Freedom or coercion?NPM incentives in New Zealand central government departments

Abstract

Abstract Incentives have a major presence in the language of new public management (NPM) which seeks to apply agency theory concepts and market sector practices to government. This article examines the experience of New Zealand central government departments with a series of financial management incentives built on an accrual accounting base centred on outputs. These incentives included a capital charge, the treatment of departmental surpluses and interest earned on cash balances, and performance-based rewards for chief executives. How well these operated is examined in light of avowed principles of managerial freedom and competition with alternative providers. The incentives, and the rules accompanying them, are found to have been developed in a fashion that has eroded the resources of departments, and their ability to deliver services over the longer term, and constrains managerial freedom. Accordingly, claims about the applicability of private sector models, managerial freedom and transparency needed to be treated with caution.