Introduction

Part 1: Should the agency be a department of state?

Part 2: Should the agency be a state enterprise?

Part 3: Should the agency be an office of Parliament?

Part 4: Should the agency be a Crown Entity and, if yes, what sort?

Part 5: Should the agency be listed in schedule 4 of the Public Finance Act 1989?

Part 6: Is it clear whether the Ombudsmen Act 1975, the Official Information Act 1982, and the Local Government Official Information and Meetings Act 1987 apply to the agency?

Background

The previous chapter treats the executive (within the choice between the executive, Parliament, and Courts) as a single entity. It is not, of course. There is the choice between central government and local government. Within the latter there are further choices. This chapter relates to the bodies established within central government (although the question as to whether a particular function should be carried out by a local body should not be ignored).

There is a continuum of bodies exercising public power at the level of central government. At one end is the standard Minister-department relationship and along it various forms of independent or partly independent power. The legal structures should reflect that continuum and the reasons for greater or lesser autonomy. This chapter addresses 5 distinct categories of entity:

• departments of State (often called Ministries)
• State-owned enterprises
• Crown entities
• agencies listed in Schedule 4 of the Public Finance Act 1989
• Offices of Parliament.

The first 4 categories are identified variously in the State Sector Act 1988, the Public Finance Act 1989, the Crown Entities Act 2004, and the State-Owned Enterprises Act 1986. It is convenient to consider Offices of Parliament here, although they are not, of course, part of the executive government. Offices of Parliament are set up under individual enabling Acts.

There are also other statutory agencies (eg the Queen Elizabeth the Second National Trust and the Nursing Council of New Zealand) with which the Crown has some involvement, which are not in any of the above categories. Such agencies are not addressed in this chapter.

Some of the agencies referred to in this chapter are part of the "State services". This means they are "instruments of the Crown in respect of the Government of New Zealand" (s 2 of the State Sector Act 1988). The Public Service departments, some of the non-Public Service departments, and all Crown entities (with the exception of tertiary education institutions and their subsidiaries) are within the "State services". State-owned enterprises, Offices of Parliament, and agencies of the legislature, such as the Office of the Clerk, are not. Whether or not an agency is within the State services is important for a number of reasons, apart from symbolic ones. The State Sector Act 1988 largely limits the State Services Commissioner's role to agencies within the State services. An example is the Commissioner's responsibility for issuing advice and guidance to State servants on their integrity and conduct.

This chapter is in addition to other guidelines. For example, see Annex C to CAB (00) M19/1I(1), which is a diagrammatic summary of how to choose an organisation form. This is contained in Appendix 6 of these Guidelines.

Issues discussed

The following issues are discussed in this chapter:

Part 1: Should the agency be a department of State?

Part 2: Should the agency be a State enterprise?

Part 3: Should the agency be an Office of Parliament?

Part 4: Should the agency be a Crown entity and, if yes, what sort?

Part 5: Should the agency be listed in Schedule 4 of the Public Finance Act 1989?

Part 6: Is it clear whether the Ombudsmen Act 1975, the Official Information Act 1982, and the Local Government Official Information and Meetings Act 1987 apply to the agency?

Should the agency be a department (or Ministry)?

Departments (including Ministries) are legally part of the Crown. They do not have separate corporate status. They are usually funded from public money, although some may acquire money from other sources. All money (other than trust money) held by a department is "public money" for the purposes of the Public Finance Act 1989, irrespective of whether it comes directly from the Crown or from third parties. Departments cannot incur expenses, or spend public money, other than in accordance with an appropriation or other authority under an Act of Parliament.

Schedule 1 of the State Sector Act 1988 lists the departments of the Public Service. They have a variety of names, and a great variety of functions with differing balances between advisory, operational or service provision functions. Public Service departments come under the aegis of the State Services Commissioner. The Commissioner appoints their chief executives (if the Commissioner's recommendation is accepted by the Executive Council), and is responsible to the appropriate Minister for reviewing their performance, and that of the departments. Schedule 1 of the State Sector Act 1988 can be amended by Order in Council if a department is abolished, newly created, or its name has changed. If a department has been established by an Act of Parliament, it still cannot be abolished without a repealing Act (s 30A of the State Sector Act 1988).

