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Advice to Tito from New Zealand: Get your balance sheet in order

There’s a reason New Zealand’s economic performance is as stunning as its response to Covid.
New Zealand Prime Minister Jacinda Ardern. Image: Loren Elliott, Reuters

SA could learn a thing or two about state finances from New Zealand, which embarked on a series of radical reforms just over 30 years ago.

For the last 25 years New Zealand has run budget surpluses in all but the four years after the 2008 financial crisis and turned net liabilities of NZ$14 billion (R154 billion) into a net worth of NZ$146 billion (R1.5 trillion) at the end of the 2019 fiscal year.

That meant it had a huge war chest to deal with the coronavirus outbreak. The country recorded just 22 deaths from about 1 500 infected cases. Though the borders remain shut, the country has largely returned to normal, and shops and restaurants are open with no masks or social distancing. By some accounts, it has virtually eliminated the virus.

But the real story behind this is its fiscal preparedness. Just like a company, one of the key measures of New Zealand’s financial success is its net worth (value of assets less liabilities). But to measure that, you have to get your national balance sheet in order, and very few governments have gone to the trouble of accurately measuring and valuing their assets.

There’s been talk of getting SA’s state balance sheet in some kind of shape, but that’s a marathon project that could take years to accomplish.

We still have little certainty as to what exactly the state owns or its value. New Zealand has shown what can be done when you do that and then make those assets sweat.

In 2018 the International Monetary Fund did a study on public sector balance sheets across the globe and concluded that countries could generate about 3% more GDP through better management of their assets. In a post-Covid world, that’s a lot of money.

Fiscal turnaround

New Zealand is seen as a model of fiscal excellence – and for good reason. It started three decades ago with a series of reforms aimed at bringing greater transparency and accountability to public sector finances, and a key piece of legislation designed to achieve this was the Public Finance Act, passed in 1989. Prior to this, the country had run up budget deficits for two decades.

Take virtually any measure you want and New Zealand outshines not just SA, but most of the world.

Unemployment is 4.2%, inflation less than 1%, economic growth has ranged between 2% and 4% for the last decade. Debt-to-GDP is below 20%, versus the 86% that lies in SA’s near future.

The Public Finance Act was one of several fairly radical legislative economic and state-sector reforms. New Zealand introduced these reforms to overcome a fiscal crisis and over-regulated economy.

One of the architects of this Act was Ian Ball, professor of Practice-Public Financial Management in the School of Accounting and Commercial Law at Victoria University of Wellington. This is his advice to Finance Minister Tito Mboweni, or indeed any minister of finance: “One of the lessons we can take from the New Zealand experience is that you cannot run a government well unless you have good financial information. The idea of running an organisation as complex as a government without proper information is just not feasible in my opinion. You have to get your country’s balance sheet properly measured and put it to work.”

One of the spin-offs of this approach is enabling trust in government and democracy, says Ball. “Good information and the knowledge that public services are responsibly run is important in bolstering democratic satisfaction.”

Another reason to get the state balance sheet in order is it allows debt to be measured against assets rather than GDP, which can be a misleading measure as it ignores significant components of the balance sheet which also impact the fiscal position.

Says Ball: “New Zealand started a series of reforms about 30 years ago, beginning with the tax system, the removal of subsidies and import licensing, and the floating the New Zealand dollar, for example.”

“The country’s finances were in crisis and the government of the day decided it needed to get better performance out of the state sector. The State-Owned Enterprise Act was the first of several laws aimed at achieving improvements in the performance and fiscal management of the state sector as a whole.”

One of the key reforms mandated under the Public Finance Act was the move from cash to accrual accounting, similar to that of the corporate sector. Under cash accounting, government departments receive budget appropriations each year and spend them in that year, with no proper accounting for longer-term liabilities such as creditors and accrued leave for staff. Accrual accounting forces government departments to properly value their assets, recognise revenue when it is earned (rather than when received as cash), and to bring longer-term liabilities onto the balance sheet – for example interest payments, accrued leave and longer-term creditors.

