Can Budgetary Slack Still Prevail Within New Zealand’s New Public Management?

Abstract

The New Zealand (NZ) Government began its public sector reforms in 1984. The purposes of the reforms were to build a more open public sector, a plainer and clearer way of reporting, emphasising accountability and transparency (Wallace, 1993). A central focus of the reforms was to change the accounting culture by adopting accrual accounting and a 3 year budgeting and planning management cycle within Government Ministries. By investigating whether or not budgetary slack is used as a risk management strategy in NZ’s new public management (NPM) control setting, this study examines how successful the reforms are, more that 20 years after their inception. Budgetary slack is the excess requirements for resources or understatement of productive capability. Slack allows a budget to be easily achieved and gives a false perception of managers’ performance, defeating the basic purpose of budgets. As little research has been conducted on this phenomenon in NZ’s NPM, this study was undertaken. Using budgetary slack and earnings management literature, an empirical model is developed to examine whether the potential for budgetary slack exists in NZ Government Ministries. The five Ministries of: Health, Education, Transport, Justice, and Building & Housing, were chosen for this study. They provide a mix of sizes and are very topical for some specific reasons within the political arena. Results of this study will be of interest to the Government, public sector managers, taxpayers, other stakeholders, and academics.