17 May 2024

Review finds big increase in multi-year government spends, use not always justified

11:09 am on 17 May 2024
The Beehive in the evening in Central Wellington

Photo: RNZ / Cole Eastham-Farrelly

The Office of the Auditor-General has asked government departments and the Treasury to review the use of multi-year appropriations after it found that they are not always justified.

A report into the appropriations, released ahead of the Budget later this month, has found a significant increase in the use of the appropriations.

"In our view, any device which loosens Parliament's control of the public purse should be used carefully," the report stated.

Ordinarily, appropriations (an authorisation for the government to spend money) are provided one year at a time. These are approved each year through the Budget and authorised when Parliament passes the Budget into law.

Multi-year appropriations (MYAs), however, can cover spending over a period of time no longer than five years.

They give flexibility for spending as departments do not have to seek authority every year. That is useful when the total costs are well-defined, but the timing of the spending or its patterns are uncertain (for example, large construction projects, or emergency responses to climate change events or pandemics).

Health is a prominent example of MYAs, with the previous government granting $1.4b to build the new Dunedin hospital between 2021 and 2026, and a $5.4b appropriation between 2022 to 2027 for the provision or purchase of assets or investments.

Pharmac was also given a two-year $191m MYA in 2022 in order to line it up with health budgets.

The auditor-general has said MYAs gave Parliament less control of the public purse and were subject to less scrutiny than the one-year appropriations.

Accordingly, Treasury has said MYAs should be used sparingly, and not when an annual appropriation should be used instead.

However, the auditor-general's report found that MYAs were being used for the sorts of spending expected to be covered by annual appropriations.

"In our view, decisions to use MYAs should not be made lightly, and MYAs should be authorised only when justified," the report said.

Artist's impression of the new Dunedin Hospital from Te Whatu Ora website

A $1.4 billion multi-year appropriation was approved to build the new Dunedin hospital between 2021 and 2026. Photo: Supplied / Te Whatu Ora

MYAs were initially established in the 1994/95 financial year to provide for the following five years of Treaty of Waitangi settlement claims, but their use has become much more common in recent years.

By Budget 2008, there were 20 MYAs. In 2022/23, there were 167.

They rose from 7 percent to 19 percent of all appropriations over the last eight years.

The auditor-general said the increase risked lessening the level of Parliamentary control and scrutiny over the government's spending plans.

The report did not examine the 167 MYAs to determine what they covered, or why the number had increased by so much.

It did, however, find there had been examples where MYAs were used to authorise spending on policy advice or other activities that annual appropriations were supposed to cover, within Finance, Pacific Peoples, and Arts, Culture, and Heritage. Treasury is now reviewing their use.

MYAs created as part of the Budget process are included within that Budget's Appropriation Act.

But provision is sometimes available to ministers and departments to amend appropriations. This allows the government to spend money until the next Budget is passed.

In this case, Cabinet would need to approve the use of imprest supply (an interim authority which allows the government to incur expenditure ahead of Budget appropriation), for Parliament to then authorise.

The Auditor-General found these risked not being subjected to the same level of scrutiny that authorisations included in the Budget were (as they went through a Supplementary Estimates examination rather than the standard select committee examination).

The report found that there had been an increase in the number of MYAs established in this way - about four to five times as many in the last five years compared to the previous five years.

"Parliament's control of the public purse rests not only on its power to pass legislation to authorise spending but also on its opportunity to adequately examine the government's spending proposals before passing the legislation," the report said.

It said it was preferable to avoid asking Parliament to authorise large amounts of spending covering several years between Budgets, and that there should be sufficient controls over establishing and monitoring MYAs.

"We consider it timely for government departments and the Treasury, as part of their Budget process, to review the use of MYAs and confirm that this mechanism for providing flexibility in public spending is being used appropriately," the report said.

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