Reforming public finance beyond the ‘wellbeing budget’

The Government has been consulting with ‘a group of experts’ – including Michael Cullen – on a new approach to managing the government’s finances, which could have a massive impact on future budgets.

Newsroom:  Cullen consults on massive Budget shake up

Treasury has brought in former Finance Minister Michael Cullen to consult on government budgeting as it tries to shift the focus away from surpluses

Dubbed a “stewardship” approach, it aims to take a more long-term view of public finance. A paper released to Newsroom under the Official Information Act shows Treasury has already begun work on reforming the public finance beyond the ‘Wellbeing Budget’ which will be delivered on Thursday.

The briefing notes that the current public finance system is 30 years old and may not adequately serve the needs of today’s governments. It said that the current work on the Wellbeing Budget and the Living Standards Framework will “only take us so far”, and further work was needed to fix “underlying issues with our public finance settings”.

Treasury says the approach is about moving from a “management” to a “system stewardship” approach to the public finance system. This could involve further changes to the Public Finance Act, a piece of legislation drawn up in 1989 that forms the cornerstone of public finance in New Zealand.

Finance Minister Grant Robertson told Newsroom the Government was “certainly moving forward” with the ideas in the paper.

Treasury believes the public sector is “not working well for everyone”. It singles out struggles in responding to “complex needs and issues” as well as “longer-term opportunities and risks”. It lays the blame, in part, on “a range of underlying issues with our public finance settings”.

It says the current settings encourage “silos” and a short-term focus. These settings mean it can be difficult to move funding across several years when it makes sense.

The reporting requirements placed on the Government focus on “outputs not outcomes,” and it incentivises “compliance and risk aversion,” rather than “innovation”.

Treasury said the new approach would “support better collaboration”, and place “more emphasis on the long-term to support innovation, asset management and capacity-building”.

One change being discussed would substantially alter how baseline funding is appropriated. Currently, bids for cost pressure funding is bid for on an annual basis, which Treasury says is “resource intensive”. This could change to a multi-year “defined period” bid, which would be more flexible.

Government budgets should have medium and long term considerations. I don’t think this is particularly new – the Cullen Fund was designed as a long term  means of financing superannuation as the population grew older. And many budget items are for multiple years (four years is common).

Last September, Treasury officials met informally with a panel which included former Finance Minister Michael Cullen, former ACT candidate and ex-Treasury Secretary Graham Scott, Victoria University Professor Jonathan Boston, and former State Services Commissioner Iain Rennie.

The group urged caution before changing “what is internationally a very good public finance system”.

Speaking to Newsroom, Cullen said there was merit in looking at long-term risks so long as a balanced approach was taken.

“So long as focus on the long-term doesn’t become an excuse for doing stupid things in the short-term then there’s a great deal of sense in getting that long-term focus,” Cullen said.

He said long-term risks like the costs of super and health care, combined with unexpected risks like earthquakes meant a prudent approach should still be taken.

“We are a country which faces quite significant risks that will suddenly descend upon us. We don’t have the slightest clue they’re going to happen,” he said.

Jonathan Boston told Newsroom that moving away from a narrow focus on GDP as a measure of the economy was wise.

“GDP is a flow measure; it measures the value of goods and services but it doesn’t tell you what’s happening to income distribution and to other financial measures, more particularly it doesn’t tell you what’s happening to the stocks of capital in a society or your human capital stock,” Boston said.

Reassessing how budgeting is done is a good thing. We will have to wait and see whether changes that happen as a result of this consultation turn out to be a good thing – and that could take many years to determine.

 

Should New Zealand ban internal combustion engines?

It is difficult to imagine the degree of disruption and change that we would have in New Zealand if internal combustion engines were banned. But this is what some people want.

Dominion Post: Why New Zealand should ban internal combustion engines

THOMAS ANDERSON AND JONATHAN BOSTON

Bold and decisive actions are necessary if New Zealand is to reduce its greenhouse gas emissions substantially.

