3 approve the following changes to appropriations and net assets, reflecting the baseline
adjustment in recommendation 2 above:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Net Asset Schedule of the
[Department name]:
Capital Withdrawal
Total Operating
Total Capital
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.092
(0.008)
(0.008)
(0.008
(0.008)
(0.100)
-
-
-
-
0.092
(0.008)
(0.008)
(0.008)
(0.008)
(0.100)
-
-
-
-
4 note that as a result, the projected net asset position of the [Department name] will
reduce by the amount of capital withdrawal;
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 65
agree that the proposed changes to appropriations and projected balances of net assets
for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the
interim, the increase be met from Imprest Supply.
5
Points to Note:
·
Cabinet has agreed that departments’ baselines are to be adjusted downwards for
associated capital charge where a decrease in net assets is due to a capital to operating
swap [CAB Min (10) 41/9 paragraph 4.2 refers].
·
In this example the departmental output expense is increased by $0.092 million in
2012/13, which is less than the $0.100 million of capital it has ‘swapped’. This reflects
associated capital charge (which, at the current rate of 8 per cent, equates to $0.008
million) having been backed out, consistent with Cabinet policy described above. [Note:
departments are invoiced for capital charge half-yearly, and in arrears. This example
assumes that the swap is occurring in the first half of the fiscal year, at which point the
department will not have been invoiced for any of the capital charge relating to the $0.100
million of capital for that year. If, however, the swap occurred in the second half of the
fiscal year, the increase would be $0.096 million rather than $0.092 million, reflecting the
fact that the department would by then already have been invoiced for half of the capital
charge relating to the $0.100 million of capital for that year.]
·
However, given the department’s capital charge bill is now $0.008m less (or $0.004 million
less – see note above) as a result of the reduction in net assets, in practice it has an
additional $0.100 million available within the departmental output expense appropriation in
that year to spend on other operating activities.
·
While neither the operating nor debt impacts are nil, they offset each other so (in cash
terms) the overall (or “total”) impact is nil.
·
“Technical” changes to baselines such as capital and operating swaps which joint Ministers
have delegated authority from Cabinet under CO (11) 6 to approve do not require a
separate recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
66 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Example 27 – Operating to Capital Swaps where
Reductions in Operating Expenses are Ongoing
Consider an operating to capital swap of $1.000 million within a single Vote/department where
the total sum of capital is sourced by reducing operating over four years:
1 agree to the following capital to operating swap to provide for X, with the following
impacts on the operating balance and debt:
$m – increase/(decrease)
Vote Name
Operating Balance Impact
Debt Impact
No Impact
2012/13
2014/15
2015/16
2016/17 &
Outyears
(0.250)
1.000
-
(0.250)
-
(0.250)
-
(0.250)
-
(0.250)
-
-
-
-
-
-
Total
2
2013/14
approve the following changes to appropriations and net assets:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Net Asset Schedule of the
[Department name]:
Capital Injection
Total Operating
Total Capital
2012/13
(0.250)
2013/14
2014/15
(0.250)
2015/16
(0.250)
2016/17 &
Outyears
(0.250)
(0.250)
1.000
-
-
-
-
(0.250)
(0.250)
(0.250)
(0.250)
(0.250)
1.000
-
-
-
-
3 note that as a result, the projected net asset position of the [Department name] will
increase by the amount of capital injection;
agree that the proposed changes to appropriations and projected balances of net assets
for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the
interim, the increase be met from Imprest Supply.
4
Points to Note:
·
In this example the departmental output expense is decreased by $0.250 million per
annum across four years of the forecast period, and operating funding into outyears is also
reduced by this amount (refer to the third of the rules above).
·
For operating to capital swaps, consequential capital charge and any depreciation
expenses will have to be absorbed within existing Vote baselines. In practice this suggests
that any operating to capital swaps will realistically only be for relatively small amounts.