The Public Finance Act 1989, however, uses a different definition of "department". Section 2 refers to "a department or instrument of the Government", the Office of the Clerk of the House of Representatives, and the Parliamentary Service, but excludes " a body corporate or other legal entity that has the power to contract" and an Office of Parliament. Thus, agencies such as the Office of the Clerk of the House of Representatives, the Parliamentary Service, the New Zealand Defence Force, the New Zealand Security Intelligence Service, the Police, and the Parliamentary Counsel Office are departments under the Public Finance Act 1989, but are not departments of the Public Service. The origins of most of the non-Public Service departments like those listed above lie quite a long way back in history. On the one hand, some of them have a different legal and constitutional relationship with the Government to that of a standard public service department. Their distinctive features include-

• the Police have constabulary independence. The Commissioner of Police acts in certain respects with original (as opposed to Ministerially delegated) authority;

• the defence prerogative applies in the case of Defence.

On the other hand, it is important that agencies such as these remain owned by the Crown and, particularly in the case of the Police and Defence Force, remain subject to oversight from, and accountability to, Ministers. However, there is a strong presumption that any new department would be established as a public service department, and that there would have to be very compelling reasons for establishing a new department on any other basis- reasons related to the distinctively different relationship with the Government and the lack of fit with the State Sector Act 1988.

While there is a responsible Minister for each department, the Ministerial power and responsibility varies. In the case of departments with policy and many operational functions, the responsibility is extensive. Where departments or officers within them have independent statutory functions (eg the Inland Revenue Department) the Minister's responsibility may be more limited.

The reforms of the 1980s led to departments having a greater emphasis on policy and related roles - those subject to greater Ministerial scrutiny - and to other roles being transferred to State-owned enterprises or Crown entities. But the operational role of departments is still major and critical in respect of, for instance, natural resources (such as the Department of Conservation) or transfers of money (such as the Ministry of Social Development).

Constitutional principles and legislation relating to the Public Service support several broad propositions. Members of the Public Service are:

• to act in accordance with the law;
• to be imbued with the spirit of service to the community;
• to give free and frank advice to Ministers;
• to give effect to lawful Ministerial instructions;
• when the law so provides, to act independently in accordance with the terms of the law.

The Legislation Advisory Committee's report on Departmental Statutes (1989, Report 4) has largely been accepted by successive Governments and acted on in practice by Parliament. The report arose out of the common (but not invariable) practice of Parliament enacting statutes that established departments of State. The Committee reached the general conclusion that such legislation is usually not necessary and stated the following conclusions and recommendations:

• Departmental statutes and related legislative provisions should not in general be enacted.

• Legislation should not in general confer functions on departments; rather it should confer functions on the Governor-General (in Council), Ministers, or officials.

• Legislation should not in general name specific Ministers or relate officials to particular departments; rather, the reference should be general ("a Minister of the Crown", "the Registrar appointed under the State Sector Act 1988"). In some cases, particular Ministers are, however, quite properly specified as having a statutory power.

• Parliament should have to approve the addition of new departments to the list of departments scheduled to the State Sector Act 1988, as well as deletions and alterations. This recommendation has not been adopted.

A fifth recommendation for the publication of a table of functions of Ministers, departments, and statutes for general information purposes has been implemented - see website: http://www.dpmc.govt.nz/cabinet/portfolios/index.html.

The Public Service departmental form is likely to be preferred where one or more of the following apply:

• the agency will exercise coercive powers of the State (eg prisons or tax collection);

• the agency will provide policy advice to Government;

• other special powers will reside in the agency or its officials;

• the agency will carry out multiple functions, particularly where the functions potentially conflict;

• the complexity of the activities makes it difficult to "contract" for their provision by a Crown entity;

• Ministerial desire to control the process and outcome of the activity, including frequently reviewing its objectives;

• constitutional conventions indicate a need for close Ministerial oversight or direct Ministerial responsibility;

A Ministerial desire to control the process and outcome of the activity, including frequently reviewing its objectives, is indicated by:

• its significance and importance to the Government; or

• the high public and political expectations associated with the activity; or

• the nature of the risks posed to the Crown.

