Fiscal responsibility

Bill English has announced:

“The Government is proposing introducing some additional principles into Part 2 of the Public Finance Act that ministers would have to take into account when setting fiscal policy.

“The proposed changes are designed to ensure greater transparency around how government decisions affect the wider economy and future generations.”

The proposed changes would require governments to:

• Consider the impact of their fiscal strategy on the broader economy, in particular interest rates and exchange rates.
• Set out their priorities for revenue, spending and the balance sheet, rather than focus narrowly on debt as is currently the case.
• Take into account the impact of fiscal policy decisions on future generations
• Report on the successes and failures of past fiscal policy.

I especially like the impact on future generations. They are the ones that have to pay the interest on the debt.

“We are also proposing to add a spending limit based on the rate of growth in inflation and population as a new principle of responsible fiscal management, as set out in the National-ACT Confidence and Supply Agreement.”

It would exclude spending on natural disasters, finance charges, the unemployment benefit and asset impairments, as they are either outside the Government’s control or they help stabilise the economy in a downturn. 

This is a major win for ACT, and a very good thing.

“Under the proposal, if a government decided to temporarily exceed the limit they would need to clearly explain the reasons and outline how they intended to ensure future expenses remained within the limit.”

You can’t have one Government bind future Governments, but you can have a law like this which makes it politically more difficult for future Governments to increase spending in an unsustainable way.