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Can the Zero Carbon Bill work? Ruth Richardson has the answer

The Zero Carbon Bill has been criticised for its apparent 'toothlessness' - but could an under-appreciated piece of legislation from the 1990s show how the Bill may yet come into its own?

The Zero Carbon Bill will have its first reading in Parliament on Tuesday. 

Unveiled to great fanfare nearly a fortnight ago, the bill drew criticism from climate change activists for being essentially non-binding.

The legislation will create a Climate Change Commission, which will be tasked with setting emissions budgets for the country. While the Government will have to prepare a strategy to respond to these budgets, the bill creates no binding powers that would force the Government to meet these targets. 

For activists who were hoping for legislation along the lines of the Reserve Bank Act, which gives the Bank independent powers to set interest rates and manage inflation, regardless of what the Government says, it came as something of a disappointment. 

But cynics might want to look at another piece of revolutionary legislation for a more optimistic view. 

The Fiscal Responsibility Act, an under-appreciated and unloved piece of legislation turns 25 this year. It may be under-appreciated for the fact that Michael Cullen rolled it into the far more famous Public Finance Act when he was Finance Minister, meaning it barely scraped a decade as a piece of standalone legislation. 

The Act was drawn up on the orders of then-Finance Minister Ruth Richardson after a period of irresponsible fiscal policy initiated by the previous National and Labour Governments. National was still seething over the fact that it was forced into a surprise bail-out of struggling BNZ when it took office in 1990. 

Public debt had ballooned over the previous two decades, from a low net 5 percent of GDP in 1974, during the Kirk Government, to 52 percent in 1992. 

The Fiscal Responsibility Act was designed to address this by forcing Governments to address five loosely-worded fiscal policy principles, including reducing Crown debt to “prudent levels”, maintaining “prudent levels” of debt.

It forces governments to issue a Budget Policy Statement (BPS) three months before the start of each financial year. The BPS sets out the long-term objectives for the Government’s Budget objectives, including keeping debt low. This was derided as being essentially unenforceable because it allows governments to essentially write their own rules with no sanctions for governments that set themselves loose fiscal policies or failed to meet their own targets.

It’s also possible that the fact governments set their own targets has helped create the political pressure to keep them.

But the strategy has worked. Each Government has focused on running surpluses and paying down debt, which sits at near historic levels. Net debt as a percentage of GDP is now hovering just above 20.6 percent of GDP, one of the lowest rates in the developed world. 

Climate Change Minister James Shaw should know well the effectiveness of the political pressure applied by the Fiscal Responsibility Act. He was central to the Green Party drawing up its Budget Responsibility Rules with Labour in 2017, essentially a BPS under a different name. 

Letting politicians, rather than bureaucrats pick their own targets has helped legitimise the legislation's goals. Fiscal policy is an inherently political business — as is climate change reduction. This isn’t about faceless interest rates, but about knotty trade offs that will inevitably pit constituencies, like town and country, against each other. These are political problems, and require political solutions. 

It’s also possible that the fact governments set their own targets has helped create the political pressure to keep them.

As one Treasury official put it: 

“Essentially debt and surplus targets are required to be committed to by the government of the day, and that’s a harder target to miss or abandon, than one that has been set for you by others”.

The key, of course, is whether the legislation itself has bipartisan consensus. If the Zero Carbon Bill has this, it would give it, and the goal of reducing emissions, legitimacy and leaves the political decisions about how to reach its targets to, well, politicians.

Despite months of negotiation, we won’t have an answer to whether the Zero Carbon Bill will actually be bipartisan until sometime after National’s caucus meeting on Tuesday morning. 

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