New Zealand’s Fiscal Management: An International Perspective An International Perspective David Webber, Economics & Strategy Group Ltd D id W bb E i & St t G Ltd NZ Treasury / GEN Guest Lecture NZ Treasury / GEN Guest Lecture The Treasury, Wellington F id Friday, 05 December 2014 05 D b 2014 1
Topics of Discussion Topics of Discussion 1. A quick summary of some international trends in PFM 2. Changing perceptions of NZ’s fiscal management 3. External Review of Treasury (Ter ‐ Minassian report) 4. The PFM needs/challenges that resonate with me 5 5. Some “soft’ iss e” topics in good PFM lang age Some “soft’ issue” topics in good PFM: language, behaviours, integrity & transparency 6. (time permitting) Inside the IMF: some thoughts and opportunities 2
NZ: An “International Perspective” NZ: An International Perspective 1 1. Does it matter (should it matter) to NZ? Does it matter (should it matter) to NZ? 2. Whose perspective exactly? What kinds of countries especially? 3. Why such great interest in PFM since 1990s? 4. 4 What are others most interested in now? What are others most interested in now? ‐ fiscal sustainability, ‐ revenue growth, g , ‐ expenditure performance ‐ less urgently: better IFMS, even accrual accounting 5. Challenge of finding of best central government structures for economic/fiscal management (finance, economy, civil service) never goes away. 3
Emerging Countries: ‘Tool ‐ Kit’ Approach e g g Cou t es oo t pp oac Core requirements: Basic fiscal forecasting capacity • Multi ‐ year budget presentation • Rudimentary programme budget • Quarterly/monthly fiscal reports • Enhancements: (cash basis) Fiscal strategy possibly targets (EU) Fiscal strategy, possibly targets (EU) • • Fiscal space / baseline budgeting • Performance measurement capability • IFMS • Audited annual accounts • Ambitions: Web site budgets / fin. statements • Expenditure reviews / perf. targets • Multi ‐ year appropriations l i i i • Real time financial reporting • Accrual accounts • Risk analysis Risk analysis • Transparency standards • 4
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PFM Development: The Current Reality? p y 6
Perceptions of NZ (1990 – 2014) Changing Times, Changing Views 1. Changing perceptions of NZ’s “new public management” approach: h f ’ “ bl ” h ‐ pre ‐ 1997 (“poster boy”); ‐ 1998 – 2007 (significant doubts/debate) 1998 2007 (significant doubts/debate) ‐ 2008 onwards (new role models, greater diversity of needs and options) 2 2. Recognition that “mistakes” were made: institutional economics (core i i h “ i k ” d i i i l i ( depts); output ‐ based budgeting, unclear/devolved accountability of central agencies 3. Where does NZ now stand overall: ‐ “NZ model”? (no), “NZ d l”? ( ) ‐ Respected systems? (yes); ‐ Leadership? (maybe ‐ stability, transparency & integrity) 7
Ter Minassian Review – Selected Priorities Ter ‐ Minassian Review – Selected Priorities 1. Legislated numerical fiscal rules (e.g. appropriate debt/GDP) 2. “Fiscal council” – independent policy analysis / advice p p y y / 3. Improved analytical tools : fiscal forecasting , expenditure drivers, stress test analyses (fiscal buffers) y (f ff ) 4. Fiscal stabilization policies : pro ‐ cyclicality, LTFS / LSF policy options , 5. Expenditure performance – “first class , (but) … scope for improvement … and for Tsy to ‘lift its game’ ” – EMF, PIFs, etc. 6. Balance Sheet management : net worth, Investment Statement, managing fiscal risks (with implications for debt sustainability ), contingent liabilities (incl. local govt. debt ) 8
Fiscal Council? Fiscal Council? 1. Do we need one? 2 2. What are the arguments? Wh t th t ? 3 3. How would it be configured? How would it be configured? 4 4. Where might it start work? Where might it start work? 9
Expenditure Performance Expenditure Performance 1. NZ has made a huge investment in expenditure performance. Is it producing adequate results? 2 2. E External review: what concerns were identified? l i h id ifi d? 3. Is the institutional framework now “right”? 4. Are specific budget appropriations well ‐ connected to outcomes and performance? 5. Are the oversight functions of Treasury and SSC adequate 6. 6. Do departments have sufficient capacity and skills to get the best out of Do departments have sufficient capacity and skills to get the best out of the system? 7. Are more/better expenditure or capacity reviews an adequate answer? 10
Key Questions Directing Treasury’s Expenditure Monitoring Database 11
Further Opportunities for NZ to Influence PFM Development 1. Living Standards Analysis 2. Fiscal risk assessment and management 3. Usefulness of accrual accounting? 12
Living Standards Analysis Living Standards Analysis 1. Still young, but an increasingly important part of policy frameworks: NZ work is comparatively advanced 2. Big challenge to operationalise LS concepts – esp. “less ‐ economic” policy h ll l “l ” l objectives (e.g. sustainability and inclusiveness) 3. 3 Is it a tool for measuring progress ex post or for framing policy options? Is it a tool for measuring progress ex post or for framing policy options? Can it serve both aims? (see OECD graph) 4 4. Does use of a ‘spider graph’ imply (too much) the existence policy trade ‐ Does use of a spider graph imply (too much) the existence policy trade offs? 5. Are the five points of the LSF tool operationally compatible with the p p y p three pillars of the Treasury ‘Letting Go’ strategy: prosperity, sustainability and inclusiveness? 13
NZ:OECD Living Standards NZ:OECD Living Standards 14
Superannuation Example Superannuation Example Key concerns: 1 1. Is it simply fiscal sustainability (or vs inclusiveness Is it simply fiscal sustainability (or vs. inclusiveness objectives?) 2. 2 No single polic sol tion (e g age of entitlement) No single policy solution (e.g. age of entitlement) 3. How well do we understand & define inclusiveness (and sustainability)? 4 4. Is there an opportunity now to engage inclusiveness Is there an opportunity now to engage inclusiveness objectives? 15
“Soft’ issues” of PFM Soft issues of PFM Often includes undiscussed areas of good governance, but essential for effectiveness. effectiveness. 1. Growing complexity of PFM language 2. “Tribalism” of government departments (esp. ministry of finance) & departmental officials 3. Maintaining integrity: the corruption ‐ free management of public finances 16
Inside the IMF Inside the IMF Fiscal Affairs Department (FAD) structures /needs l ff ( ) / d • Growing international demand for technical assistance in PFM g • Desire for “consensus” on PFM issues, but tension with diversity of needs • and conditions and conditions Continuing debates: performance budgeting, role of PFIs, accrual • accounting, transparency / corruption Opportunities for NZers – good (esp women) but Opportunities for NZers good (esp. women), but….. • 17
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