In some circumstances, strategic priorities can be fulfilled by allocating incremental funds to policy initiatives. But if this practice were continued for an extended period, it would lead to rising expenditures and (unless the economy were robust or the government were willing to raise taxes) chronic deficits. In the current New Zealand political and economic climate, the government's responsiveness to policy changes depends on its capacity to reallocate resources from lower to higher priorities. Reallocation is linked to the three-year rolling baselines.
New Zealand encourages reallocation through the annual budget process, in the course of which Ministers can bid for additional resources and Vote Ministers' propose shifts in funds among output classes. This arrangement is designed to protect the government's interest by ensuring that (a) funds are allocated or reallocated in accord with its priorities, and (b) the amounts spent are congruent with its fiscal strategy. Nevertheless, more priority shifts are likely to occur when the relevant Ministers make their own reallocations than when they are imposed by the government. Centrally dictated reallocations often fail because they are resisted by the losers. It makes sense, therefore, to give the affected Ministers the tough job of taking money away from some of their activities in order to give them to others.
Cabinet guidelines encourage reallocations that are fiscally neutral. These reallocations can be made within or between Votes, but the former predominates. Fiscally neutral changes, which are consistent with the baseline and have no impact on the Crown's financial position, may be agreed jointly by the relevant Vote Minister and the Minister of Finance. Changes that are not fiscally neutral generally require Cabinet action. Moreover, each year, during the "strategic" stage at the start of the budget preparation process, Cabinet may consider and direct reallocations across the State sector.
The guidelines encourage Ministers to seek reallocation before they bid for new resources. Nevertheless, there is some evidence that reallocation is not as common in New Zealand as in some other countries that have baseline systems. Australia, for example, operates a forward estimates system that is similar to New Zealand's baseline, and is said to generate significant reallocation each year. Relative to the Australian system there are two factors which might lead to a lower level of reallocations in New Zealand. One has been inattention to programme evaluation. The other is the large number of departments and Votes. In Australia, the government has adopted an evaluation strategy that impels departments to assess the programmes that operate and to shift resources from less to more effective activities. Moreover, Australia reorganised departments in the late 1980s to give Ministers a broader portfolio of activities. Portfolio budgetting encourages reallocation because Ministers have a broad scope of responsibilities. In New Zealand, by contrast, Vote Ministers generally operate within a narrower sphere.