Accounting for central government 2015

Report | 18-05-2016

Contemplating change

Contemplating change

In essence, political accountability is the art of telling a story to explain what has been done. It is not simply a dry calculation to determine whether the bottom line should be coloured red or black. It is a chance for politicians to explain how they exercised their powers, what they spent the public’s money on and what they achieved. If the facts are right and the story is properly crafted and credible, parliament can grant the politicians discharge. But the facts must first be independently audited and the story must be critically reviewed. The tension between government and parliament is due to the fraught relationship between money and information, power and counterpower, argument and counterargument. It all hinges on the balance of expenditure to performance. Do the public get value for money?

2015 was an unusual year because the facts presented in the government accounts tell two different stories. One is about the significant successes in the ministries’ operational management, the very high standard of their financial regularity and the transparency of their reports to parliament. But the audit of the annual reports also reveals a story of serious, persistent problems in three traditional areas of government: taxation, defence and justice. Attempts to control them have so far been unsuccessful. And in some important policy fields the government does not really know what impact its expenditure is having.

Our examination and audit of the government accounts therefore revealed a paradoxical view of the current state of central government. We must resist the temptation to tell only the first story – the good performance following the difficult years of crisis and contraction – at the expense of the second. Democracy stands or falls on transparency and the willingness to face up to problems. Ignoring them costs valuable time, time that could be better spent finding solutions and runs the risk of having to respond to unexpected – although predictable – incidents.

So how can these apparently contradictory stories be woven into a single narrative, a coherent story? We must first place the developments in a broader context by looking at them dispassionately over a longer period of time. The year ahead might be such an opportunity to take a dispassionate look forward and backward. It will be the government’s last year in office before elections are held for a new government to take over. It will be a good opportunity to take stock of what has been achieved and to hold the new ambitions up to the light.

Our audits of central government’s accounts for 2015 and previous years have shown that bureaucracy in the Netherlands does not live up to the stereotype of a bloated and sluggish leviathan. Across the board, the public-sector has seen a breath-taking number of changes, reforms, decentralisations, transformations, mergers, cuts and adaptations to new policies, new target groups and new arrangements of public duties. The Dutch executive branch is in constant flux. Public services are improving, becoming faster and less expensive. The government is becoming smaller, more efficient and more service-minded, with fewer civil servants and external contractors.

These advances are being driven not only by the wish to take a firmer grip on public finances. To the state, every member of the public is a citizen but to private parties they are consumers. The unprecedented pace of technological change is reflected in the new forms of organization and new product offers, highly individual services where the personalized marketing of modern telecoms has long replaced the one size fits all package offered by traditional providers. The public expect the same service standards from the government. They expect the same instantaneous online response. Personalisation is the way forward. But the relationship between a state that treats everyone equally and a digital unitary state that thrives on standardisation does not automatically lead to a kitchen table conversation that respects the uniqueness of the individual.

The executive branch’s transition took flight in the 1980s and 1990s when many public organisations were hived off to become autonomous administrative authorities or public companies with the power to take their own decisions and so work more efficiently. Ministerial responsibilities were revised to give them their own tasks and management and accountability models. In the belief that modern professionals needed the freedom to make their own decisions and not be burdened by ‘The Hague’, both the organisational forms and the funding conditions were radically changed: education was funded on a lump sum basis and the judiciary on a performance-related basis. Social security, by contrast, underwent a different transformation: from implementation by the social partners themselves to implementation by the municipalities and a government body, the Employee Insurance Agency. Care has also been partially decentralised: compulsory insurance schemes are now administered by private parties that compete on the basis of their premiums.

Primacy has remained with the politicians but ministerial responsibility reflects ministerial powers. In theory, the ministers’ accountability should also change so that they can account for arm’s length budgets and tasks. After 30 years of reorganisation, a new biodiversity has arisen alongside the classical administrative structure. Independent organisations carry out public tasks funded from the public purse to the tune of €130 billion. And after decades of first centralisation and then decentralisation to municipal level, the classical three-tier administration spends about €60 billion. The lion’s share of this money is collected and distributed by the state but audited and accounted for locally.

The overarching story is therefore one of a central government that has transferred a lot of money but, despite the high level of regularity, often has difficulty understanding what it does. Policy this year, for example, targeted economic growth and job creation. And the overarching story recognises that the high degree of regularity of expenditure combined with problem-free operational management does not mean public services are free of problems. This is illustrated by the implementation of personal care budgets.

What is striking in this context is that three traditional government tasks are struggling to overcome persistent problems, even after all the changes in central government. The Ministry of Finance has been struggling for many years to modernise the Tax and Customs Administration. The Ministry of Security and Justice is suffering from erratic financial management. And the Ministry of Defence has had difficulties with the armed forces’ operational preparedness due to shortcomings in materiel management. And what about the future? Fewer shortcomings in operational management is high on the list, of course. But that is not the complete story. The Ministry of Foreign Affairs and the Ministry of the Interior and Kingdom Relations are preoccupied with internal reorganisations. The recently merged Ministry of Economic Affairs must strengthen its effectiveness. Infrastructure and the Environment has its hands full with the railways and road maintenance. Social Affairs and Employment is having to deal with the concentration of unemployment in specific demographic groups. The Ministry of the Interior and Kingdom Relations has received additional funding for the General Intelligence and Security Service but it must still come to terms with earlier budget cuts.

The waters outside the ministries are also turbulent. The Netherlands Enterprise Agency and the Netherlands Food and Consumer Product Safety Authority have only limited prospects of achieving the efficiency gains expected of them when they were formed. Municipalities and the Social Insurance Bank must pull out all the stops to ensure that drawing rights for personal care budgets are implemented correctly. The national police force needs more time and money to organise the merger of 26 local forces efficiently. Municipalities have become contracting authorities in the social domain but, like the care provides, they are having great difficulty organising the financial aspects of service provision. In the healthcare sector, district nursing organisations, mental health institutions and care insurers have again been unable to account for their finances correctly.

The list goes on and it is no exaggeration to say the public sector is in an almost perpetual state of reorganisation. In itself, this is an issue that deserves attention. Whether the public can follow all these systemic changes and know where to turn to and who has the answers they need is a fundamental question, but it is rarely asked.

We therefore think there is more at issue than whether all the reorganisations can be digested. Last year we concluded it was ‘time for action’. Today, 12 months later, there has been no let-up in the need to consider the performance of executive tasks. The new public ecosystem needs a new answer to old questions. What role does parliament play in the new constellation? What information does it need to approve the budget? How can modern technology help shape modern public accountability? Are real-time auditing and data analytics beckoning as an alternative or addition to traditional auditing? What duty of accountability to parliament does a minister have as a client, owner or shareholder of an autonomous administrative organisation? How ‘autonomous’ are those organisations? And above all, where can the public get answers to their questions, problems and complaints? How do they know whether they are getting value for money? And who will tell them?

The successive spending cuts since the financial and economic crisis will come to a head in 2017 and general elections will be held. By definition, it will be an opportunity to propagate even more changes. And they will always harbour the risk of a one-sided focus on the here and now. It would be prudent for parliament and the government to use the coming 12 months to contemplate two issues: the scale of all ongoing reorganisations and the democratic consequences of current and future transitions in the public sector.

We are aware that it is easier to ask a question than to answer it. But any democracy worth its salt is expected to provide answers. And the key question is, are the public getting value for money?