Two other pieces legislation – the Fiscal Responsibility Act and the Financial Reporting Act (since included in the Public Finance Act) – require the government to conform with a number of principles of responsible fiscal management, and to report according to independently-determined financial reporting standards. The government is required to set out its financial targets, report on them monthly, and then provide an explanation when targets are not met. This system is a key factor behind the swing from budget deficits to surpluses.

Government has to set out clear targets in terms of public debt, net worth, revenue and expenses. It has to define what is a prudent level of debt, and report against this. If it does not comply with principle or what it said it would do, it has to explain to the country why this has occurred.

New Zealand budget deficit/surplus as % of GDP

Source: Trading Economics

Now compare this with South Africa, which last had a budget surplus 13 years ago.

SA budget deficit/surplus as % of GDP

Source: Trading Economics

The government is required to provide four-year forecasts of financial statements and cash flows. Appropriations from Parliament to government agencies are in accrual terms, which includes a cost of capital charge and depreciation. “As manager of a state department you have a level of expenses you must manage against certain deliverables,” says Ball.

“Why are we successful? Everyone runs off the same numbers. Under a cash-based system, you have a certain amount of money to spend in a year, which you can allocate to personnel, capex, travel, and so on.

In New Zealand, we say instruct state departments that this is what they have to produce in any particular year in terms of services, and this is the cash you have to do it – but you have to deliver results.

There’s still a lot of discretion to allocate expenses within that budget.”

Some 75% of Organisation for Economic Cooperation and Development (OECD) countries have adopted accrual reporting, but only 25% doing accrual budgeting and no other country doing accrual appropriations.

“The key purpose in these reforms is to create a culture of transparency and accountability. When you are seen to manage the state finances responsibly, a lot of other good things result, such as trust in democracy and public sector management.”

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Lovely theory and splendid graphs – the real problem here is the Olympian theft by the ruing elite! Balance the books, there’s nothing left to balance darling

I wouldn’t underplay the seriousness of garden hose theft in the badlands of auckland and Christchurch…its a real problem. In SA the ruling demographic aspirations has been to match their neighbouring success stories..bankrupt corrupt and immoral.

Hence the reason so many South Africans (of all races) are emigrating to well run countries.

They don’t want to stick around with this garbage ANC who never ever had the intention of “a better life for all”

They only wanted “a feeding trough for all our buddies”

As a black south african I am also having to diversify my risk…i would rather be middle class in any other cowntry rather than my own as it’s just too hard here and no safety net. Embarrassing as that is to state.

AlapThando no need to feel embarrassed. Just because you share the same skin colour does not make you responsible for what others do. You are your own individual. The problem with our leadership is a complete lack of moral integrity, greed, self-entitlement, arrogance and an insatiable appetite for power. These are flawed character traits any individual from any country with any skin colour can have. Wishful thinking, but I really hope within my lifetime still people will stop thinking along superficial lines and start looking deeper at the underlying values of the leadership they vote into power.

When people believe in thier ledership, ANYTHING is possible. But when there is a stunning leadership failure and it results in a person like Jacob Zuma renting his country out to the highest bidder – things fall apart. Then add to the mix the total lack of any arrests or prosecutions post the ‘missing decade’ – then it just gets stupid. There seems to be an attitude of we’d rather fail than ask for help – and some of their failures have been spectacular – the ANC’s who wants to be a millionaire program works really well. And I’d like to know who made the decision to ban cigarettes and then unban and the ban again – alcohol ? As far as I know, no one has ever been arrested for driving while…. smoking…

I spent a few weeks travelling NZ North and South Islands. I was struck by the quality of the infrastructure given that what has been built was off the backs of around 3-4m New Zealanders (Pop now approaching 5m). It’s amazing what so few – motivated, hard working, well lead people can do. Come on ANC. Wake up.

Hardworking motivated people — not descriptions one nowadays applies to SA no?

Correct, skilled people are all flocking to New Zealand.

NZ is so often cited as an example of how badly everyone else is doing and how to get things right. This is a little simplistic, however, as they are a very small pretty homogeneous nation that is neatly distributed across their islands. Not really comparable to massive heterogeneous nations like US and SA. Also, labor is not very highly unionized.
Even so, NZ also has the highest rate of homelessness amongst all OECD countries.
Nevertheless, their financial prudence is, I guess, something to look up to.

