Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698837218530.pdf (New Zealand)
Spending Cap (People’s Veto) Bill Government Bill Explanatory note General policy statement The objective of this Bill is to limit the annual increase in core Crown expenses by linking it to the rate of inflation and the rate of population change.

The Bill also provides for eligible voters to approve, by a majority of valid votes cast in a binding referendum, an increase in the spending cap.
At present, it is easier for governments to spend more, rather than to reprioritise and drive greater efficiency in existing spending.

This Bill will provide more certainty in relation to the future growth in government spending, ensure a degree of spending restraint, and im- prove the transparency of spending decisions.

The Bill will lead to government objectives being delivered via a State sector that com- prises a smaller share of the economy than would otherwise be the case.
This will allow for a lower tax burden on the economy over time, thereby supporting higher economic growth and higher living standards.

The Bill provides for a spending cap for specified expenses, which changes for each financial year in direct proportion to the rate of infla- tion and the rate of population change.

This still allows core Crown expenses to grow, albeit more slowly than gross domestic product, which tends to also include gains from productivity improvements.
315—1 2 Spending Cap (People’s Veto) Bill Explanatory note The spending cap allows fiscal policy to continue to play a stabilising role in response to the economic cycle and shocks.

Unemployment benefit expenses are excluded from the cap so that they can continue to expand and contract through the economic cycle, without placing pressure on other expenses under the cap.
The Bill also provides for national emergencies, such as a natural disaster, where it is appro- priate to exclude from the spending cap those expenses incurred as a direct result of an emergency.

Finance costs (borrowing expenses) are excluded from the cap.

The provisions of the Public Finance Act 1989 have been shown to provide an effective limit to growth in fi- nance costs.
Impairment losses are excluded from the cap because asset impairments tend to be volatile and difficult to forecast, and are largely outside the immediate control of the Government.

Examples where asset impairments can arise include tax receivables and the student loan portfolio.
Capital expenditure is also excluded from the spending cap, because it is limited by the Government debt target and the fact that any op- erating expenses associated with capital expenditure would need to be met from within the cap.

Spending cap The Bill sets out the calculation of a spending cap for a financial year, which is based on the spending cap for the previous year, adjusted for the rate of inflation and the rate of population change.
The spending cap may be increased if a proposal to increase the cap is supported by a majority of valid votes cast in a referendum.

The Minister of Finance (the Minister) must include the spending cap for the coming financial year in the budget policy statement pre- sented to the House of Representatives.
The Minister must also, when presenting the annual financial statements of the Government to the House of Representatives, report on whether the spending cap has been breached, and if so, why, and what measures will be taken to ensure compliance with future spending caps.

Spending cap referenda The Bill also provides for eligible voters to approve, by a majority of valid votes cast in a referendum, an increase in the spending cap.
Explanatory note Spending Cap (People’s Veto) Bill 3 The Government may initiate a referendum on a proposal to increase the spending cap for a financial year.

The referendum is carried out under the provisions of the Referenda (Postal Voting) Act 2000, ex- cept that the question to be put to electors in a spending cap referen- dum is set out in the Bill and the outcome is binding for the purposes of calculating the spending cap.
If a majority of valid votes favour the proposal to increase the spend- ing cap for the financial year, then the proposal is carried.

If the ref- erendum proposal is carried, the spending cap for each subsequent financial year is calculated based on that higher level of expenses.

Regulatory impact statement The Treasury produced a regulatory impact statement on 27 April 2011 to help inform the main policy decisions taken by the Govern- ment relating to the contents of this Bill.
A copy of this regulatory impact statement can be found at http://www.treasury.govt.nz/publications/informationreleases/ris Clause by clause analysis Clause 1 is the Title clause.

Clause 2 is the commencement clause.

The Act comes into force on the day after the date on which it receives the Royal assent.

Part 1 Preliminary provisions Clause 3 sets out the purpose of the Bill.

Clause 4 is an interpretation provision.


Clause 5 sets out the meaning of specified expenses, which are sub- ject to a spending cap.
Specified expenses are expenses incurred by the Crown, or by an Office of Parliament, other than the following: unemployment benefits paid under the Social Security Act • 1964: borrowing expenses (which means any interest or other finan- cing expenses in respect of any loan or under any public se- curity): capital expenditure (which means the costs of assets acquired or developed (including tangible, intangible, or financial as- • • 4 • • Spending Cap (People’s Veto) Bill Explanatory note sets and any ownership interest in entities, but excluding in- ventories)): impairment losses (as understood in generally accepted ac- counting practice): emergency-related expenses (which means expenses that are directly related to an emergency or situation described in sec- tion 25(1) of the Public Finance Act 1989).
Clause 6 provides that the Act binds the Crown.

