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 3year
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.
