Update on the Government’s Covid-19 expenditure

In this Update, we:

• explain how information on available funding for Covid-19 has been presented, and how it is organised differently from the expenditure reported in the Government’s statutory reports;
• explain why the required, statutory reports on expenditure will not provide a direct or easy-to-access account of where the funding has been allocated, how much has been allocated, or of how much Covid-19 expenditure has been incurred;
• propose that public accountability would be better served through additional reporting on Covid-19 expenditure; and
• provide an update on expenditure for some of the main areas to which the Covid-19 funding has been applied.

Key points

• The Government has indicated that about $62 billion is available over several years for the Covid-19 response (“Covid-19 funding”), including $25 billion allocated to 2019/20 and $16.1 billion for 2020/21.
• There is a considerable public interest in how much of the $62 billion of available funding is being spent on the Government’s Covid-19 initiatives (“Covid-19 expenditure”) and, ultimately, what has been achieved with that expenditure.
• We consider that the minimum statutory requirements for financial reporting are not enough to provide Parliament and the public with meaningful information about the Covid-19 expenditure. It is difficult, if not impossible, to get from those reports an overall picture of how much Covid-19 funding has been allocated and how much has been incurred on various initiatives to date.
• Transparency and public accountability would be better served if the Government were to provide a regular report summarising how much of the Covid-19 funding has been allocated, how much remains unallocated, and the actual amount of spending to date on main initiatives. Ultimately, we would also expect to see reporting on what has been achieved with the money.
• We have been able to provide a partial picture of Covid-19 expenditure (see the Appendix). Most significantly, the Business Support (Wage) Subsidy and the Small Business Cashflow (Loan) Scheme account for 86% (over $15 billion) of the expenditure incurred under those appropriations¹ we have currently identified as Covid-specific.² Over $2.5 billion has been incurred in other areas.

Why we are monitoring the Government’s Covid-19 expenditure

In keeping with our role, we have been monitoring the Covid-19 spending as part of our monitoring of all government spending.

The Government has made a significant amount (about $62 billion) of funding available over several years for the Covid-19 response, including $25 billion allocated to 2019/20 and $16.1 billion for 2020/21.

We have been giving special attention to monitoring Covid-19 expenditure because there is a considerable public interest in how much of the available Covid-19 funding has been allocated and how much expenditure has been incurred on the Government’s Covid-19 initiatives. The size of the funding available over the next few years, the level and nature of potential Covid-19 expenditure, and the implications for the Crown’s financial position (and public debt) are considerable.

How much has the Government set aside for the Covid-19 response?

Figure 1 provides an overview of how much funding the Government has indicated is available for dealing with Covid-19. The figures cover the period 2019/20 to 2023/24 and take into account the many potential effects of the Covid-19 response on Government finances, including:

• operating expenses of various government agencies;
• capital expenditure on, for example, physical assets and financial assets (including loans to businesses);
• expenses relating to the devaluation of some assets, for example, the impairment or writing-off of loans;
• benefits, grants, and other monetary transfers;
• the effects of tax relief measures and other estimated reductions in Crown revenue.

Our data are based on the Government’s media announcements, Budget information, and other information we have received from the Treasury.

Figure 1
Available funding for the Covid-19 response by “package”, as at 15 January 2021

* Note: rounding affects the total figure.

Figure 2 shows how the available funding has been spread across the forecast period. We expect that the Government’s estimations will change over time, depending on the extent to which the funding set aside is needed. For example, some funding available in 2019/20 that was not drawn on has been transferred to 2020/21, and we are likely to see more transfers between years in future.

Figure 2
Available funding for the Covid-19 response by year, as at 15 January 2021

* This indicates funding that has been “returned” to the CRRF and not reassigned to years within the forecast period.

Covid-19 funding information vs reported expenditure

There are several distinct stages in the public finance system from the point when Ministers and their departments place funding bids to Cabinet to when the Crown (individual government departments and in aggregate) provides a public account of its expenditure.⁴

In brief, information for fiscal management purposes is organised differently from the statutory information for accountability purposes. Figure 3 shows how funding requests and accountability reporting against appropriations are organised and the differences between them.

Figure 3
Budgeting and reporting frameworks

How funding is sought (Column A) is frequently different from how funding is appropriated and expenditure is reported in departments’ annual reports. Government departments’ annual reports include statements of expenditure incurred under each appropriation authorised by Parliament (Column B). But there is no requirement for those reports to separately identify expenditure funded in accordance with the Covid-19 funding packages (Column A).

It would be difficult, if not impossible, for Parliament and the public to track how the Covid-19 funding decisions (by initiative) have been assigned to the various funding authorities (appropriations).

It is possible to gather a partial picture of the Covid-19 expenditure by looking at individual government departments’ annual reports for the amount incurred against those appropriations that were set up exclusively for the Covid-19 response. But that requires prior knowledge of which departments administer those appropriations and which of those appropriations authorise Covid-19 only expenditure.

