Financial implications and recommendations

Summary 

When a policy proposal has financial or fiscal implications, or a Cabinet paper contains recommendations on expenditure or revenue:

Papers with financial implications

Papers seeking agreement to policy, and to approval for additional resources to implement that policy, are to be submitted to the Cabinet committee responsible for that area of government activity. That committee can approve the additional resources, subject to confirmation of the decision by Cabinet (as for all committee decisions). The Cabinet committee has the option of referring such papers to the Cabinet Expenditure Control Committee (ECC), if it thinks that the decision on the financial aspects would benefit from scrutiny by that committee.

The Minister of Finance may also wish to refer such papers to ECC for consideration. This would be in addition to the policy being considered by a policy committee. The Minister of Finance will advise the portfolio Minister of this by letter, when consulted on the paper.

Where there are time pressures and a proposal cannot wait until the next ECC meeting (after consideration by the relevant policy committee), further consultation with Finance Ministers and senior Ministers may be required before Cabinet consideration.

    Papers that only seek changes to baselines, and do not include any policy decisions, should be submitted directly to ECC, and do not need to be submitted to a policy committee first.

    Treasury guidance on the Budget Process is available at http://www.treasury.govt.nz/publications/guidance/budget.

    Drafting financial recommendations

The correct drafting of financial recommendations is essential to record accurately Cabinet's financial decisions. Such decisions provide Cabinet's authority for changes in appropriations, expenditure, and the use of Imprest Supply. Recommendations that propose a change in appropriation or expenses should include details of:

  • the action to be taken (for example, approve, agree);
  • the substance of the change being proposed;
  • the name of the Vote(s) affected;
  • the type of appropriation/revenue (for example, departmental output expense);
  • appropriation/revenue name;
  • if a new appropriation is being proposed, its scope;
  • changes to appropriation (both the direction and amount of the changes);
  • monetary units - numbers should be stated in terms of $ million (for example, $0.001 million);
  • changes to revenue or funding mix;
  • GST status, if appropriate (in accordance with the Public Finance Amendment Act 2004, appropriations should be exclusive of GST);
  • the years affected, including outyear impact;
  • whether the changes need to be included in supplementary estimates and met under Imprest Supply; and
  • the impacts on the operating balance and/or debt.  

In general, tables should be used to present the information contained in financial recommendations.

    For further guidance on drafting financial recommendations and the format of tables, see the Treasury financial recommendations technical guide - Writing Financial Recommendations for Cabinet and Joint Minister Papers (http://www.treasury.govt.nz/publications/guidance/budget/finrecs/).

    The Treasury Vote analyst can assist in ensuring that financial recommendations are technically correct.

    Papers seeking changes to baselines

    The Cabinet Office circular CO (02) 17, Guidelines for Changes to Baselines, sets out the Cabinet agreed process for changes to baselines. It emphasises the importance of the baseline management system and provides generic guidance on the system and on authority to approve changes.

    More specific guidance is provided by the Treasury each year for particular events such as the Budget initiatives process, and the March and October Baseline Updates.

    One of the objectives of the baseline management regime is to ensure that expenditure in each Vote stays within the baselines agreed for the year of the current Budget and the following two financial years. Proposals for additional resources are considered only during Budget rounds except in exceptional circumstances.

    In cases where approval for policy or expenditure proposals needs to be sought outside the Budget round, and the Vote Minister considers that the proposal cannot be resourced from within existing baselines, the Vote Minister must personally consult the Minister of Finance before submitting a paper to Cabinet or a Cabinet committee. (This requirement also applies to proposals that were identified during the Budget round as contingency items that may require funding approval later in the year.)

    The requirement for the Vote Minister to personally consult the Minister of Finance is additional to the requirement for departments to consult the Treasury on proposals with economic or financial implications.