Should the agency be a State enterprise? The basic principle is that commercial activities of the Government should be carried out by agencies (generally companies) with commercial objectives.

Government trading agencies have operated for much of New Zealand's history. The State-Owned Enterprises Act 1986 provides the general legal framework for most of those which operate at the moment. According to its Title, it is:

"An Act to promote improved performance in respect of Government trading activities and, to this end, to-

(a) Specify principles governing the operation of State enterprises; and

(b) Authorise the formation of companies to carry on certain Government activities and control the ownership thereof; and

(c) Establish requirements about the accountability of State enterprises, and the responsibility of Ministers".

By section 4(1), the principal objective of every State enterprise is to "operate as a successful business and, to this end, to be-

(a) As profitable and efficient as comparable businesses that are not owned by the Crown; and

(b) A good employer; and

(c) An agency that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so".

The Act recognises that the enterprise may have non-commercial roles, but requires Ministers to enter into an agreement with the agency to pay for any goods or services that they wish an SOE to provide to any person.

The Act establishes systems of accountability of the enterprises, for instance to Parliament (including audit by the Auditor-General) and by being subject to the Ombudsmen Act 1975 and the Official Information Act 1982.[57]

The State enterprise form is most likely to be appropriate where:

• there are identifiable commercial objectives and the agency can operate as an efficient and profitable business;

• nevertheless, the Crown wants the business to be operated by an agency that will exhibit a sense of social responsibility by having regard to the interests of the community in which it operates (ie the Government has a policy of retaining ownership of the business itself, as opposed to sale or cessation).

Should the agency be an Office of Parliament? Officers of Parliament are rarely created - there are currently only three. Officers of Parliament are not part of executive government. In effect, they discharge functions (scrutiny of the executive) that the House of Representatives itself might carry out.

The Public Finance Act 1989 identifies three offices as Offices of Parliament - the Auditor-General, the Office of the Ombudsmen; and the Office of the Parliamentary Commissioner for the Environment.

The Finance and Expenditure Committee reported on Officers of Parliament in 1989.[58] The Committee defined their primary function as "a check on the Executive, as part of Parliament's constitutional role of ensuring accountability of the Executive" (para 5.1.1).

Their distinctness from the other categories of public bodies is emphasised by the provisions in the Public Finance Act 1989 and by the practice of the House for the handling of their estimates of revenue and expenditure. The relevant chief executive submits the estimates directly to the House and they are considered by an Officers of Parliament Committee, chaired by the Speaker.

The special character of such offices is also reflected in the method of appointment. The procedure for appointment is that set out in the Report of the Officers of Parliament Committee (2002) I.15A.

The recommendations of the Finance and Expenditure Committee in 1989 are appropriate guidance:

• An Office of Parliament must only be created to provide a check on the arbitrary use of power by the executive.

• An Office of Parliament must only be created to discharge functions that the House of Representatives itself, if it so wished, might carry out.

• Parliament should consider creating an Office of Parliament only rarely.

• Parliament should review from time to time the appropriateness of each Office of Parliament's status as such.

• Each Office of Parliament should be created in separate legislation principally devoted to that Office.

Should the agency be a Crown entity, rather than a department or a State enterprise? If the agency should be a Crown entity, what category or type should it be? Crown entities are those agencies defined as such in the Crown Entities Act 2004. They include a range of forms and functions.

Crown entities are a significant part of Government. Much of the activity of central government is carried out by agencies that are not departments - usually either Crown entities or State enterprises. Crown entities dominate service delivery in areas such as health, education, transport, and science.

The term "Crown entity" encompasses a wide range of different agencies, such as school boards of trustees, tertiary education institutions, the Commerce Commission, the Foundation for Research, Science, and Technology, and the New Zealand Symphony Orchestra. They differ from each other in terms of legal form, function, source of funding, and the relationship they have with their Minister.