·
While neither the operating nor debt impacts are nil, they offset each other so (in cash
terms) the overall (or “total”) impact is nil.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 67
·
“Technical” changes to baselines such as capital and operating swaps which joint Ministers
have delegated authority from Cabinet under CO (11) 6 to approve do not require a
separate recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
·
There is another fiscal impact not recorded here, namely the ‘positive’ impact of the Crown
now receiving capital charge from the department in respect of its increased net assets,
amounting to $0.080 million per annum (or $0.040 million in the initial year, if the swap
occurs in the second half of that year, reflecting the fact that the department would only be
invoiced for one instalment of capital charge relating to the $1.000 million of capital for that
year). This ‘positive’ impact will be picked up by Treasury as part of its in-year revisions to
the Crown’s fiscal forecasts.
Example 28 – Capital to Operating Swaps where
Increases in Operating Expenses are Ongoing
Consider a capital to operating to capital swap of $1.000 million within a single
Vote/department and where the increase in operating is to be ongoing:
1 agree to the following capital to operating swap to provide for X, with the following
impacts on the operating balance and debt:
$m – increase/(decrease)
Vote Name
Operating Balance Impact
Debt Impact
No Impact
2012/13
2013/14
2014/15
2015/16
2016/17 &
Outyears
0.100
(1.000)
-
0.100
-
0.100
-
0.100
-
0.100
-
-
-
-
-
-
Total
2 note that Cabinet has agreed that, where a decrease in net assets is due to a capital to
operating swap, departments’ baselines are to be adjusted downwards by the amount of the
associated capital charge [CAB Min (10) 41/9 refers];
3 approve the following changes to appropriations and net assets, reflecting the baseline
adjustment in recommendation 2 above:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Departmental Output Expense:
Output Expense Name1
(funded by revenue Crown)
Net Asset Schedule of the
[Department name]:
Capital Withdrawal
2012/13
2014/15
2015/16
2016/17 &
Outyears
0.020
0.020
0.020
0.020
0.020
(1.000)
-
-
-
-
-
-
-
-
-
-
-
-
Total Operating
Total Capital
2013/14
(1.000)
68 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
4 note that as a result, the projected net asset position of the [Department name] will
reduce by the amount of capital withdrawal;
5 agree that the proposed changes to appropriations and projected balances of net assets
for 2012/13 above be included in the 2012/13 Supplementary Estimates and that, in the
interim, the increase be met from Imprest Supply.
Points to Note:
·
Cabinet has agreed that departments’ baselines are to be adjusted downwards for
associated capital charge where a decrease in net assets is due to a capital to operating
swap [CAB Min (10) 41/9 paragraph 4.2 refers].
·
In this example the departmental output expense is increased by $0.020 million per
annum, which is significantly less than one tenth of the $1.000 million it has “swapped”
(refer to the second of the rules above). This reflects associated capital charge (which, at
the current rate of 8 per cent, equates to $0.080 million) having been backed out,
consistent with Cabinet policy described above. [Note: departments are invoiced for
capital charge half-yearly, and in arrears. The above example assumes that the swap is
occurring in the first half of the fiscal year, at which point the department will not have been
invoiced for any of the capital charge relating to the $1.000 million of capital for that year.
If, however, the swap occurred in the second half of the fiscal year, the increase would be
$0.060 million rather than $0.020 million in that initial year, reflecting the fact that the
department would by then already have been invoiced for half of the capital charge relating
to the $1.000 million of capital for that year.]
·
However, given the department’s capital charge bill is now $0.080m less per annum (or
$0.040 million less in the initial year – see note above) as a result of the reduction in net
assets, in practice it has an additional $0.100 million per annum (ie, the full one-tenth)
available within the departmental output expense appropriation to spend on other
operating activities.
·
While neither the operating nor debt impacts are nil, they offset each other so (in cash
terms) the overall (or “total”) impact is nil.
·
“Technical” changes to baselines such as capital and operating swaps which joint Ministers
have delegated authority from Cabinet under CO (11) 6 to approve do not require a
separate recommendation specifying impact on contingencies, as by definition they are not
associated with policy decisions involving new spending.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 69
Example 29 – Voluntary Capital Withdrawals
Consider a request for a department to make a one-off voluntary capital withdrawal of $0.100
million:
1
note that [Department name] has surplus capital arising from X circumstance;
2 approve the following capital withdrawal from the [Department name], reflecting the
circumstance described in recommendation 1 above, with a corresponding impact on debt:
$m – increase/(decrease)
Vote Name
Minister of/for Portfolio
Net Asset Schedule of the
[Department name]:
Capital Withdrawal
2012/13
(0.100)
2013/14
2014/15
-
2015/16
-
2016/17 &
Outyears
-
-
3 note that as a result, the projected net asset position of the [Department name] will
reduce by the amount of capital withdrawal;
agree that the proposed change to projected balances of net assets for 2012/13 above be
included in the 2012/13 Supplementary Estimates.
