This presentation was made by John Marney, New-Zealand, at the 14th OECD-Asian Senior Budget Officials Meeting held in Bangkok, Thailand, on 13-14 December 2018

1. Developments in New Zealand's
budgetary framework
John Marney
December 2018

2. Current framework

3. New Zealand's fiscal policy framework
Public Finance
Act 1989
Fiscal
Strategy
• Principles of fiscal
responsibility
• GAAP
• Reporting
requirements
Fiscal
management
approach
• Statement of
fiscal objectives
• Budget
responsibility
rules.
• Fixed nominal
baselines
• Annual budget
allowances.

4. 1994 Fiscal Responsibility Act
-10%
0%
10%
20%
30%
40%
50%
60%
1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Core Crown net debt, % of GDP (1972 to 2018)

5. Statutory requirements
• Principles of fiscal responsibility.
• operating surplus until debt at prudent level
• then balance revenue and expenses "on average".
• Accrual accounting (GAAP).
• externally set and audited statements
• full cost of policy, including non-cash items.
• Mandatory reporting.
• Budget Policy Statement and Fiscal Strategy Report (Ministers)
• Economic and fiscal updates by Treasury (independent
forecasts).

6. Fiscal strategy
• Annual Fiscal Strategy Report must set out the government's fiscal
objectives (2-year and 10-year).
• In practice, these manifest as self imposed fiscal targets ("budget
responsibility rules").
• The Budget 2018 rules include:
• run an operating surplus over the economic cycle
• reduce core Crown net debt to 20% within 5 years of taking
office
• keep spending at recent historical range (around 30% of GDP).

7. Fiscal management approach
• Self imposed (non-statutory) rules of the game.
• Fixed nominal baselines (mostly).
• Funding increases are sought through the annual budget process.
• Agencies compete for limited pools new spending.
• Separate operating and capital allowances, set so the
government can achieve its fiscal objectives.
• Signalled for 4 years. But the annual budget is all done against
one year's allowances (mostly).

8. 0
2
4
6
8
10
12
2018 2019 2020 2021
Operating allowance, impact on expenses ($bn)
Budget 18 Budget 19 Budget 20 Budget 21

9. -
2.0
4.0
6.0
8.0
2019 2020 2021 2022 Post 2022
Future capital allowances, expected spending profile ($bn)
Budget 2019 Budget 2020 Budget 2021 Budget 2022
-
1.0
2.0
3.0
4.0
2019 2020 2021 2022
Future capital allowance, amount per budget ($bn)
Budget 2019 Budget 2020 Budget 2021 Budget 2022

10. Some developments
• 4-year capital allowance
• spending reviews
• wellbeing budget
• independent fiscal institution

11. 4-year (rolling) capital allowance
• Minister of Finance wants "more certainty on capital funding across
budgets". No extra money.
• Some problems with an annual allowance.
• Mismatch with fiscal strategy. No clear link between budget
decisions and core Crown debt.
• Short-term. Trade offs made annually rather than based on a
medium or long-term view of likely capital requirements.
• Lack of transparency. Pre-commitments against future
allowances.

12. Budget
2019
Budget
2020
Budget
2021
Budget
2022
Budget
2023*
Old allowances 3.700 3.400 3.000 3.000 3.000
4-year allowance
Budget 19 decisions*
Unused allowance*
Next 4-year allowance*
* These numbers are hypothetical, for illustrative purposes only.
13.100
4.000
9.100
12.100

13. Spending reviews
• Fixed nominal baselines means baselines are not renegotiated.
• Budget process focuses on new marginal spend.
-
20
40
60
80
100
120
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Baseline vs new budget funding ($bn)
Budget 17 Budget 18 Future allowances

14. • We have not run systematic baseline reviews for some time.
• Budget 2011. Top-down haircuts imposed across the board.
• 2013 Defence review. Led to baseline increase.
-2
0
2
4
6
8
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
New operating allowance ($bn)
final year impact

15. (i) new reprioritisation process
• All agencies now required to identify low value spending
• Extracted modest level of savings in Budget 18.
• Have introduced a target (1% of baseline) in Budget 19.
-20
-16
-12
-8
-4
0
4
8
12
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total Crown operating balance before gains and losses
$bn (rhs) % gdp % gdp forecast

16. (ii) targeted baseline review
• Baseline review of the Ministry of Social Development (welfare
department)
• second largest government department (6,570 FTEs).
• In scope $1.4 billion of departmental expenses (not transfers).
• Joint steering group and review team (hosted by Treasury).
• Mixed objectives
• assess efficiency and effectiveness of current spending
• try a new approach to the budget process - deeper analysis with
a medium-term timeframe.
• Feeds into Budget 19. But remains to be seen how the findings will
be reflected in Budget decisions.

17. Wellbeing Budget
• New government announced the move to Wellbeing Budgets.
• broaden the scope of economic and fiscal policy
• use a wider range indicators (beyond GDP and fiscal
aggregates).
By Budget 2019 ... I want New Zealand to be the first country to
assess bids for budget spending against new measures that
determine, not just how our spending will impact on GDP, but
also on our natural, social, human, and possibly cultural capital
too ... This is a challenging piece of work for Treasury.
Prime Minister Jacinda Ardern, January 2018

18. Treasury's living standards framework

19. Priorities
Agreed by
Cabinet
Informed by LSF
analysis.
Bids
Identify impacts
on wellbeing.
CBA model
updated.
Budget
documents
Sets out how
budget supports
wellbeing
objectives.
Living standards analysis (Treasury)
• Some of this will become mandatory (in legislation).
• Government to set out wellbeing objectives and strategy
• Treasury to report on current and future wellbeing.

20. Independent Fiscal Institution
• Takes forward pre-election commitments by governing parties.
• Discussion document released in September 2018. Five functions
proposed:
• Financial costing of party policies (including manifestos)
• Assess compliance with fiscal strategy and targets
• Comment on Treasury's economic and fiscal forecasts
• Comment on long-term fiscal sustainability and key fiscal risks
• Provide commentary on fiscal and budgetary matters.
• No firm view on institutional form yet.