Part 2 Restrictions on growth in government expenses Subpart 1—Spending cap Subpart 1 deals with— • • calculating a spending cap; and reporting and accountability mechanisms relating to the spending cap.

Clause 7 provides that nothing in subpart 1 applies to a financial year that commences earlier than 12 months after the day on which the Act comes into force.

Clause 8 sets out the formula for calculating a spending cap.
The spending cap for a financial year is calculated by increasing or de- creasing the spending cap for the previous financial year in propor- tion to the rate of inflation and the rate of population change.

The spending cap may be further increased only in accordance with the result of a spending cap referendum (see subpart 2 of Part 2).
Clause 8(2) provides that the annual percentage changes in inflation and population used in calculating a spending cap must relate to the year ending on 30 September in the financial year prior to the finan- cial year for which the spending cap is calculated.

The information will be sourced from official statistics published by Statistics New Zealand.
The formula will not produce a valid result for the first financial year to which the Act applies because no value will exist for the spend- ing cap for the previous financial year.

Clause 9 provides for the first spending cap to be calculated by replacing the amount of the spend- ing cap for the previous financial year with the total amount of spe- Explanatory note Spending Cap (People’s Veto) Bill 5 cified expenses that the Treasury forecasts will be incurred in that previous financial year.
Clause 10 sets out the formula for calculating an indicative spend- ing cap.

An indicative spending cap is calculated in the same way as a spending cap, except that it is based on rates of inflation and population change that are forecast by the Treasury for the purpose of preparing economic and fiscal updates.

Clause 11 requires the Minister to include the spending cap for a financial year in the annual budget policy statement relating to that year.
The Minister must also include in the budget policy statement indicative spending caps for at least the next 2 financial years.

Clause 12 requires the Minister, when presenting the annual financial statements for a financial year to the House of Representatives, to re- port to the House of Representatives on whether the spending cap for that year has been exceeded.
If the spending cap has been exceeded, the report must state why this has happened and what measures will be taken to ensure compliance with future spending caps.

The report will also include details of any emergency-related expenses incurred in the financial year and excluded from the operation of the spending cap (see clause 5(2)(e)).

Clause 13 makes the consequential amendments set out in the Sched- ule, which align the Public Finance Act 1989 and the Referenda (Postal Voting) Act 2000 with this Bill.
Subpart 2—Spending cap referenda Subpart 2 enables the spending cap for a specified financial year to be increased by way of a binding referendum (a spending cap ref- erendum).
A spending cap referendum— • • may be initiated by the Government at any time (clause 14): is conducted under the Referenda (Postal Voting) Act 2000 (clause 15): is based on a proposal to increase the spending cap by a stated amount and percentage for a specified financial year (clause 16): may be held prior to or during the financial year to which it applies.
• • 6 Spending Cap (People’s Veto) Bill Explanatory note A proposal to increase the spending cap for a specified financial year by a specified amount will be carried if the majority of valid votes cast favour the proposal (clause 17(a)).

If the proposal is carried, the spending cap for the specified financial year is increased by the specified amount (clause 17(b)).
Hon Rodney Hide Spending Cap (People’s Veto) Bill Government Bill Contents Title Commencement Part 1 Preliminary provisions Purpose Interpretation Meaning of specified expenses Act binds the Crown Part 2 Restrictions on growth in government expenses Subpart 1—Spending cap Application of this subpart Calculation of spending caps Calculation of first spending cap Calculation of indicative spending caps Budget policy statements must include spending cap and indicative spending caps Minister must present report to House of Representatives on spending cap Consequential amendments Subpart 2—Spending cap referenda Binding referendum on proposal to increase spending cap Application of Referenda (Postal Voting) Act 2000 Question 315—1 Page cl 1 Spending Cap (People’s Veto) Bill 17 Result of spending cap referendum Schedule Consequential amendments 8 9 The Parliament of New Zealand enacts as follows: Title This Act is the Spending Cap (People’s Veto) Act 2011.
Commencement This Act comes into force on the day after the date on which 5 it receives the Royal assent.