Effective accountability requires better visibility

There is a public interest in information that lets people see how public money is being spent. It is fundamental that the public is given clear and understandable information about how public money is being used. Disclosure acts as an incentive to use public money wisely and promotes public trust and confidence in the proper and prudent expenditure of public money.⁵

There is considerable public interest in how much of the $62 billion of available funding has been applied to the Government’s Covid-19 initiatives. This is especially so, given the extraordinary circumstances of the pandemic, the size of the available funding indicated for the next few years, the level and nature of potential Covid-19 expenditure, and the potential implications for the Crown’s financial position (and public debt) for many years to come.

The formal, statutory basis of accountability reporting is necessary but not enough to provide Parliament and the public with meaningful information about Covid-19 spending. It is informative and useful in some ways and for some purposes, but it does not serve the public interest well when it comes to accountability for large funding decisions spread across many initiatives, many departments, and many appropriations. A recent media report on social services spending has highlighted the accountability problems caused by “the siloed nature of investments through different votes”.⁶

Maintaining public trust and confidence will sometimes require more transparency and accountability than complying with the minimum statutory reporting requirements.

A note to the whole-of-Government accounts (the Financial Statements of the Government of New Zealand) for 2019/20⁷ goes some way towards this by providing information on several significant items (for the year ended 30 June 2020).

In our view, transparency and public accountability would be better served, and greatly enhanced, if the Government were to provide a regular, easy-to-access report summarising how much of the Covid-19 funding has been allocated, how much of the available funding remains unallocated, the actual amount of spending to date on main initiatives and, ultimately, what has been achieved. We recommend that the Treasury consider how such an overview of the Covid-19 funding and expenditure could be usefully presented.

We accept that not every Budget initiative announced by a government can be separately tracked, and we do not expect every initiative to be separately reported on. Nevertheless, the public profile given to the Covid-19 response, and the potential size of the Covid-19 spending, warrants special reporting to provide additional transparency to the public. This is similar to the accountability matter that we recently raised in relation to the Provincial Growth Fund.⁸

What do we know about how much has been spent so far on the Covid-19 response?

It might not be feasible to determine the total amount of government expenditure on Covid-19 initiatives, even by examining departments’ statutory annual reports. That is because some of the Covid-19 funding has been used to increase the funding of existing appropriations for “business as usual” items (general appropriations), such as increases to benefits and other support payments, higher levels of write-downs of student loans, increased funding for pre-Covid-19 government services and initiatives such as public health services, and higher administration costs (for managing the Covid-19 response).

The actual expenditure under these general appropriations will be a combination of Covid-19 and other spending. Determining how much of the expenditure on business-as-usual items was for the Covid-19 response and how much was normal expenditure will not be straightforward.

However, it is possible to gain a partial picture of the Covid-19 expenditure by looking at those appropriations that have been set up specifically and exclusively for the Covid-19 response. This first requires the ability to identify every Covid-19-specific appropriation, something that is not easily identifiable from the reports normally available to the public.

Financial year 2019/20

In our September 2020 Controller update on Government spending on Covid-19, we reported on expenditure authorised and incurred up to 30 June 2020, based on figures we had at the time. We determined that Cabinet approved about $26 billion for new Covid-19-specific appropriations.⁹ Of that, about $14.8 billion had been incurred by 30 June 2020 (see the Appendix).

Around $3.3 billion was authorised to top up existing (general) appropriations to help with the Covid-19 response.¹⁰

Financial year 2020/21

For the reasons described above, we are unable to readily or conclusively determine how much expenditure the Government has decided to approve for the Covid-19 response so far in 2020/21 or how much has been incurred to date.

Another feature of the financial management system that is not immediately visible to Parliament or the public is the “between Budget” spending decisions and the allocation of funding against appropriations.

Where the Government has allocated funding for the forthcoming year’s Budget, details are provided in the Vote Estimates, which are published on Budget Day and examined by Parliament. When new funding decisions are made after the Budget has been enacted, they are authorised through imprest supply and are not visible to Parliament or the public until the following Budget Day,¹¹ which is near the end of the financial year and after most of the new spending has already been incurred.¹²

For 2020/21, the amount of “between Budget” authority available to the Government has increased considerably, from $17.3 billion in 2019/20¹³ to $56.5 billion for the current financial year.¹⁴ This gives the Government considerably more scope to incur significant expenditure without prior Parliamentary scrutiny. Between Budgets, the Government provides economic updates and monthly updates of the Financial Statements of the Government, but it is not required to report publicly on how new spending decisions will affect the appropriations or on the new expenditure incurred against appropriations.

Covid-19

Since Budget 2020 was enacted, the Government has continued to approve new expenditure on Covid-19 initiatives under the authority given by imprest supply. This is in line with standard practice, but it does mean that a potentially large amount of Covid-19 expenditure could be incurred that was not included in the 2020/21 Budget Estimates. It is not possible from publicly available information to determine how much new funding for Covid-19 has been allocated to appropriations since the last Budget.

