Labour’s Finance spokeswoman Barbara Edmonds is a sceptic and says the change could be an attempt to “shift the goalposts” to make it easier for the Government to hit a surplus.
Willis told Parliament’s Finance and Expenditure Committee this week the Government was reviewing its fiscal indicators, including the OBEGAL measure, the most common measure of whether the Government is in surplus or deficit.
In the most recent fiscal year, which captured half a year under the last government and half a year under the new one, the OBEGAL deficit deepened by $3.4 billion to $12.9b
Willis defended this deficit to the committee saying “it is important to note that OBEGAL is a whole of Crown measure so it includes the performance of Crown entities and State-Owned Enterprises (SOEs)”.
Willis pointed to her Fiscal Strategy Report, released with the Budget in May, which noted the Government was reviewing fiscal indicators.
That document made a number of criticisms of OBEGAL as a measure, noting it “excludes market fluctuations in asset and liability valuations that are highly variable and not within the direct control of the Government in the short term”.
It noted that over the four-year forecast period, Crown entities would “make a significant negative contribution to OBEGAL” of about $4.6b a year.
This was mainly thanks to ACC, which was forecasting deficits of $3.4b per annum on average over the forecast period.
The Fiscal Strategy Report said that this presented a problem to the Government if it wants to hit surplus.
“To achieve the Government’s fiscal goals, increases in the OBEGAL deficits of these entities currently need to be offset by larger surpluses or smaller deficits from the core Crown.
“This could be undesirable from a fiscal strategy perspective since some entities (like ACC) are self-funded and aim to be financially sustainable over the long run, even when running large OBEGAL deficits in particular years,” the report said.
It said there was an “an argument to exclude from an operating indicator self-funded entities that are deemed to be fiscally sustainable, since they are unlikely to require additional Government funding”.
The counter-argument is other indicators might “reduce fiscal transparency”.
The report said alternative indicators like “core Crown OBEGAL or operating balance” might “better guide and communicate the Government’s fiscal goals”.
It added that reviewing the Government’s debt indicators were out of scope of the review.
In 2022, the last Government reviewed the debt indicator and switched it to one that was more comparable with how other countries measured their debt. That metric included the likes of the NZ Super Fund, which made net debt look lower.
The current Government has since switched back to the old metric, net core Crown debt, which has the effect of making net debt look higher.
Willis said she would have “more to say” about the review when she releases the Budget Policy Statement on December 17.
Labour’s finance spokeswoman Barbara Edmonds noted that Treasury had reviewed the fiscal indicators in 2021.
In that review, Treasury questioned whether the OBEGAL indicator should be changed to reflect things the ministers had more direct control over. However, Treasury recommended the Government reject that idea, which it did.
“It is not clear to me why the Minister wants to revisit this, unless she is looking to shift the goalposts to meet her targets,” Edmonds said.
A Treasury paper from the time said the “wide coverage” of the OBEGAL measure was “preferred”.
“This suggests retaining a total Crown OBEGAL measure. OBEGAL would continue to capture some financial activity within Government that is outside the control of Ministers, but would provide a full picture of the Government’s financial performance, with some volatility removed,” it said.
Edmonds said OBEGAL was a “simple and well-known indicator and is generally suitable as a short-term target. If [Willis] wants to focus on operating balance then she can focus on that and put OBEGAL to the side without actually changing what is captured”.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