It’s not all peaches and cream in NZ either, every country has it’s challenges. Poverty is rife here, it’s the 3rd most unaffordable country in the world to buy property. It’s really expensive, prices fluctuate severely in winter, we are paying R80 for a 180g punnet of Cherry tomatoes…. NZ has one of the highest rates of obesity in the developed world. There is a massive drug problem here, it’s just not in your face. Education is substandard in my opinion, my kids have regressed since moving here and there is no respect at all in the schools, lots of bullying and the teachers have no power.

Often it takes moving away from what you had to realize what you lost. SA is a stunning country with so much to offer, it just needs a systemic reboot and an injection of morality and humility to its core.

Just to add to your comment. My daughter lives there and I have been travelling to NZ for the past 20 years. One of the things that is most interesting is that the population actually do two simple things correctly – a) abide by the rules (all of them) and b) pay their taxes (all of them) – with no creative accounting or capitulation for the taxi industry or the tenderpreneur industry.
In one instance a New Plymouth Councillor had some trees planted by the council workers in contravention of the local municipal rules – action taken. Fired with immediate effect.

Your argument is too simplistic to take serious.

That’s known as accountability. Non-existent here. No consequence management here.

The sooner all citizens of all races realise the problem the quicker action can be taken. The government needs to be brought to account you are letting us all down. People are voting with their feet.

Agree with article. Oh..and it helps NZ off course that there is a constant influx of skilled, cream of the crop, immigrants into NZ.

The ANC-govt must get full credit here: their biggest export product is emigration of skills.

Another matter…
“Take virtually any measure you want and New Zealand outshines not just SA, but most of the world”.

There are MANY things the SA outshines NZ with:
SA has made much better progress on our AA/BEE programmes. How’s NZ’s “transformation” going, if any? What % of Kiwis are considered “inclusive”? Very few.

Our entire security and steel industry (to make pallisades, burglar bars, padlocks, etc) has a head start. No Kiwi can erect barricades like us Saffas.

Eskom: we can proudly muster a bloated workforce of 46,000, needed to produce (only) around 70% of installed capacity. AND the best is, it still is in operation! How many NZ corporates can survive such mismanagement?
…you can cut a third of workforce of Eskom, and it will make NO effective difference. You can’t do that with NZ or any 1st world country 😉

Our doctors in trauma centres are of the best experienced in the world (….unless if you’re an Army surgeon that spent time at a field hospital in Syria or Afghanistan!)

Is NZ also such a “traumatic” place?

You sound very unhappy. Privileged background?

…the GDP Per Capita Income (measured in Euro) of the average Western European is HIGHER than ours in South Africa.

So when I earn in average lower Per Capita Income against my European peers (from where my ancestors are proudly from), how would that be “privileged”?? I’m WORSE OFF in SA.

Not privileged. You probably mean “cursed”.

In SA we have this great excuse that because people are poor that why there is so much crime!
These guys are so cruel that if they are hungry they want to commit crime when there are people at home so that they can rape first, kill then as if as an after thought steal from you. Why rape and kill if you are hungry?

I once visited Mozambique a couple of years back and I was not in the tourist part of it but in the CBD. Policing was visible and we walked the streets with great confidence even using our phones. In SA you are not safe even in Sandton!
The great excuse of them all will keep SA down. We are not the only country with poor people so poor people( I know not all) can’t use the excuse that they commit crime and they do not respect the rule of law because they are hungry.
We are not a special hungry people.

NDZ is in charge… not TITO or CYRIL.
Tito cannot achieve it… too much wastage of funds.
The hole in the sink is soooo big, that the plug cannot even stop the looting of funds.

More importantly, the wheels have fallen off. Productive labour will be leaving South Africa… In the long term …. capital outflows and weaker rand to follow.

Who in their right mind would want to invest here.

The wheels of the world has fallen off, but the world continues to roll on.
Labour leave many countries, SA is no exception. Many people (now 70 year olds) who left SA – thought they would outlive SA – are now dying in their first world countries and SA is still sukkeling ahead.

Corruption is SA greatest challenge.

Logic, reasonableness, honesty, fidelity. Will never work here – the ANC know everything, they will never learn from anyone.

