Robertson eyes big Public Finance Act reform
Amid debate over infrastructure deficits and New Zealand's low public debt, Grant Robertson wants to introduce wellbeing targets into the 30 year-old Act behind the Crown's strong balance sheet.
Finance Minister Grant Robertson has signalled major changes to the Public Finance Act and a greater use of the Government’s strong balance sheet to address issues such as child poverty, housing affordability and climate change.
He said in a speech late on Friday that the 1989 Public Finance Act (PFA) and the public finance system had “limitations that undermine the Government’s pursuit of wellbeing objectives.”
The PFA put “electric fences” around fiscal management and created silos that made working across departments on long term issues difficult, he said in a speech to the architects and users of the PFA in the Parliament.
They were there for the opening session of a three day conference to mark the 30th anniversary of the Act. It was hosted by Victoria University of Wellington’s School of Accounting and Law and included speeches from finance ministers (past and present) Grant Robertson, Roger Douglas, Ruth Richardson and David Caygill, along with former Treasury Secretary Graham Scott, former Controller and Auditor General Lyn Provost and Tom Scott. Lynn Grieveson and I attended for Newsroom and the detail of the presentations and programme are here.
"Our strong fiscal position provides the space for us to be ambitious about what we can do to improve people's living standards," Robertson told the audience, many of whom had run the Government's accounts before and after the introduction of the Act in the last year of the fourth Labour Government. It was subsequently beefed up under then-Finance Minister Ruth Richardson with the addition of the Fiscal Responsibility Act, which was later rolled into the PFA.
"My objective is a public finance system that enables the public service to positively assist and improve the inter-generational wellbeing of New Zealanders," Robertson said.
"Our modernisation of the public finance system, addressing its current limitations, is a key element of aligning the public sector to a wellbeing approach," he said.
Baseline review for Defence
The Government's work on the PFA, including plans to introduce legislative amendments soon, was structured around three themes:
* changing the ways to measure success and setting priorities by amending the PFA to embed wellbeing and the broader sustainable development goals.
• changing the financial management framework to make it more flexible to allow collaboration and a more "strategic focus." This would include changes to the appropriation system and a different approach to planning and reporting, he said.
* Rethinking the approach to the Budget so the Government looked at existing as well as new spending.
"About 98 per cent of government expenditure – or $89 billion – sits outside the annual Budget process, and yet – as I’ve already mentioned – we spend most of our time assessing how to allocate the next two per cent or so located at the margin though each Budget. This means having to be reactive through the Budget process, when it is already too late to make the big strategic moves," Robertson said.
He said looking at existing as well as new spending would "create more space to focus on the challenges and trade-offs needed to improve wellbeing for all New Zealanders."
"This includes fiscal policy, where we want to consider the wellbeing of our environment, people and communities, alongside existing macroeconomic and fiscal indicators."
Proposal for Cabinet soon
Robertson announced he would soon go to Cabinet with a proposal to improve strategic planning and reporting, "testing a fundamentally different approach with one or two pilots."
"I won’t go into detail now, because we are still in the very early stages, but our proposal is that each pilot will put a spotlight on a specific long-term issue," he said, adding agency leaders would be asked to present scenarios and choices and create "multi-year pathways underpinned by milestones and indicators."
The Government had already done a baseline review of the Ministry of Social Development and planned one for Defence. Other departments could start looking forward to their baseline reviews, he said.
"I am not sure the creators of the act would approve of all the changes that I am proposing, but I hope they would admire the reforming spirit that I am approaching them with. It is time, 30 years on, to bring the PFA into the 21st century and put wellbeing and collaborative government at the centre of our approach."
Robertson denied to reporters the wellbeing measures would replace or be prioritised over prudent debt management. He referred to the recent change to widen the Government's net debt target from a point of 20 percent of GDP to a range of 15-25 percent. Currently, net debt is 19.3 percent of GDP.
"We could still borrow significantly more money and in my mind meet that objective, but it has a context, and it's the context we're now enhancing by putting the wellbeing objectives in," he later told reporters.
Douglas sees a $1 trillion debt
Former Finance Minister Roger Douglas, 81, spoke at the conference dinner on Saturday night about the times leading up to the creation of the 1989 Act, which was ushered through Parliament by his successor David Caygill, 70.
He called for the extension of the PFA's use of accrual accounting to take in the implied long term liabilities of an ageing population, particularly around growing pensions and health care costs.
He estimated the net present liability at $1 trillion, including $650 billion for pensions and $350 billion for health.
"I don't think we can deny that is a debt that the Government has," he said, adding that using the measure would immediately change the approach of politicians.
"I will guarantee it will change the behaviour of politicians," he said.
Long Term Investment Agency?
Meanwhile, former Treasury Chief Economist Girol Karacaoglu, who is now a Professor at Victoria's School of Government, proposed the creation of a Long Term Investment Agency to advise Parliament (like the Parliamentary Commissioner for the Environment) on investing over the long term to achieve wellbeing goals around the likes of child poverty and climate change.