Part 1 Preliminary provisions Purpose The purpose of this Act is to limit the annual increase in gov- 10 ernment spending.
To this end, the Act— (a) provides a formula for calculating an annual spending cap for specified expenses, under which the amount of the spending cap changes each financial year— (i) in direct proportion to the rate of inflation and the rate of population change; and in accordance with the results of any spending cap referendum relating to that financial year; and (ii) (b) requires the Minister to report to the House of Repre- sentatives on whether specified expenses incurred in a financial year are within the spending cap for that year.
Interpretation In this Act, unless the context otherwise requires,— budget policy statement means the budget policy statement that the Minister presents to the House of Representatives under section 26M of the Public Finance Act 1989 15 20 25 1 2 3 (1) (2) 4 (1) 2 Spending Cap (People’s Veto) Bill Part 1 cl 5 emergency-related expenses means expenses that are directly related to an emergency or situation described in section 25(1) of the Public Finance Act 1989 financial year means a period of 12 months commencing on 1 July and ending with 30 June impairment losses has the meaning given to it under generally accepted accounting practice indicative spending cap means an indicative spending cap calculated in accordance with section 10 rate of inflation has the meaning given in section 8(2) rate of population change has the meaning given in section 8(2) specified expenses has the meaning given in section 5 spending cap means a spending cap calculated in accordance with section 8 spending cap referendum means a binding referendum initi- ated under section 14.
5 10 15 (2) Any term or expression, not defined in this Act, that is used in subpart 1 of Part 2 of this Act and defined in the Public Fi- nance Act 1989 has the same meaning as in the Public Finance 20 Act 1989.

(3) Any term or expression, not defined in this Act, that is used in subpart 2 of Part 2 of this Act and defined in the Referenda (Postal Voting) Act 2000 has the same meaning as in the Ref- erenda (Postal Voting) Act 2000.
25 5 (1) (2) Meaning of specified expenses Specified expenses means expenses incurred by the Crown or an Office of Parliament, other than the expenses specified in subsection (2).

The following expenses are not specified expenses for the pur- 30 poses of this Act: (a) unemployment benefits paid under the Social Security Act 1964: borrowing expenses: capital expenditure: impairment losses: emergency-related expenses.
(b) (c) (d) (e) 35 3 Part 1 cl 6 Spending Cap (People’s Veto) Bill 6 7 Act binds the Crown This Act binds the Crown.

Part 2 Restrictions on growth in government expenses Subpart 1—Spending cap Application of this subpart Nothing in this subpart applies in respect of a financial year that commences earlier than 12 months after the day on which this Act comes into force.
8 (1) Calculation of spending caps The spending cap for a financial year is calculated in accord- ance with the formula— sc = scp × (1 + i) × (1 + p) + r where— sc scp i p r is the amount of the spending cap for a financial year is the amount of the spending cap for the previous fi- nancial year is the rate of inflation is the rate of population change is the amount, if any, by which the spending cap is in- creased in accordance with the result of a spending cap referendum Example Background The spending cap for the previous financial year (scp) is $85 bil- lion.
The rate of inflation (i) is 2%.

The rate of population change (p) is 0.9%.

There has been no spending cap referendum.
Result The spending cap (sc) for the financial year is $87.48 billion, cal- culated as follows: $87.48 billion = $85 billion × 1.02 × 1.009 + 0 4 (2) 9 10 (1) Spending Cap (People’s Veto) Bill Part 2 cl 10 For the purposes of calculating the spending cap for a financial year,— rate of inflation means the annual percentage change in the Consumers Price Index— (a) for the year ending on 30 September in the previous 5 financial year; and according to the Consumers Price Index published by Statistics New Zealand (b) rate of population change means the annual percentage change in the estimated resident population— (a) for the year ending on 30 September in the previous financial year; and according to the national population estimates pub- lished by Statistics New Zealand.
(b) 10 Calculation of first spending cap The spending cap for the first financial year to which this sub- part applies is calculated in accordance with the formula set out in section 8(1), except that the amount of the spending cap for the previous financial year must be replaced with the total amount of specified expenses that the Treasury forecasts 20 will be incurred in that previous financial year.
15 Calculation of indicative spending caps The indicative spending cap for a financial year is calculated by applying the formula set out in section 8(1) with the fol- lowing modifications: (a) the dollar amount of the spending cap for the previous financial year may be the dollar amount of an indicative spending cap for the previous financial year: instead of having the meanings given in section 8(2),— rate of inflation means the annual percentage change in the Consumers Price Index— (a) (b) (b) for the year ending on 30 September in the pre- vious financial year; and as forecast most recently by the Treasury for the 35 purpose of preparing an economic and fiscal up- date 25 30 5 Part 2 cl 11 Spending Cap (People’s Veto) Bill rate of population change means the annual percent- age change in the estimated resident population— (a) for the year ending on 30 September in the pre- vious financial year; and as forecast most recently by the Treasury for the 5 purpose of preparing an economic and fiscal up- date.
(b) (2) In subsection (1), economic and fiscal update means an economic and fiscal update prepared by the Treasury for the purpose of section 26O, 26S, or 26T of the Public Finance Act 10 1989.

