English Bill: Public Finance (Fiscal Responsibility) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
English Bill: Public Finance (Fiscal Responsibility) Amendment Bill — First Reading 
[Sitting date: 04 December 2012. Volume:686;Page:7046. Text is incorporated into the Bound Volume.] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Public Finance (Fiscal Responsibility) Amendment Bill be now read a first time. 
 I nominate the Finance and Expenditure Committee to consider the Public Finance (Fiscal Responsibility) Amendment Bill. The bill proposes to amend the fiscal responsibility provisions in Part 2 of the Public Finance Act 1989. The changes proposed in the bill aim to ensure that the fiscal responsibility provisions remain a sound guide for fiscal policy now and into the future and in particular into a future where the Government will have surpluses again. 
As honourable members know the fiscal responsibility provisions of the Public Finance Act have guided the formation and disclosure of Government fiscal strategy for over a generation. The provisions require Governments to pursue their objectives in accordance with defined principles of responsible fiscal management. Among other things the principles require public debt to be reduced to and maintained at prudent levels. These provisions have served New Zealand well. It is partly thanks to the provisions that successive Governments have focused on maintaining low or prudent public debt putting New Zealand in a relatively strong position in having relatively low Government debt going into the international financial crisis of 2008 and 2009. 
However experience tells us that there is room to strengthen the fiscal responsibility provisions to encourage greater transparency around the interaction of fiscal and monetary policy the impacts of current policy on future generations and managing resources efficiently and effectively. The additions to the fiscal responsibility provisions in this bill aim to address these and other gaps. The amendment bill introduces three new principles of responsible fiscal management extends an existing principle and introduces some new reporting requirements some of which codify existing practices. 
The first new principle of responsible fiscal management proposed in the bill is that Governments should formulate fiscal strategy with regard to its interaction with monetary policy. As honourable members know the Reserve Bank of New Zealand takes changes in fiscal policy into account when it independently sets the official cash rate. The new principle will require the Government to be explicit about the interactions between monetary and fiscal policy at different stages of the economic cycle facilitating greater transparency in policy making and encouraging greater focus on and discussion of the cyclical factors impacting the economy’s performance at any given time. 
The second new principle introduced by the bill is that the Government should formulate fiscal strategy with regard to its likely impact on present and future generations. Fiscal responsibility provisions currently have a focus of around 15 years. Many decisions of course have longer-term effects. This new principle will require Governments to be more transparent about any intergenerational trade-offs their policies imply. 
The third new principle is that the Government should ensure that the Crown’s resources are managed effectively and efficiently. This principle is supported by a reporting requirement for Governments to set out their priorities for resource allocation and explain how these priorities have influenced and will influence their decisions. The idea behind this principle and reporting requirement is that it is not just aggregate amounts that matter—total spending total assets total debt or total tax revenue—but also the allocation of resources within those aggregate amounts. The principle also aims to facilitate a greater level of public scrutiny of the Crown’s management of its balance sheet. 
As well as introducing these three new principles the bill extends the existing principle relating to the tax system. The existing principle is that Governments should pursue policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years. The bill would strengthen the principle to require Governments to formulate revenue strategy with regard to efficiency and fairness including the predictability and stability of tax rates. This extension acknowledges that there are important and desirable features of tax systems beyond the level and stability of tax rates including raising sufficient revenue to meet Government priorities minimising behavioural distortions and administrative and compliance costs and sharing the tax burden fairly in a way that is perceived to be fair. These features can be captured by the words “efficiency” and “fairness”. Although there are no universally accepted definitions of “efficient” or “fair” the inclusion of the terms in the fiscal responsibility provisions will allow the Government of the day to elaborate on what an efficient and fair tax system means for it and to bear in mind efficiency and fairness considerations when assessing changes to the tax system. 
The bill introduces a new requirement for the Fiscal Strategy Report to contain an assessment of the extent to which the fiscal performance of the Government is consistent with its own published fiscal strategy. This requirement introduces a backward-looking element into the Fiscal Strategy Report which currently is mainly about communicating current fiscal policy and its likely future effects. More of a backward-looking focus will increase disciplines on Governments to stick to announced plans and provide a platform to communicate lessons from past successes and failures of fiscal policy. 
The bill proposes to codify the established practice of including a revenue strategy within the Fiscal Strategy Report. The revenue strategy would be required to include the Government’s objectives for the tax system and tax policy. 
Finally the bill also codifies the emerging practice of publishing a Government Investment Statement. The bill would require Treasury to produce an Investment Statement describing the Crown’s significant assets and liabilities at least every 4 years. The first Government Investment Statement was published in 2010 and we consider that it was a useful tool for informing the public and the politicians in Parliament about the state of the Crown’s balance sheet. 
The fiscal responsibility provisions of the Public Finance Act are constitutionally significant. The Government recognises that any proposed change to the provisions is not to be undertaken lightly. Can I thank members from other parties of the House who have constructively discussed the issues addressed in this bill. The Public Finance (Fiscal Responsibility) Amendment Bill will ensure that the fiscal responsibility provisions remain a sound guide for fiscal policy and in this context it is important to see these changes in the context of the economic cycle that New Zealand has just been through. In some respects our fiscal responsibility Act is better aligned towards Governments getting on top of difficult fiscal conditions and high levels of debt which was certainly the case in the early 1990s when the fiscal responsibility Act was first brought in. Experience has shown us I think that it has been less suited to dealing with the temptations and opportunities provided by sustained surpluses. It is certainly the wish of the Government that the House in considering these amendments bear in mind that with economic growth and continuing discipline on spending there will be fiscal surpluses in the future and New Zealanders would expect Parliament and the Government to treat that situation in a responsible manner. I commend the bill to the House.