Crown entities carry out a wide variety of functions and include:

• purchase or funding bodies (eg New Zealand Tourism Board)

• service delivery bodies (eg District Health Boards and the New Zealand Fire Service Commission)

• advisory bodies (eg Law Commission)

• trading bodies that are not State enterprises under the 1986 Act (eg Crown Research Institutes, TVNZ, Public Trust, and the Lotteries Commission)

• administrative tribunals with some quasi-judicial functions (eg Commerce Commission)

• control and supervisory bodies, other than Offices of Parliament or tribunals (eg Police Complaints Authority)

• financial institutions (eg Guardians of New Zealand Superannuation)

• Crown entities are now classified into:

• statutory entities - these are listed in Schedule 1 of the Crown Entities Act 2004. They are statutory bodies corporate, legally separate from the Crown. Subject to legislation, they have the powers of a natural person as well as statutory functions and powers under their "entity's Act". Each statutory entity has an entity's Act and the Crown Entities Act 2004 prevails over the entity's Act in the event of a conflict between them, except to the extent that the entity's Act expressly provides otherwise. Statutory entities each have a board, which in most cases is a governing body of board members. However, in the case of corporations sole, such as the Privacy Commissioner, the sole member is the board. Statutory entities are further subdivided on the basis of closeness to the Crown into:

• Crown entity companies - These are listed in Schedule 2 of the Crown Entities Act 2004. They are companies established under the Companies Act 1993 that are wholly owned by the Crown. They generally carry out a mixture of commercial and other functions and are distinct from State-owned enterprises under the State-Owned Enterprises Act 1986. Examples are TVNZ and Crown Research Institutes;

• Crown entity subsidiaries - these are subsidiaries controlled by other Crown entities;

• school boards of trustees - these are constituted under Part 9 of the Education Act 1989. The Crown Entities Act 2004 applies to them to the extent specified in Schedule 3 of that Act;

• tertiary education institutions - these are established under Part 14 of the Education Act 1989. The Crown Entities Act 2004 applies to them to the extent specified in Schedule 4 of that Act.

The Crown Entities Act 2004 developed a more coherent and consistent set of governance and accountability arrangements for Crown entities, while allowing for genuine differences in function. Some governance and accountability features were applied to practically all Crown entities (eg being subject to the Official Information Act 1982 and Ombudsmen Act 1975, and being required to produce basic accountability documents).

Different governance and accountability provisions apply to each category of Crown entity. Some key differences are set out in the table below. However, the particular entity's Act may vary the standard approach set out in the Crown Entities Act 2004 and in the table below:

The Minister of State Services and the Minister of Finance may jointly direct Crown entities to comply with whole of Government directions (see s 107 of the Crown Entities Act 2004).

There is a requirement to consult the Minister of State Services before Cabinet considers any proposal to establish an entity that could be in the Government reporting entity (as defined in section 2 of the Public Finance Act 1989) (other than a department or a State enterprise) (CAB (00) M19/1I(1)). Although some of the agencies comprising the Government reporting entity are legally separate from the Crown, the Crown has an ownership interest in them, reflected in the requirement that the annual financial statements of each agency must be consolidated into the financial statements of the Crown. As well as departments, Crown entities, Schedule 4 Public Finance Act 1989 entities, State enterprises, the Reserve Bank of New Zealand, the Offices of Parliament, and Parliamentary agencies such as the Parliamentary Service, any other agencies that are required to provide annual financial statements for consolidation are part of the Government reporting entity (s 27(3) Public Finance Act 1989).

A public agency should be a Crown entity[62] where:

• its activities are part of executive government; and

• the activities fall outside the core functions of government, or there are other compelling reasons for them to be performed at arms length from the Minister (eg placement outside the legal Crown is critical, or a governance board is necessary, or the Minister should have a clearly defined or limited scope for involvement); and

• it does not have clear commercial objectives, or if it does, there are other reasons (such as social objectives) which make the State enterprise form inappropriate.

The primary considerations for assignment to one of the categories are:

• are the functions of the new entity "commercial" in nature - which would indicate the company form;

• should decision-making be subject to Ministerial direction?

• if decision-making should be subject to Ministerial direction, is it necessary to place the function in an organisation that is required to give effect to the policy of the government of the day (a Crown agent), or is it sufficient to place it in an organisation that is required only to have regard to that policy (an ACE)?

• if decision-making need not be subject to Ministerial direction:

Should the agency be listed in Schedule 4 of the Public Finance Act 1989?

Entities listed in Schedule 4 of the Public Finance Act 1989 are organisations that are part of the Government reporting entity in terms of section 27 of the Public Finance Act that are not Crown entities or State enterprises (or the Reserve Bank of New Zealand).