11 Budget policy statements must include spending cap and indicative spending caps (1) A budget policy statement— (a) must include the spending cap for the financial year 15 commencing on 1 July after the statement is presented; and (b) must include an indicative spending cap for each of the next 2 financial years.
(2) A spending cap or an indicative spending cap for a financial 20 year must be expressed— (a) (b) as a dollar value of the amount of specified expenses that may be incurred in the financial year; and as the percentage by which the spending cap or indica- tive spending cap has increased or decreased in relation 25 to the spending cap or indicative spending cap (as the case may be) for the previous financial year.
(3) Subsection 2(b) does not apply in respect of the spending cap for the first financial year to which this subpart applies.

12 Minister must present report to House of Representatives 30 on spending cap The Minister must, when presenting the annual financial state- ments for a financial year to the House of Representatives under section 31 of the Public Finance Act 1989, report to the House of Representatives on the spending cap for that finan- 35 cial year.
(1) 6 (2) 13 14 15 16 Spending Cap (People’s Veto) Bill Part 2 cl 16 The report must state— (a) whether specified expenses incurred in the financial year were within the spending cap for that year and, if not,— (i) why specified expenses were incurred in excess 5 of the spending cap; and (ii) what measures will be taken to ensure compli- ance with future spending caps; and (b) whether any emergency-related expenses were incurred 10 in the financial year and, if so,— the amount incurred: (i) a brief description of the emergency-related ex- (ii) penses: a brief explanation of how the expenses were di- rectly related to an emergency or situation de- 15 scribed in section 25(1) of the Public Finance Act 1989.
(iii) Consequential amendments The enactments specified in the Schedule are consequentially amended in the manner set out in that schedule.

20 Subpart 2—Spending cap referenda Binding referendum on proposal to increase spending cap The Government may, at any time, initiate a binding referen- dum on a proposal to increase the spending cap for a specified financial year.

25 Application of Referenda (Postal Voting) Act 2000 The Referenda (Postal Voting) Act 2000 applies to a spending cap referendum.
Question Despite section 6(1) of the Referenda (Postal Voting) Act 30 2000, the question to be put to electors in a spending cap ref- erendum is— 7 Part 2 cl 17 Spending Cap (People’s Veto) Bill “Do you support the proposed increase of the spending cap by $[amount] ([percentage]%) for the financial year beginning on 1 July [year]?” Result of spending cap referendum If a majority of the valid votes cast in a spending cap referen- 5 dum favour a proposal to increase the spending cap for a spe- cified financial year by a specified amount,— (a) (b) the proposal is carried; and the spending cap for the specified financial year is in- creased by the specified amount.
10 17 8 Spending Cap (People’s Veto) Bill Schedule Schedule Consequential amendments s 13 Public Finance Act 1989 (1989 No 44) Section 26M: add: “(4) The budget policy statement must include the spending cap and indicative spending caps referred to in section 11 of the 5 Spending Cap (People’s Veto) Act 2011.” Referenda (Postal Voting) Act 2000 (2000 No 48) Definition of government initiated referendum in section 3(1): re- peal and substitute: “government initiated referendum means— “(a) an indicative referendum— “(i) “(ii) that the New Zealand Government initiates; and that is specified in an Order in Council made under section 5(a) as an indicative referendum that must be conducted by postal voting; or a binding referendum that the New Zealand Govern- ment initiates under section 14 of the Spending Cap (People’s Veto) Act 2011”.
“(b) 10 15 Heading to section 5: omit “indicative”.

12 Wellington, New Zealand: Published under the authority of the New Zealand Government—2011 9