Government Services
51. Where the conditions in principle 1 for government provision are met, the question arises whether the government should itself supply the goods or services or whether it should contract them out, and whether they should be sold or provided free.
Contracting out
52. It is easier to provide private parties with strong financial incentives to perform, and to penalise them for non-performance. Private parties can also offer wider private sector experience or innovation. Competitive tendering allows the public sector to choose from a number of bidders and when the contract expires, any concerns about performance can be dealt with by replacing the incumbent with another provider.
53. However, contracting out is not always the best option. It is only suitable where measurable performance standards can be clearly specified. Where they cannot, for example, in the provision of policy advice to ministers, a “master-servant” relationship is more appropriate.
54. Whether clear measurable performance standards can be specified depends in part on the skill of those writing the contract. Services that have traditionally been provided by the public service may, on closer examination, be suitable for contracting out.
55. Contracting out needs to address questions about the best form of contract, such as whether it should be a “whole-of-life” contract (e.g., a public private partnership, or PPP), a time-limited contract, or a contract for certain kinds of services only (e.g., a lease, or a maintenance contract). The government is open to considering all forms of contracting, the only criterion being that it provides best value for money.
Principle 2a
Services that can be clearly specified should be contracted out to the private sector in a form that gives best value for money. Services that are not easy to specify in a contract should be delivered by a government agency.
The government will explore opportunities for contracting out more services and innovative contracting techniques where these provide value for money.
User charges
56. This includes taxes that are in the nature of user charges, such as the Fuel Excise Duty.
57. User charges are important to ensure that economically efficient levels of infrastructure are provided and used. They ensure that users demand a service only where they put a value on it that exceeds the cost of the service. Where the user charge is set high enough to also reflect indirect social and environmental costs, the amount of infrastructure that needs to be put in place to meet the resulting demand will not exceed a socially and environmentally sustainable level.
Principle 2b
The government will apply user charges unless:
- the good or service is provided free for income redistribution or other policy reason, e.g., health, primary education; or
- it is difficult or costly to exclude users and charging is therefore not feasible, e.g., national defence, law enforcement.
Charges should not exceed the cost of providing the service.[11]
In practice, this means that transport, energy, telecommunications, irrigation and to a limited extent drinking water are subject to user charges, while health, education and corrections are largely not.
58. In practice, there will be some situations where a hybrid approach is appropriate, e.g., subsidised housing.
Notes
- [11]For guidelines on setting charges in the public sector, see http://www.treasury.govt.nz/publications/guidance/finmgmt-reporting/charges/