4
Points to Note:
·
Unlike in example 26 above (capital to operating swap within a single financial year), the
department’s baselines are not adjusted downwards for associated capital charge [CAB
Min (10) 41/9 paragraph 4.2 refers].
·
Given the department’s capital charge bill is now $0.008m per annum less as a result of
the reduction in net assets (or $0.004m less in the initial fiscal year if the voluntary capital
withdrawal occurs in the second half of that year, at which point the department will already
have been invoiced for the first of two annual instalments for capital charge), in practice it
has an additional $0.008 million per annum available within the departmental output
expense appropriation to spend on other operating activities. This ability to ‘free up’
operating expenditure acts as an incentive for departments to manage their balance
sheets effectively.
·
As there are no additional expenses being incurred, there is no requirement for an Imprest
Supply recommendation.
·
There is another fiscal impact not recorded here, namely the ‘adverse’ impact of the Crown
now no longer receiving capital charge from the department in respect of the latter’s
reduced net assets, amounting to $0.008 million per annum (or $0.004 million in the initial
year and $0.008 million per annum thereafter). This ‘adverse’ impact will be picked up by
Treasury as part of its in-year revisions to the Crown’s fiscal forecasts.
70 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
Annex H: Financial Recommendations for
Retention of Departmental Operating
Surplus
Section 22(1) of the Public Finance Act 1989 provides that “except as agreed between the
Minister [of Finance] and the Responsible Minister for a department, the department must not
retain any operating surplus that results from its activities”.
Payment of surpluses is to be made by 31 October following the end of the financial year.
On occasions a department may wish to seek approval to retain some or all any operating
surplus that results from its activities, eg, in order to recognise a donated asset. Any
department seeking such approval will need to discuss this with their Vote Analyst and explain
why this approach is more appropriate than seeking a capital injection.
Requests to retain surpluses should be made by the relevant Responsible Minister in writing to
the Minister of Finance.
More information on the process for return or request for retention of operating surplus can be
found in the Treasury Instructions at
http://www.treasury.govt.nz/publications/guidance/instructions/2012/18.htm.
Example 30 – Requests for Retention of Surplus
The following simple financial recommendation format should be used for requests for
retention of operating surpluses:
1
agree to [Department Name] retaining operating surplus for X purpose;
2 approve the following increase in the [Department Name’s] net assets to give effect to
the decision in recommendation 1 above, with no impact on debt:
$m – increase/(decrease)
2012/13
Department Name
Net Asset Schedule of the
[Department name]:
0.400
2013/14
2014/15
-
2015/16
-
2016/17 &
Outyears
-
-
3 agree that the proposed change to projected balances of net assets for 2012/13 above be
included in the 2012/13 Supplementary Estimates and that, in the interim, the increase be
met from Imprest Supply.
Points to Note:
·
Unlike a capital injection to a department, retention of surplus by a department does not
impact on debt.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 71
Annex I: Departmental Other Expenses
Section 2 of the Public Finance Act 1989 defines other expenses as:
“any expenses incurred by the Crown, a department, or an Office of Parliament that are
other than–
a output expenses; or
b benefits or other unrequited expenses; or
c borrowing expenses ”
Departmental other expenses are costs incurred by departments that are not related to the
production of outputs. These are relatively uncommon: generally all costs that are incurred in
the normal course of a department’s business, even where unusual, unexpected or large, are
output costs.
Departmental other expenses may include:
·
restructuring costs, where these relate to decisions to cease production of certain outputs
·
loss on disposal of assets, where this arises from decisions by the government to cease
producing certain outputs
·
expenses associated with writing off or making good damage to assets, and/or reestablishing departmental operations following a natural disaster
·
asset devaluation expenses, where these relate to non-output assets.
While an appropriation for departmental other expenses provides the necessary authority for
the department to incur the expense, it does not provide revenue to fund the cost. This
normally gives rise to a deficit, resulting in a reduction in taxpayers’ funds.
