The Treasury

Global Navigation

Personal tools

Treasury
Publication

A Guide to the Public Finance Act (2005)

Fiscal Responsibility

Key Points

  • The Government is required to act in accordance with the principles of responsible fiscal management specified in the Act. These principles promote sound fiscal policy.
  • The Act requires regular fiscal reporting including budget policy statements and economic and fiscal updates. The reporting requirements promote fiscal transparency.
  • The requirements of the Act are based on international best practice.

Introduction

This Chapter:

  • outlines the principles of responsible fiscal management in Part 2 of the Act and the intention of those requirements
  • notes similar international developments
  • describes the reports and statements prepared in accordance with the fiscal reporting requirements of Part 2 of the Act
  • describes the responsibilities of the Treasury and Ministers in relation to fiscal reporting, and
  • summarises, in an Appendix, the background to the Fiscal Responsibility Act 1994 and the subsequent incorporation of that Act with the Public Finance Act.

Part 2 of the Public Finance Act is founded on two key planks: increased transparency and greater accountability. It achieves this by requiring:

  • governments to be explicit about their long-term fiscal objectives and short-term fiscal intentions and to assess them against principles of responsible fiscal management, and
  • governments to report on a wide range of economic and fiscal information.

More specifically Part 2 promotes sound fiscal policy and fiscal transparency by:

  • requiring that the Government pursue its policy objectives in accordance with the principles of responsible fiscal management set out in the Act
  • imposing regular fiscal reporting obligations on the Treasury and Ministers. The reports and statements required include:
    • an annual fiscal strategy report
    • an annual budget policy statement
    • a periodic statement on the long-term fiscal position
    • regular economic and fiscal updates, and
    • an annual statement of tax policy changes, and
    • providing an opportunity for parliamentary scrutiny of these reports and statements.

What is fiscal policy?

Fiscal policy comprises decisions about government spending and taxation. These decisions are made with a view to goals such as the optimal allocation of resources, economic stabilisation and the longer term sustainability of public finances.

What is fiscal transparency?

Fiscal transparency is the full disclosure of all relevant fiscal information in a timely and systematic manner.

It has been described as “… openness toward the public at large about government structure and functions, fiscal policy intentions, public sector accounts, and projections. It involves ready access to reliable, comprehensive, timely, understandable, and internationally comparable information on government activities … so that the electorate and financial markets can accurately assess the government’s financial position and the true costs and benefits of government activities, including their present and future economic and social implications.” (Kopits and Symansky, 1998)

Page top