Before the enactment of the Crown Entities Act 2004, all Crown entities were listed on Schedule 4 of the Public Finance Act 1989. With the passage of the Crown Entities Act 2004 (which now defines what agencies are Crown entities) and the Public Finance Amendment Act 2004, Schedule 4 of the Public Finance Act now lists a range of other agencies included in the Government reporting entity. Some of these agencies were formerly Crown entities, but no longer have that status. This change in categorisation has been necessary because the full governance and accountability framework applying to Crown entities in the Crown Entities Act 2004 did not mesh well with those features specifically applying to the entities under their establishing Acts or with those entities that are trusts. In some cases, this is because of the small or local nature of the entity's operations (eg Reserves Boards look after local cemeteries and signage in camping grounds). In other cases, the establishing Act gives the entity features that do not mesh with the requirements in the Crown Entities Act 2004, such as the New Zealand Lottery Grants Board, which is not a body corporate and has a board of which half of the members are required to be Members of Parliament (2 Ministers of the Crown and the Leader of the Opposition).

Entities now listed on Schedule 4 are subject to some (mainly) financial provisions in Part 4 of the Crown Entities Act 2004. They may be required, for example, to provide a yearly statement of intent.

If the entity is a Crown trust or has other distinctive features making Crown entity status unsuitable, it may be categorised as an entity in Schedule 4 of the Public Finance Act 1989.

When a new public agency is being created, the application to that agency of the Ombudsmen Act 1975, the Official Information Act 1982, and the Local Government Official Information and Meetings Act 1987 should be considered.

As a general principle, the Ombudsmen should have jurisdiction over departments and other agencies that make decisions that relate to matters of central or local government administration and which affect members of the public. The factors to be taken into account are the relationship between the agency and central or local government and its public purpose. There should be consultation with the Office of the Ombudsmen about these matters.

Whenever a new agency is created, it is also necessary to determine whether or not the Official Information Act 1982 or the Local Government Official Information and Meetings Act 1987 should apply to it. In some cases the 1982 Act will apply since the agency is subject to the Ombudsmen Act 1975. The basic criterion formulated by the Danks Committee that proposed the Official Information Act 1982 is that bodies carrying out a government or public function should be subject to that Act. The criterion is now to be understood more broadly, given the Amendment Act of 1987 and the Local Government Official Information and Meetings Act 1987. To a large extent the application of the legislation will depend on the relationship between the agency and central government. The following factors are relevant:

• the agency's dependence on central government funding;

• the obligation of the agency to consult with the Minister on particular matters, respond to ministerial directions, or obtain ministerial approval;

• the existence of ministerial control over appointments in contrast to, for example, elected membership representing relevant interest groups;

• the existence of any government controls on finance, for example, by the Auditor-General;

• the public purpose of the agency.

As well, attention is often to be given to the potential role of the Auditor-General and, in the local government and related areas, to the Local Government Act 2002, Local Authorities (Members' Interests) Act 1968, and Local Electoral Act 2001.

In general, the Ombudsmen Act 1975 and either the Official Information Act 1982 or the Local Government Official Information and Meetings Act 1987 should apply to a public agency. If it is proposed that a public agency not be subject to those Acts, the Office of the Ombudsmen should be consulted.

In the case of Crown entities, the Official Information and Ombudsmen Acts should apply to all newly established entities, and to entities with legislation under review. An exception is where the entity's functions are judicial in nature - such as where the members of the entity examine evidence on oath and make determinations affecting individual interests or rights on the basis of that evidence (eg the Police Complaints Authority).

With one exception, the Ombudsmen Act 1975 applies to all statutory entities and Crown entity companies listed on Schedules 1 and 2 of the Crown Entities Act 2004, and to all other Crown entities - school boards of trustees, tertiary education institutions, and Crown entity subsidiaries (s 131 of the Crown Entities Act 2003). Where the Ombudsmen Act 1975 applies to a Crown entity, the Official Information Act also applies.

(a) in relation to a statutorily independent function; or

(b) requiring the performance or non-performance of a particular act, or the bringing about of a particular result, in respect of a particular person or persons.