The government’s plan to avoid another ‘fiscal hole’ fiasco has an unlikely fan: the chief economist of the corporate think tank New Zealand Initiative. Eric Crampton explains what else it could do.

Have you ever driven past one of those stores that mostly sells blinds but calls itself ‘Not Just Blinds’ and wondered whether they should have thought a bit bigger in their marketing?

This week, the coalition government announced plans for a parliamentary budget office charged with providing independent costings of election policy promises, and with keeping an eye on the government’s compliance with fiscal rules. It is a laudable idea. We all remember the nonsense around policy costings during last year’s election. An independent office of parliament reports to parliament, not to the government of the day. That office can apply a level ruler against the various policy promises so voters do not have to figure out which costing expert to believe. 

But the office can go bigger than “not just costings!”

In 2014, the New Zealand Initiative released a report calling for the establishment of a fiscal council as an independent office of parliament. New Zealand does not have some of the problems that have launched agencies like this overseas. Elsewhere, these offices help in economic forecasting and ensuring compliance with fiscal rules, like the requirements in our public finance act that the government keep the books in sound order. Treasury and the reserve bank already do a decent job with economic forecasting, and there has been cross-party consensus so far on keeping the government’s books in order.

But we do have a few other problems. While the new policy proposals come with a regulatory impact statement that is meant to at least nod suggestively in the direction of a cost-benefit analysis, the vast bulk of government spending is on programmes that just carry on, year after year, with little review. Nothing in the system requires undertaking promised post-implementation reviews of policies, or heeding the results of those reviews.

So we proposed an independent office of parliament that would report on long-term fiscal threats and effectiveness of the government’s programme for responding to them; the systematic quality of the government’s processes and systems for assessing whether spending programmes provide value-for-money; and the assessment of specific spending programmes.

We had not proposed then that the office take on the role of policy costings as well, but it would be a natural fit. Come election time, the office would run cost assessments of election promises. Between elections, it would keep an eye on our fiscal futures and run its ruler over existing bigger-ticket spending items to inform parliament whether they remain fit for purpose. In doing so, it would also help parliament’s finance and expenditure committee. 

So we hope the government thinks a bit bigger about the potential role of this office. We also hope it attends to some of the details required to make a policy costing unit effective. In last year’s submission on treasury’s discussion document on an independent fiscal institution, we urged setting some limits to avoid policy costing shenanigans. 

It would be tempting for any political party to urge the office to undertake the costing of an opponent’s policy, but allowing that would make a mess of things. It would also be tempting, if someone else were footing the bill, to seek the costing of endless variants of a policy until one showed up sufficiently well. 

We also suggested setting budget caps for all parties as one way of encouraging them to avoid wasting the office’s resources. In that case, a party might wish to seek an independent costing of its policies, with the workings then available to the office for checking and verification rather than require the office to do all the work. 

The government’s proposal is a good one. It still requires major work in drafting the terms to ensure the office is a success, and achieves as much good as it can. Making sure its remit includes the more substantial review role in assessing value for money in government spending would be a worthwhile addition. It might also help bring the National Party onside, if the office really were more than “not just costings.”

Dr Eric Crampton is Chief Economist with the New Zealand Initiative. The Initiative’s 2014 report, Guarding the Public Purse, and its 2018 submission on the proposed Parliamentary Budget Office are available at the Initiative’s website.