Introduction: Discussion paper on Reforming Victoria's public finance legislation

The key legislation for Victoria’s public financial management, the Financial Management Act, was enacted in 1994. Since then public financial management, and the public sector more broadly, have changed considerably.

Today, the Victorian public sector comprises ten government departments and numerous other entities, often working in partnership with the private sector and non-government organisations. These institutions work closely together in an environment with fewer boundaries and more emphasis on personalised service delivery, citizen engagement and participation. In addition, citizens now expect to be able to find out, with minimal effort, how their government has performed in delivering a range of key policies and initiatives. Advances in information and communication technology mean that governments can interact with citizens in a greater range of ways, and citizens can be more easily informed about the workings of government.

Victoria’s financial management framework has evolved to reflect these broader public sector changes. With these changes, new opportunities and responsibilities have evolved for both the parliament and executive government. This has resulted in a dramatic shift in accountability. For its part, government has been granted greater flexibility to pursue its objectives whereas parliament, which traditionally relied on a rudimentary test of whether appropriated funds had been spent, now queries whether those funds have been spent efficiently and effectively.

Some of the specific financial reforms over the past fourteen years include:

• introduction of an accrual-based output management framework
• enshrining in the Constitution the position of the Auditor-General as an independent officer of the Parliament and requiring that any changes to that officer’s powers be approved in a referendum
• establishment of a comprehensive financial management compliance framework
• institutionalisation of the Auditor-General’s annual review of the assumptions and methodology underpinning the government’s estimated financial statements included in budget papers – a world first
• development of a comprehensive and transparent financial reporting framework, including the requirement for the Department of Treasury and Finance to publish a Pre-Election Budget Update (PEBU) once a general election is called
• enshrining in legislation the basic principles of sound financial management to which the government must adhere.

More broadly, the Victorian Government has a strong record of achievement in public sector reform. Since it was elected in 1999, the government has reformed the state’s Constitution Act and introduced the Public Administration Act.

Now, to ensure that Victoria remains a leader in public sector management for the next generation, the government is comprehensively reviewing its public finance legislation and practices.

Scope and process of the review

The goal of the review is to introduce a new Bill to replace the Financial Management Act. The review is considering the following matters.

• What represents best contemporary management practice for the key elements of financial management, including planning, governance, resource allocation, resource management and accountability?
• What would be best practice for Victoria’s public finance legislative framework?
• What financial management structure would best support the Westminster system of government in Victoria?

In addition to the Financial Management Act, the review is considering a number of related Acts with the aim of building a more cohesive legislative framework for public finance. These include the Borrowing and Investment Powers Act 1987, the Administrative Arrangements Act 1983, the Monetary Units Act 2004 and the Public Authorities (Dividends) Act 1983.

The review focuses on expenditure and governance rather than taxation and other sources of revenue.

The premise of the review is that legislative reform will enable Victoria’s public finance system to better meet the needs of the community, parliament and government.

To inform this process, consultation is essential. The government is seeking community and stakeholder views on what arrangements might enable Victoria to have the best public finance system.

This discussion paper outlines the key issues and a range of options identified in the review. It poses a number of questions that interested parties might consider when making their comments.

View other sections of this Discussion Paper:

Foreword
Introduction
1. Victoria’s current public finance system
2. The case for change
3. Possible directions for reform
4. Next steps
Appendix A: Extract from Public Administration Act 2004, Part 1, s. 5
Appendix B: Extract from Public Administration Act 2004, Part 5, s. 81
List of shortened forms
Glossary of terms