Nicola Willis opposes calls to establish unit to monitor government finances, as concerns over credibility of budgets are flagged

Finance Minister Nicola Willis says establishing an independent fiscal institution isn't a priority. Photo / Mark Mitchell

Finance Minister Nicola Willis isn’t receptive to calls for the establishment of an independent unit to check Treasury’s forecasts and ensure government spending is sustainable.

But she is open to setting up an agency to cost political parties’ policies.

The International Budget Partnership and Organisation for Economic Co-operation and Development (OECD) are among the organisations that believe New Zealand needs an institution that both costs policies and keeps tabs on the Government’s finances.

They argue it would provide more accountability and align New Zealand with the 80% of OECD countries that have such institutions.

Derek Gill – the consultant tasked by the International Budget Partnership with reviewing the New Zealand Government’s budget processes – said the country wasn’t immune to the risk that budgets start lacking credibility.

“We have had a series of ‘bow wave’ fiscal forecasts... each year the bow wave pushes the return [to surplus] out another year,” Gill said.

“Having an independent fiscal institution [IFI] would reduce the risk that fiscal credibility will be lost.”

Willis said she was open to considering advice on the establishment of a parliamentary budget office to cost parties’ policies. She was also happy to consider beefing up the Auditor-General’s powers.

But she didn’t see the need for a bigger unit to provide another layer of accountability around government finances.

“The Treasury does a good job of ensuring robust and transparent budget processes that the public can participate in,” she said.

In 2022, when in Opposition, Willis wrote to then Finance Minister Grant Robertson, asking him to look again at creating an entity to cost party policies.

But this wasn’t a priority for Robertson, who pointed the finger at National for previously opposing the idea.

Like Gill, economist Cameron Bagrie believed New Zealand needed a substantive IFI.

In a BusinessDesk column, he illustrated how different the country’s finances would look if productivity growth didn’t return to the moving 30-year average of 1% per year as the Treasury assumed it would at the Budget.

Using Treasury’s models, Bagrie calculated that 0.5% productivity growth per year would see net debt (excluding the Super Fund’s assets) hit 33% of GDP in 2038, rather than 26%, if productivity grew by 1% per year.

If productivity growth stayed as low as it’s been over the past decade – at around 0.2% per year – Bagrie said we should forget about getting the books back in surplus.

“Deficits may now be more regular than irregular,” he said.

“This is where the need for an IFI is strong. We need robust independent analysis of policy choices so that society is fully aware of the trade-offs, the pros and cons, and what the numbers look like, using credible assumptions.

“It might be that the current ones are [credible]. But we should back them up with independent verification and world-best practices.”

While the Treasury’s assumptions and models are public so that experts like Bagrie can critique them, Gill still believed New Zealand needed an IFI.

“IFIs in most OECD countries are small – half have less than 20 staff,” he said.

“This is a small price to pay for increased fiscal responsibility and credibility.”

Gill, who has held senior roles at the Ministry of Social Development, the State Services Commission and Treasury and is an adjunct senior research fellow at Victoria University’s School of Government, recognised IFIs around the world have different mandates, but usually monitor finances and policy costings.

“Consider the fiasco in the last election because the Opposition lacked access to credible independent advice on costing policies,” Gill said.

“What we saw was an unseemly debate about the robustness of the costs of the proposed tax cuts. The real debate should have been about the merits of the policies – not the cost.

“The public deserves better – particularly as election promises get hard-wired into collation agreements.”

A major cost blowout of the 2023 election concerned transport.

An NZ Transport Agency Waka Kotahi document leaked to the Herald showed that delivering the roads and public transport National campaigned on could end up costing more than twice as much as the party said it would, leaving a potential fiscal hole of $24 billion.

The OECD, in a report on New Zealand published earlier this year, flagged its concerns about inaccurately costed election promises.

“Inaccuracies in the cost of the major political party proposals risk suboptimal policy and further fiscal slippage, especially as these costings are presently often provided by consultants, who do not always have access to all the necessary fiscal information,” the OECD report said.

It also raised its concerns over Robertson routinely spending more than he said he would in his Budget Policy Statements.

The OECD concluded New Zealand’s fiscal framework has “shortcomings” and “needs to be strengthened”.

The original version of this story has been updated, following Nicola Willis adding to her initial statement that she was actually supportive of a costings unit, but not a broader institution to oversee the Government’s finances.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.