4. Regulatory impact analysis
4.1 Options
- The most obvious option for achieving the objective is to change the Public Finance Act to make it a requirement for governments to consider and report on the impact of their fiscal policy on macro-economic stability, on the effective and efficient use of public resources, and on inter-generational equity. This could be achieved in two ways:
- in a way that is consistent with the current transparency-based approach; or
- using fixed numerical targets or other more concrete objectives.
- A third option might be to facilitate an improvement in the quality of public debate, with the intention of putting public pressure on governments to take into account all of the dimensions of responsible fiscal management without amendment to existing law.
- These three options are discussed below.
4.2 Increased public debate
- The Treasury considered whether increasing the quality of public debate around fiscal policy could put sufficient pressure on governments to consider a broader range of factors in developing and reporting on fiscal policy. In particular, the Treasury considered whether it would be beneficial to have an independent fiscal council providing ex-post commentary on fiscal strategy and the macroeconomic stability dimension.
- There was no consensus that such a council is the best way to address the problem definition. Concerns about capability and durability were raised. But there was agreement that, if government were to decide to establish a fiscal council, there would likely be a net benefit, given that the small fiscal cost would likely come from the Treasury's baseline and that the potential for harm appears small.
- Alternative options considered for facilitating public debate were: a larger role for the Treasury in contributing to informed fiscal debate; requiring the Reserve Bank to comment on fiscal policy; and a periodic independent review of performance against fiscal strategy, potentially using expertise from an existing council offshore.
- While public debate is an important part of New Zealand's transparency based fiscal institutions, the Treasury concluded that options to increase the public debate on fiscal policy matters were insufficient on their own to achieve the objective of encouraging governments to better take into account and report on the broader impacts of fiscal policy. Increased public debate is always helpful, however, and will likely be an additional benefit of Treasury's recommended fiscal responsibility additions (discussed below).
Treasury conclusion: independent fiscal council not recommended as insufficient to achieve objectives.
- The Treasury also considered legislative change to require increased reporting of tax expenditures as a means of increasing public debate. The fiscal responsibility provisions require the Treasury's Budget Economic and Fiscal Update to include a statement of tax policy changes that have resulted in a material change in the tax revenue forecasts. Through this mechanism, tax expenditures, or spending through the tax system, are reported at the Budget when the policy decision is taken. However, the provisions do not require subsequent reporting on the existing stock of tax expenditures and how they have changed over time.
- Two limiting factors have been: uncertainty over the “baseline” against which tax expenditure is measured; and the costs of collecting or estimating information are likely to be high. The Treasury resolved to continue to look at ways to improve current practice while balancing the resource costs of doing so against the expected benefits.
Treasury conclusion: requirement for increased reporting of tax expenditures not recommended, but Treasury will continue to consider ways to improve current practice.
