Norman Gemmell: Government seems to want a second source of fiscal advice

Grant Robertson has written that the proposed independent fiscal institute "will" build confidence in the public, which sounds like a fait accompli. Photo / Brett Phibbs

Opinion

COMMENT: The Labour-led Government's Tax Working Group is continuing to attract much attention as it moves towards its final report, due in early 2019. But another profoundly important tax – or at least fiscal – policy initiative of this Government is slipping much more quietly under the radar.

This is the proposed introduction of an independent fiscal institution (IFI).

Minister of Finance Grant Robertson has instructed the Treasury to begin consultations on what this institution might look like. The Treasury website explains the purpose of an IFI is to help strengthen accountability, transparency and debate over New Zealand's fiscal policy framework, as well as better support the effective development of public policy by political parties by:

• Providing independent evaluation of fiscal policy performance;

• Improving and supporting effective parliamentary scrutiny of public finances and fiscal policy;

• Providing for independent costings of political party policies to better inform public debate and strengthen New Zealand's democracy.

This all sounds very interesting and sensible, you might think. After all, several other countries have such "independent" institutions, and more scrutiny of how and why governments make their fiscal decisions might seem like a sound basis for good policy-making.

But what staggers me is learning the Government has already decided New Zealand needs an IFI and the only issue for the Treasury to consult and advise on is defining its structure and remit. This isn't entirely clear from the Treasury discussion document, but I am assured that designing and implementing the IFI, not whether we have one, is the current status of the proposal.

Robertson's foreword to the consultation document gives a clue when it says "independent oversight by an Independent Fiscal Institution will provide the public with confidence that a government is sticking to its fiscal strategy". Note the "will", not "might" or "could".

With such a major proposed upheaval to our fiscal institutions, the two natural questions to ask before embarking on it would be: (i) could an IFI improve current policy or practice; and (ii) how can it be designed to best achieve this?

But no. The Government has apparently already answered the first question for itself, with a definite "yes", without any substantive appraisal of the costs and benefits. There wasn't much transparency in that decision, either.

So while major reforms to both the tax system and the Reserve Bank Act are currently being subjected to extensive review and assessment, a whole new fiscal institution is being proposed without any such scrutiny. Shades of the Government's recent approach to oil exploration licences, it would seem.

Now, I'm not suggesting an IFI is necessarily a bad idea. It has been deemed worth the effort or cost in various other countries. And as a public finance academic I have a natural bias in support of encouraging independent voice on governments' fiscal regimes.

But New Zealand is widely recognised as already having one of the most accountable and transparent fiscal supervision regimes in the world. It is therefore far from clear on which side of a "should we, shouldn't we, have an IFI?" debate a rigorous cost-benefit assessment would come down.

To make matters more confused, the currently proposed IFI would both include a supervision function to make New Zealand's fiscal institutions more accountable and transparent, and also "provide political parties with independent costings on their policies". These two objectives seem to me quite different and should not be bundled together.

Importantly, how can we expect a so-called independent fiscal institution to gain respect for its independence and objectivity in holding governments to account publicly for their fiscal policies if it is also costing (effectively adjudicating on) different political parties' budget proposals? And to further suspicion of a lack of objectivity, the current document proposes "the IFI would not cost Government policies". So no comparable scrutiny of all proposals then?

The idea that such costings would not lead to the IFI being battered by politicians whenever they don't like the numbers that emerge from costing of their, versus others', particular election promises is fanciful.

And who pays for those costings? Is this yet another example of politicians lobbying to have their party activities funded by the taxpayer come election time?

Last, but not least, the New Zealand Treasury has more operational independence of its minister than most such Treasuries across the world; it is respected overseas for it and for the extent and transparency of the fiscal reporting it produces or oversees.

So, given Sir Michael Cullen's often publicly expressed antipathy towards Treasury advice when he was Minister of Finance, this new proposal sounds more like it is motivated by a lack of trust in the Treasury by the current incumbents than an objective assessment of New Zealand's future needs.

Will the Government back off, or at least take time to re-evaluate, if the Treasury gets enough external blow-back on this apparent fait accompli? We'll see, but I'm not holding my breath.

• Professor Norman Gemmell has a chair in public finance at Victoria University of Wellington.