Variedades

New Zealand local authorities are unique in nature and their incentives for SSP disclosure have not yet been investigated in prior research in the public-sector. In essence, New Zealand local authorities rely very little on debt and government

100

funding, but rely mostly on taxes, including rates. As described in chapter 3, government grants and subsidies to local authorities, in 2009, accounted on average for only 10.96 percent of total revenue, and debt was 7.59 percent of total assets, while local taxes amounted to 61.1 percent of total revenue. Government is most likely to use its legislative report (the budget), and financial institutions are most likely to use specific reports, such as asset management plans and financial and funding policy, rather than SSP disclosures, when making decisions on funding. Hence, the awareness of funding benefits will not be a relevant incentive for SSP reporting by a New Zealand local authority, and therefore are not included in the study.

Therefore, the incentives of local authorities in New Zealand to disclose information in SSPs are: public demand for the disclosure; awareness of political costs; and the local authority‟s capability. Their corresponding influential factors, discussed above, will also apply. Table 4.2 summarises the disclosure incentives and influential factors applicable for wastewater disclosures in an SSP by New Zealand local authorities.

Table 4.2: SSPs wastewater disclosure incentives and influential factors of New Zealand local authorities

Disclosure incentives Influential factors

Public‟s demand for SSP disclosures -political competition -size of constituency -constituency sophistication Local authority‟s awareness of political cost -political visibility

Local authority‟s capability -staff availability

-personal attributes of accounting staff

101

The public‟s demand for wastewater disclosures can be caused by heightened political competition where candidates for council persuade the public of the need to monitor incumbent councillors in relation to wastewater management. Further, the large population size of a territorial authority, in which people wish to maximise the benefits of their taxes paid, may form coalitions which lobby the territorial authority for better wastewater services. Similarly, more sophisticated constituents who are interested in wastewater performance of their territorial authority may use various means to exert pressure on the territorial authority to provide more accountable wastewater disclosures. As discussed, the effect of the public‟s demand for wastewater disclosures is consistent with the OAG‟s (2008) view that a lack of public demand may result in poor SSP reporting (Office of the Auditor-General, 2008).

Where territorial authorities operate the wastewater operation, they can expect potential intervention from the regulator as by nature wastewater operation pollutes the environment. If they do not comply with the legal requirements (for example, under the Resource Management Act 1991), they may be subject to public criticism, enforcement order from the regional council, and tighter regulations imposed by other oversight bodies. Therefore, they may choose to provide more comprehensive information on their wastewater performance in order to avoid any intervention. However, Neale and Anderson (2000) argued that public-sector entities reported less of their service performance information in order to avoid public attention that could have potential political costs.

102

A local authority‟s capability (for example, lacking an efficient information system) may be a constraint on what can be disclosed about wastewater services. It is possible that territorial authorities with more staff, staff expertise, and the financial resources with which to compile wastewater information are more likely to provide more comprehensive disclosures. This argument is consistent with Neale and Anderson‟s (2002) argument that poor SSP reporting may be caused by a lack of resources to prepare the report, as mentioned in chapter 2. Although number of staff and financial resources of local authorities may be limited, staff expertise may be increased through education and comprehensive accounting guidance supported by regulators and accounting professions.

4.5 Summary

This chapter provides details from the empirical work on service performance information, and identifies disclosure incentives as well as their influential factors applicable to wastewater disclosures by New Zealand local authorities. As found in the United Kingdom and Australia, New Zealand public-sector entities do not satisfactorily report on their service performance information. Studies on SSP by New Zealand local authorities are very limited. Among public-sector studies, no studies have used the current authoritative requirements or all of the components of accountability expectations, derived from literature, to examine SSP reporting by New Zealand local authorities.

Given the limited prior research on service performance information, the literature reviewed in this study extends to voluntary disclosures by public-sector entities in order to identify disclosure incentives and their influential factors that are

103

applicable for wastewater disclosures. According to the prior research and the particular setting of New Zealand local government, three possible incentives are identified. These are the public‟s demand for information, agent‟s awareness of political costs, and the agent capability. Each of the incentives is influenced by a number of factors as listed in Table 4.2. Provided that these incentives of SSPs by New Zealand local governments have not been empirically tested, the third objective of this study is to examine the influential factors that may explain cross- sectional differences of wastewater disclosures.

Chapters 2, 3, and 4 provides basis for the study‟s objectives. The next chapter will discuss the methodology used for examining wastewater disclosures according to the objectives of the study.

104

Chapter 5: Methodology for Examining Statements of Service