There are some very clever people in S.A – yourself included.

Thanks Ace.

I think the difference is in the integrity of the government and the population as well as the average IQ. Team South Africa has too many duds and potential criminals.

Agree but if you take the criminals as a % of the population, crime in SA is low.

@Reggwat

https://www.numbeo.com/crime/rankings_by_country.jsp

On this recent list SA is in the TOP 3 on the global crime table by Numbeo….out of 133 countries measured.

(Crime in SA is worse than Afghanistan and Syria)

Maybe you confuse our 3rd position as a “low” number*lol*

Don’t be brainwashed by the leftist, ANC LIES that you’ve been fed your whole life!

No point in talking to Tito…He does not run the SA economy . Neither does the “President “. In fact..we are not sure who is running it.

If someone finds out , please let us know

We ALL know who is running the show – NDZ and her tobacco cohorts!!

Well we all know who that is – NDZ and Mazzoti et al in the background.

New Zeeland moved from a budget deficit to a surplus, and their economy improved, while, at the same time, South Africa moved in the opposite direction.

During this time, South Africans of a particular social background emigrated from South Africa to New Zeeland. It is clear that this group took the economy with them. The economy has emigrated along with the generators of economic activity.

Now, because the consumers of economic activity stayed behind, our Debt/GDP and the budget deficit are exploding upwards. The ANC exported the economy and employment opportunities to New Zeeland and imported the budget deficit and unemployment from them.

The road to hell is paved with good intention……and ignorance.

Not sure why Cyril would care about what NZ does; if they did they would have sent cadres there long ago to check things out.
But this week SAA will finally show government’s complete disregard for its tax payers and country’s future when another couple billion rands – for now – flow to bail it out. That’s despite treasury’s earlier undertaking!

On the bright side, you can buy two mansions in SA for the price of a new flat in Auckland. And the build quality is a little sad.

Otherwise, NZ is a beautiful place, and there are a lot of skilled SAn’s there already. Felt more like home than SA did when I went, lol.

The structural reform of firing 50% of government employees would need to happen to start balancing the books.

I think we also need to factor in that a large part of NZ’s success is the complete reversal of NZ’s globalist policies pursued by its governments of 1984 and 1990.

The rejection of those policies by the 1999 Government laid firm foundations for their success now. The government took back control and re-established Air New Zealand, the rail track, created Kiwibank, introduced an apprenticeship program, rationalised workers compensation, etc. In short, they re-regulated where de-regulation had gone too far.

and they are much more pleasant than those faustralians

The problem with SA’s Finances is not necessarily the fact that our Budget is not run on an accrual, but cash basis at all.

If the Public Finance Management Act is/was just followed as it was intended to be followed, there will not be any budget overruns and/or budget under runs.

Our problem is rather people in significant positions who do not know how to run state finances, or what to do with it.

In other words – it is a skills shortage.

Worse still, it is a cultural shortage on what is RIGHT and WRONG.

Corruption thrives in Africa and Latin America due to this cultural shortage.

Not necessarily, though. Every person on earth has inherently a very good idea of what is right and what is wrong, unless you are a Psychopath, of course.

The key point here is the quality of people running the “show” – which is exactly what it is in RSA Inc. A disaster show.
Then there is the issue of proper internal systems. RSA Inc has incurred the following costs so far with NOTHING TO SHOW. These overseas based systems were chosen for the Govt Transversal systems for IFMS, which to date has been a total disaster and mega waste of tax payers money:
A) Oracle – in 2006 a R700m tender was awarded to ICT Works for Supply Chain Management. Canned – see Point E
B) SAP – 2007 HR pilot system as base for an integrated IFMS. Cost for Bloem alone was R1.2bn. Canned
C) Internal Development (ie where as InfoPlan we developed Persol/Persal & Logicas in the 80’s which worked and is still in use today. SITA spent R1,5bn with nothing to show and canned
D) SAP – 2015 Off the shelf system and IFMS pilot. R2bn invested and nothing to show. Canned
E) Oracle – 2018 entire IFMS system started AGAIN from scratch. Licenses R450m and services estimated – wait for it – R12bn.

