Transparency and accountability
The Treasury provides advice to the government on public sector management. As part of its public sector management function, the Treasury is responsible for the production of the government financial accountability documentation. The Treasury is investigating increasing the range of publicly available information by releasing tax expenditure data.
Public sector management aims to improve how resources are collected and spent. Governments around the world are involved in a wide range of activities. However, it is ultimately up to the voting population to determine the legitimacy, extent, and nature of government interaction with the economy. Fiscal information provides the information necessary to support public choice.
The transparency of New Zealand's fiscal reporting is well regarded internationally, although there is room for further improvement. A survey of 59 countries carried out in 2006 by the Open Budget Initiative (OBI, 2008) concluded that New Zealand was one of only six nations that provided documentation sufficient to hold the government accountable. However, the OBI survey cited the lack of information on spending through the tax system as a potential improvement in New Zealand's otherwise strong budgetary information.[1]
At a conceptual level the government can spend in a variety of ways. Direct expenditures such as welfare payments are well understood. However, governments also “spend” though indirect channels that are not subject to the same comprehensive reporting requirements.
Conceptually, reducing tax can be equivalent to direct spending. The tax expenditure (TE) concept — spending through the tax system — is now commonly accepted and over 40 years old. Most major OECD economies now provide TE estimates and the IMF (2001) and OECD (2002) have both chosen to include TE reporting as part of their best practice budgeting standards.
New Zealand's accountability documents
The New Zealand government produces a wide range of accountability documents that have been considered world class. However, in recent years improvements in government accounts abroad have highlighted ways that the New Zealand accounts could be further improved.
Despite New Zealand's strong standing, the Treasury is continually looking for marginal improvements that could contribute to transparency and improve confidence in reported numbers. The production of tax expenditure data is one way that the Treasury could potentially improve the completeness of accountability and financial information.[2]
This paper discusses the contribution that TE data could make towards improving the transparency of government spending through direct and indirect channels.
Notes
- [1]“By international standards, there are few tax expenditures in New Zealand, with the tax system in general not used to provide industry assistance... However, there are still some unreported tax expenditures (eg, a charitable donations rebate, and special provisions for the production of movies). As a result of a 2004 policy change requiring disclosure, information on all new material tax policy changes introduced in the annual Budget, that result either in increased or reduced revenues, is presented in each BEFU... Therefore, there is full transparency of tax expenditures in the first year of their introduction; but no requirement for further reporting of them in subsequent years. There is no information published anywhere on the pre-existing overall stock of tax expenditures.” (OBI, 2008)
- [2]The Treasury is responsible for the production of the government’s two main accountability documents: the consolidated financial statements; and budget documentation.
