Risks to be managed
8. The Minister of Finance has a strategic role and responsibility for managing the Crown's overall financial position and its portfolio of assets and liabilities. Accountability for the overall stewardship of the Crown's financial position rests with the Minister of Finance.

9. From a Crown risk management perspective, the Minister of Finance will have a significant interest in the financial performance of the DHBs:
   1. The combined assets and liabilities of the DHBs will represent a very large component of the Crown's balance sheet. At 30 June 2000, it is expected the combined total assets of HHSs will be $2.5 billion.

   2. The financial performance of the DHBs has the potential to impact significantly on the Crown's overall financial position. Over 1999/00, the operating expenditure on health made up around 19% of total Government expenditure.

10. While the DHB accountability arrangements focus on addressing the purchase and delivery of health and disability services (that is, the purchase performance), there is an equal need to ensure an appropriate level of focus on ownership interest in DHBs. The immediate and continual pressure for health and disability services must not overshadow the equally important need to focus on long term capability, risk management, levels of investment and financial performance of DHBs.

11. If insufficient focus is placed on ownership performance, there is a considerable risk to the Government's ability to achieve its long-term outcomes in relation to the health and disability sector. Over time, if asset maintenance and replacement are neglected, DHBs may inappropriately run down their productive capacity and not be able to deliver the required level and quality of services. From a fiscal perspective, insufficient attention to capital maintenance will mean that at some future point the Crown as owner may be presented with the need for large capital injections to replace or upgrade assets that DHBs have failed to maintain.

12. To ensure that a strong ownership perspective is maintained that minimises these ownership and other risks to the Crown, it is desirable for the Minister of Finance to assume, in conjunction with the Minister of Health, some specific roles and responsibilities in relation to the ownership performance of the DHBs, particularly their financial performance.

AGREED RESPONSIBILITIES OF THE MINISTER OF FINANCE

Previous Cabinet Decisions
13. Cabinet has previously decided that the Minister of Finance will have the following responsibilities with respect to DHBs:
    1. DHBs will be required to obtain Ministers' of Health and Finance support for major transactions

    2. DHBs will be required to obtain Ministers' of Health and Finance approval for all significant capital investments

    3. The Minister of Finance's approval will continue to be sought in addition to that of the Minister of Health for capital injections.

14. Further advice is being prepared for Ministers on the definitions of significant capital investments and major transactions (accompanying paper: District Health Board Investment And Balance Sheet Management: Further Work).

15. The advice provided in this paper is consistent with previous Cabinet decisions.

    Public Finance Act

16. Mechanisms exist under the Public Finance Act 1989 (PFA) assist the Minister of Finance in managing the fiscal risks associated with the health sector to a limited extent. These are (a more detailed list of responsibilities under the PFA are listed in Annex One):

    Section 4: Appropriation Required

17. This section provides the Treasurer/Minister of Finance with some control over the absolute level of expenditure on health as well as the breakdown of that expenditure on key components by requiring any expenditure to have an appropriation by Act of Parliament, which specifies each appropriation by category. These categories are specified within the vote as line items and are allocated specific funds over the budget cycle that cannot be spent on other areas. The Funding Workstream is considering the nature of the output classes of DHBs.

    Section 15: Capital Injections to Crown Entities

18. This allows for the Treasurer/Minister of Finance, in consultation with the Responsible Minister (the Minister of Health) to determine the terms and conditions under which any capital injection shall be made and to vary such terms and conditions from time to time. As entities included in schedule 4 [reference to follow after 8 May Cabinet] of the PFA DHBs requiring capital injections would be subject to this section.

    Section 16: Profit Payable by Crown Entities

19. This allows the Treasurer/Minister of Finance, after consultation with the Responsible Minister (the Minister of Health), to direct a Crown entity to pay the Crown part or all of any profit (surplus) made. As entities included in schedule 4 of the PFA the DHBs would be subject to this section and should the Crown consider it appropriate DHBs may be required to return surpluses under this section.

    Section 9B: Power of Secretary to Obtain Information

19. The Secretary to the Treasury can request any department or any Crown entity to supply any information necessary for preparing the Estimates and Supplementary Estimates.

    Section 29A : Power of Secretary to Obtain Information

20. The Secretary to the Treasury can request any Crown entity to supply any information necessary to prepare the financial statements of the Crown and satisfy the Treasurer/Minister of Finance that these fairly reflect the Crown's financial position.