The issue here is that no matter how much we invest in these overseas systems, consultants, database migrations and pilot systems, the quality of people intended to use these systems are non-existent due to Cadre Deployment. Simple.
The accrual system will NEVER EVER work in SA as it requires double side accounting entries – not single sided non-existent, fraudulent and fictitious tenders.
Do away with tenders and implement a proper locally based ERP solutions throughout Govt.

Good examples Gil. So commonplace already in the SA landscape.

And WHY?

Thanks to AA/BEE/in the name of Transformation. As RW Johnson, and many other economists notes, “no country’s economy can survive an artificial system when ill-equiped, poorly skilled people are paid a certain level of income, to perform a certain level of job/task…and getting paid for the latter.”

So what do have have to show since 1994? An economy losing against better competing international peers (like manufacturing went to the East), and the AA/BEE being a burden/redistribution of income, leading to general economic decline. This caused for all forms of taxes on (paying) society to rise, be it from state or municipal, and yet they can’t manage with such increased tax revenue.

Soon, it will be SA’s pension funds that will be forced invest in government projects (which should’ve been taken care of by tax, in the first place), i.e. helping along the artificial & inefficient system of AA/BEE.

Once pensions are depleted (likely another 26 yrs later), then only the IMF will be asked for help. By then, no-one that matters would live here.

Cadre deployment is a crime against humanity

Gil, pretty much so. The concepts of adding value and wealth creation do not exist here. It’s all about acquisition and expenditure of wealth (created by the few value-adding taxpayers left).

Wealth creation requires knowledge and skills (both acquired from education and experience) and most especially, a serious willingness to work hard and earn the fruits of this effort.

… May God bless South Africa and protect her people. I thank you. THE END

One cannot compare NZ to SA. The same way one cannot compare Japan to SA. The culture of learning, culture is saving, skills etc. is different . The only comparison that is allowed is rugby.

….on the perspective of the global stage it would be like, in saying:

“God be with the people of South Africa”

“OK, that was quickly dealt with, thanks. Moving on to the next item on the global economic agenda, shall we….?”

Best comment on this blog………Thank you.

Toto and the ANC don’t know what a Balance Sheet is!
Where is Toto going to get the the BILLIONS required, I WONDER?

..pensions?

When will Toto & the ANC get back the Trillons stolen by the Guptas, living like Kings in Dubai?
I assume that NOTHING will ever be done as many will be IMPLICATED!
How did the money get out of the country?

From Zim. Its cheaper there.

Advice to Tito from White South Africans: STOP THE ANC FROM STEALING!

One doesnt need advice from NZ, one only needs common sense….dont steal !

Yes. In fact, that’s all that things like PFMA are all about – don’t steal.

The accounting principles and practical application way beyond the capabilities and intellect of the cadres

Maybe. But the ability to devise ways around these principles for the purpose of raiding the cookie jar show considerable ingenuity.
Imagine if these devious skills could be put on a more moral and ethical course…

“Good information and the knowledge that public services are responsibly run is important in bolstering democratic satisfaction.” A wonderful principle but dependant of course on the professionalism and competency of the administrators/public servants. SA has an excellent constitution which is basically ignored by the government in power.

I really wish authors would compare apple with apples. NZ is a proper first world country while SA has plunged into the third world.

We have unique problems which have to be addressed with unique solutions applicable to our tribal systems, language and cultural differences and skills.

Don’t forget they also have fair trade for all in NZ not like here where hundreds of millions of rands have left these shores never to return again due to racist BEE laws.

Why is everyone so negative – Cuba and Venezuela will show us how the caders can stay on the gravy train.

Excuse me … Half of Africa can be better role models.

it’s strange that after nearly 100 years of close rugby ties between NZ and SA,that it hasn’t extended to closer economic/govt to govt ties.As the article suggests, they are willing and able to help us clear a path out of the self-created mess this economy is in.New Zealanders are not mind readers – our govt just needs to ask them for their help, and they will help. Free advice Tito

The Country NEEDS Financial Fitness Training !!!

hahaha True. But you need money first.

NZ does not have any border to protect, only R5m people ☺ No comparison, nothing to learn form how NZ operate.

End of comments.

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