Accounting in the Public Sector: a Political Economy Approach

Abstract

This thesis examines accounting in the context of the institutional arrangements which exist in the New Zealand public sector. The positive political economy literature is utilised in chapter two to outline and explain the institutional arrangements of the public sector in terms of the main actors in the public sector and the nature of their interests. This explanation centres on the exchange relationship between government and constituents, with government providing benefits to constituents in exchange for their electoral support. Chapter three complements this explanation by drawing comparisons with analogous institutional arrangements in private sector firms, including a depiction of the public sector as a consumer-owned monopoly supplier of coercion. Chapters four and five review positive accounting research in the private and public sectors respectively. Chapter six develops an analogy of the public sector as a consumer-owned mutual with compulsory membership. This analogy is based on insights from the political economy and accounting literature reviewed in the foregoing chapters and outlines the main players in the public sector and their inter-relationships in a manner relevant to examining accounting issues. The analogy forms the basis of two explanations of accounting practice in the public sector, both of which focus on the interests of Cabinet in sponsoring the passage of financial reporting requirements in the Public Finance Act 1989 and the Fiscal Responsibility Act 1994. The first accounting explanation addresses the reporting requirements of departments and Crown entities. These reporting requirements are explained in terms of Cabinet's demand for credible information in order to govern. The second explanation addresses the requirements for the Minister of Finance and the Secretary to the Treasury to report consolidated financial data in the half-year and annual financial statements of government, and as part of budget documentation, and of half-year, current-year and pre-election economic and fiscal updates. These reporting requirements are explained in terms of this information being used to influence political debate and voting behaviour.