Departmental other expenses are often technical in nature and not associated with cash flows,
eg, losses on disposal of fixed assets, but there may be associated cash flows in some
instances, eg, for payment of redundancy entitlements as a result of restructuring. While the
issue of funding of the expense – that is to say reinstatement of taxpayers’ funds – is a
separate issue that needs to be worked through, where applicable (eg, because insufficient
balance sheet funding is available) it should be facilitated through a capital contribution to the
department.
Note that any cash implications associated with making good damage to assets and/or reestablishing departmental operations following a natural disaster should be met from the
department’s balance sheet in the first instance, ahead of any subsequent reimbursement
from insurance proceeds, where applicable.
Any request for additional Crown funding needs to be assessed independently against the
normal criteria as set out in Cabinet Office circulars and other guidance issued by Treasury
from time to time for these types of requests. Note that there is no automatic presumption that
the previous level of resources remains appropriate for any given department; for example,
where assets are being written down to reflect decisions to cease production of some outputs,
it may be quite acceptable for taxpayers’ funds to reduce to reflect a lower demand for balance
sheet support of the remaining output functions.
72 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments
More information on departmental other expenses can be found in the Treasury Instructions at
http://www.treasury.govt.nz/publications/guidance/instructions/2012/29.htm.
Restructuring costs
Restructuring costs should be treated as departmental other expenses only where they relate
to an explicit government decision for a department to cease producing (or being responsible
for producing) certain outputs. Minor adjustments to staffing numbers or alterations to the
resource mix used to produce an output (eg, contracting out versus in-house production) do
not constitute sufficient grounds for treating associated costs as other expenses.
All restructuring costs, whether output costs, other expenses or both, must be recognised
through a provision when a liability for the costs arises. In most cases this will be when a final
decision to restructure is made. The provision should reflect the total costs of the
restructuring, irrespective of when it is to take effect or actual payments are to be made. An
appropriation for the expense will be required immediately upon recognition of the liability (ie,
when it is provided for).
Loss on disposal of assets
Losses arising from the disposal of standard fixed assets (eg, office equipment, fleet vehicles,
etc.) would normally be treated as an output cost, to the extent the cost arises from the normal
replacement or upgrade of fixed assets.
So for example, where assets become surplus because the manner in which existing outputs
are produced changes (eg, due to relocation of offices, switching to leasing rather than
purchasing computer equipment), any loss on disposal should be treated as an output cost;
this is because the method of producing the outputs on an ongoing basis is an input mix
decision by the department, and not a purchasing decision by the Minister or Ministers.
However, when the department ceases production of the outputs associated with those
assets, eg, as a result of restructuring decision by government, then any losses arising from
the disposal of the surplus assets should be treated as another expense.
Expenses associated with writing off or making good damage to assets,
and/or re-establishing departmental operations following a natural disaster
Expenses incurred by a department in making good assets and/or re-establishing operations
following a natural disaster (eg, as was necessary for a number of departments following the
Canterbury earthquakes) are treated as other expenses and so require appropriation. Any
associated costs will usually be met in full by insurance proceeds received by the department.
However, where the assets and/or activities are not covered by insurance, or the insurance
proceeds do not meet total costs, the department may need to reprioritise its capital intentions
to manage within its existing balance sheet.
Write-offs of departmental assets following a natural disaster, even though non-cash items,
involve an expense and so require appropriation.
Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments | 73
Asset devaluation expenses
Expenses related to the devaluation of departmental assets are generally regarded as output
costs, because the assets are normally used for the production of outputs. Revaluation
exercises should be undertaken by departments in sufficient time to allow final appropriations
for the year to be determined.
Expenses arising from devaluation of assets where there are insufficient revaluation reserves
should be treated as other expenses only where the assets concerned are not used in the
production of outputs or where the valuation change is considered extraordinary.
The burden of proof for demonstrating that asset devaluation expenses relate to non-output
assets – and should therefore be treated as other expenses – rests with departments. When
addressing issues of revaluation or devaluation of assets, departments must have regard to
the requirements of NZIFRS and other relevant accounting standards.
74 | Writing Financial Recommendations for Cabinet and Joint Minister Papers: Technical Guide for Departments