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International Journal on Governmental Financial Management – 2008 91
TOWARDS A GENERICMODEL FOR GOVERNMENTSECTOR REFORM: THENEW ZEALAND EXPERIENCE
Dr. Hassan A. G. Ouda Ph.D, M.Sc.Consultant and Expert in Government SectorAccounting and Budgeting Reforme-mail: ouda@eurnet.nl / hassanouda@hotmail.com
Introduction
The past two decades have witnessed a metamorphosis in the government sector of severalcountries. One particular reform approach has been adopted by such countries as NewZealand, UK, Australia, the Netherlands, Sweden, Finland, Canada, USA, etc. Aconsiderable body of studies have been conducted with the aim of modeling thegovernment accounting innovations of these countries (Luder, 1992, 1994, 2001, Jarugaand Nowak, 1996, Godfrey et al, 2001, Christensen, 2002 and Ouda 2001, 2004 and 2005).Other studies have tried to model the totality of their public sector management reform(Pollit and Bouckaert, 2000). Whilst these studies have attempted to model somecomponents of this type of government sector reform, no study has tried to model thesegovernment sector reforms from a generic perspective and to give a comprehensive pictureof the whole spectrum of this type of government sector reform. This study will attempt tofill this gap in the literature by developing a generic model for government sector reform based on (1) a profound study of the practical experience of New Zealand as a pathfinder country in respect of the comprehensive government sector reform and (2) on the BasicRequirements Model (BRM) for Successful Implementation of Accrual Accounting in thePublic Sector (Ouda, 2001, 2004 & 2005) which can assist in determining the basicrequirements for success with this approach to government sector reform.The New Zealand experience has been chosen to assist in developing the generic model of government sector reform for several reasons.
 Firstly
, in the 1980’s, governments of NewZealand undertook sweeping reforms of social and economic policies and of thegovernment sector reform.
Secondly
, this country applied bold ideas and cutting edgetheories to undertake that reform. For instance, the treasury played a key role in developinga theoretical framework for public service reforms, making extensive use of economic andmanagement theory. Six theoretical elements have been identified: agency theory; publicchoice; contracting; finance; accounting; and management. The treasury articulated the
 
92 International Journal on Governmental Financial Management – 2008
 policy implications of the theories at appropriate moments in the genesis andimplementation of reform (Holmes 2002). This allowed coherent and consistent solutionsto problems in government sector management to be put forward as the government dealtwith the economic crisis and undertook major economic and social change.
Thirdly
, therewere specific circumstances underlying the reform such as: adverse economic conditionsthat made continuation of the status quo untenable, accommodating political arrangementsthat facilitated swift change, and novel economic and management concepts thatencouraged political and bureaucratic leaders to prescribe new practices without testingthem in advance.
 Finally
, Schick (2001) states that this convergence of economic stressand perceived failure in government performance, new political capacity and excitingtheories was unique to New Zealand which is why it alone has transformed the state sector so comprehensively.The reform of the New Zealand system of government management included the followingelements:
•
separating commercial from non-commercial activities and constituting State-OwnedEnterprises (SOEs) to carry on commercially oriented activities;
•
 privatization of those state-owned enterprises in commercially competitive markets;
•
strengthening line of the ministerial and executive accountability;
•
designing budget and financial management systems to improve measurement of government sector performance;This last reform included:
•
shifting from an input to an output-based budgeting system;
•
changing from a cash based to an accrual based accounting system; and
•
creating different forms of appropriations for different types of government activities.Thus, the New Zealand experience will assist in giving a generic picture with respect to thecomponents of this approach to government sector reform which has been adopted by anumber of other counties. In addition, the Basic Requirements Model (BRM) for successful implementation of accrual accounting in the public sector will be used tospecify the basic requirements that are needed if this approach to government sector reformis adopted. Accordingly, the intention here is to provide an overview of the governmentsector reform initiatives in New Zealand and of the Ouda’s Basic Requirements Model(BRM). Based on the practical experience of New Zealand and the BRM, the genericmodel for government sector reform will be developed. Therefore, this paper:
•
 briefly summaries the background to, and context of, the New Zealand reforms;
•
outlines the ideas behind the separation of commercial from non-commercial activities,namely, it will discuss, briefly, the ideas behind the corporatization and privatization;
•
discusses the implications for strengthening line of the ministerial and executiveaccountability;
 
International Journal on Governmental Financial Management – 2008 93
•
identifies the characteristics of financial management systems reform that can assist inimproving the measurement of government sector performance;
•
gives an overview of the Basic Requirements Model; and
•
makes an attempt to develop the General Model for Government Sector Reform.
New Zealand’s Government Sector Reforms
Background to, and context of, the reforms.
The government sector reform is now aworldwide phenomenon, as governments grapple with rapid social, economic andtechnological change, including the effects of globalization. While globalization is themost important reason underlying government sector reform in the world, poor economic performance was the impetus for the New Zealand government sector reform. In order to better understand the background of the government sector reform initiatives in NewZealand, the economic situation leading up to the 1984 economic crisis will be brieflydiscussed.From the 1960s to 1980, there was a notable decline in the performance of the NewZealand economy compared with other OECD (Organization for Economic Co-operationand Development) countries. Per capita, income grew just 1.4 percent per annum comparedto 2.9 percent for the OECD as a whole (OECD 1993:p.11). Moreover, over the same period, the Gross National Product per capita fell from fifth in the world to the twentieth in1980s. The main reason behind this decline was that the productivity of capital and labor was growing more slowly than the OECD average. The economic policies of the NewZealand government, from 1975 to 1984, have been characterized as:
“…
a heavy reliance on particular forms of interventions in the economy… [that did] not achieve their objectives and frustrated the achievement of higher living standards.”(TheTreasury 1984:p.106).
Many reasons have been given for the poor use of resources, low productivity and lowgrowth at this time. These include:
•
inefficient and inequitable tax system
: the tax system emboldened unproductiveinvestments and burdened individuals with a high marginal tax rate (66 percent),although it did ensure that New Zealand was a relatively equitable society;
•
distortion in the price system
: through regulations, subsidies and taxes, the entire pricesystem in New Zealand had been distorted away from reflecting the true value of goods, services, labor and capital. This price distortion and poor macroeconomic policymeant that New lost its competitive ability in the external market.
•
effects of tariffs and controls
: high tariffs and import controls provided high levels of assistance to domestic industry, but they also raised the costs of the export industry.
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