A partial picture

We are able to provide an incomplete picture of some elements of the Covid-19 response expenditure based on government department annual reports and information the Treasury has provided to us for our routine Controller work.¹⁵

The Appendix provides details of expenditure against appropriations that we have identified as having been established exclusively for the Covid-19 response (Covid-specific appropriations). This list includes:

• Appropriations that we reported on for 2019/20.¹⁶
• Appropriations that have been newly authorised for 2020/21 and that are easily identifiable as being Covid-specific (in bold font).

The table in the Appendix does not provide a comprehensive picture of Covid-19 expenditure in 2020/21; some authorisations and expenditure will be excluded:

• There may be some Covid-specific appropriations that we have not identified as such because they are not readily identifiable from their description.
• Covid-19 expenditure from general appropriations is not separately identifiable.

The table is sorted, in descending order, by the total expenditure incurred over both 2019/20 and 2020/21.

The current year data apply to expenditure incurred from 1 July to 31 December 2020.

The table shows that nearly $3.5 billion has been incurred under those appropriations so far this year, compared with the $16.1 billion of potential funding available for 2020/21 (see Figure 2).

The Business Support (Wage) Subsidy and the Small Business Cashflow (Loan) Scheme account for 86% of the total expenditure included in the Appendix.

Appendix: Expenditure incurred under selected Covid-specific appropriations as at 31 December 2020

The table below provides details of expenditure against appropriations that we have identified as having been established exclusively for the Covid-19 response (Covid-specific appropriations). It does not provide a comprehensive picture of Covid-19 expenditure in 2020/21; some authorisations and expenditure will be excluded:

• there may be some Covid-specific appropriations that we have not identified as such because they are not readily identifiable from their description; and
• Covid-19 expenditure from general, business-as-usual appropriations is not separately identifiable.

Expenditure as at 30 June 2020 is from the audited annual reports of the relevant government departments. Expenditure as at 31 December 2020 is from data provided by the Treasury.

Bold items represent new appropriations in 2020/21. Accordingly, n/a denotes that the appropriation is not applicable to 2019/20.

A zero figure (0.0) indicates that an appropriation was available for the year but no expenditure has been incurred against it.

1: Appropriations are authorities from Parliament that specify what the Crown may incur expenditure on (specific areas of expenditure). Most appropriations specify limits in terms of the type of expenditure, what it can be used for, the maximum amount, and the time period.

2: These data cover the period from March to December 2020.

3: The “Covid-19 Response and Recovery Fund” (CRRF) is not a fund in the conventional sense of the word. As explained in the Budget 2020 CRRF Foundation package, “The CRRF is a funding envelope for budget management purposes, rather than an actual sum of money ring fenced in the Government’s accounts.” It is a fiscal management tool to allow the Government to anticipate the fiscal costs of the Covid-19 response and recovery, within its existing fiscal forecasting and management process.

4: For background information, see https://www.nzae.org.nz/wp-content/uploads/2016/10/3228152_FINAL-Conference-Paper-Guide-to-NZs-FMA.pdf

5: Office of the Ombudsman | Tari o te Kaitiaki Mana Tangata, Public interest: A guide to the public interest test in section 9(1) of the OIA and section 7(1) of the LGOIMA, page 13.

6: Stuff.co.nz, Government not sure how much it is spending on third-party social service organisations , 28 January 2021.

7: https://www.treasury.govt.nz/publications/year-end/financial-statements-2020, Note 3, page 62.

8: Managing the Provincial Growth Fund — Office of the Auditor-General New Zealand (oag.parliament.nz)

9: These are new areas of spending that were authorised through new appropriations.

10: We were able to determine this because, in the early stages of the Government’s Covid-19 response, the Treasury was able to provide us with information that separately identified Cabinet decisions relating to Covid-19. However, some of the Covid-19 response expenditure has been authorised under existing appropriations; that is, Parliament has authorised the ‘topping up’ of appropriations previously set up for business-as-usual expenditure (general appropriations). We are unable to apportion the expenditure incurred under general appropriations into Covid-19 and non-Covid elements.

11: Through the Supplementary Estimates of Appropriations.

12: We explain the use of imprest supply to authorise “between Budget” spending in our recent report to Parliament, Central government: Results of the 2019/20 audits, pages 48-49, https://oag.parliament.nz/2020/central-government

13: The authority for 2019/20 was boosted by a further $52 billion in March 2020, mainly as a response to the Covid-19 outbreak.

14: Authorised under the Second Imprest Supply Act for 2020/21.

15: For our monthly Controller monitoring, the Treasury provides us with the amount authorised and expenditure incurred to date for each appropriation.

16: Covid-specific appropriations from 2019/20 that are not authorised for 2020/21 are included for completeness.