The new Labour-led Government has committed to introducing a zero carbon bill later this year. But how should the aims of such legislation be achieved?

Of such measures, perhaps the most effective would be a ban on the sale of all new or imported used vehicles with internal combustion engines. Such a ban could take effect, say, from 2030.

At least that would be twelve years to prepare.

Many developed and developing countries have already introduced or are seriously contemplating such bans.

Britain, France, Ireland, Germany, India and China are listed – if car manufacturing countries ban internal combustion engines that would have a flow on effect here anyway.

New Zealand should follow suit.

As it stands, our transport sector accounts for around 18 per cent of annual gross greenhouse gas emissions and over a third of carbon-dioxide emissions. Emissions from road vehicles make up over 90 per cent of our total transport emissions. Hence, a ban on the sale of new petrol or diesel vehicles would, in due course, considerably reduce our greenhouse gas emissions.

It could also considerably change how people travel. It would presumably also affect freight – and at the moment I don’t think there is EV technology that would handle long haul trucking. And if it also applies to rail that would require electrification of all existing rail lines, a huge and costly exercise.

About 85 per cent of our stationary energy comes from renewable sources and this percentage continues to increase. Accordingly, EVs can be recharged in New Zealand with a very low carbon footprint.

18% isn’t that much different to the 15% of non-renewable stationary energy.

And from RNZ yesterday: Electric vehicles could put strain on power network

There are fears that an increase in the uptake of electric vehicles could end up overloading the electricity network.

Electric vehicles make up less than one percent of the entire fleet, but it has been predicted they could make up 70 percent of it by 2050.

Consultant Simon Coates told Nine To Noon that if this happened they would account for 40 percent of domestic electricity usage and would place a strain on the network.

The above proposal is for a 100% electric fleet by 2030, but back to the ban proposal…

Of course, even with such a ban it will take decades to decarbonise New Zealand’s transport fleet. In 2016 close to 40 per cent of light vehicles were at least 15 years old. If the current age structure is maintained over the coming decades, it will be mid-century, even with a ban, before most petrol and diesel vehicles are phased out.

It  may make sense to move away from internal combustion as quickly as possible, but it will be complex, difficult and costly.

A ban of the kind suggested would serve multiple purposes. It would underscore New Zealand’s global commitment to substantial emissions reductions. It would help give substance to our claim to be ‘clean and green’. It would send a powerful signal to the automotive industry and consumers, thereby altering expectations and decision-making.

Moreover, it would help improve planning in the transport sector by providing greater certainty. In so doing, it would speed up the required investment in a comprehensive charging infrastructure and hasten the transition to a low-carbon economy.

The planning required would be huge.

It might be argued that the proposed ban is unnecessary. After all, by 2030 most automobile manufacturers will probably have ceased producing internal combustion engines. But a high proportion of vehicles sold in New Zealand are used imports rather than new vehicles. New Zealand must not continue to be a dumping ground for cheap, out-of- date, high-carbon technologies. We must aspire to a better, cleaner future and act accordingly.

This is fine as an aspirational ideal, but there is no attempt to detail what this would actually require and mean for New Zealand.

There is also no costings – how much would be required to convert? And what would the resulting transport costs be like?

Who has proposed this?Not a couple of young Green idealists.

Thomas Anderson is a Research Assistant at Victoria University of Wellington. Jonathan Boston is Professor of Public Policy at VUW.

The Nation – housing, future governing, and overturning homosexual convictions

On The Nation this morning (from Twitter):

Tomorrow, the Great Generation Debate. Millennials say they’re being shut out of the Kiwi Dream of home ownership… but Boomers say the young ones just need to work harder. Ella Henry, Stephen Franks, Morgan Godfery and Jessica Palairet will debate.

I’m alarmed that The Nation is promoting Labour’s ‘Kiwi Dream’ slogan in introducing debate on housing.

Then we’ll hear from Victoria University of Wellington‘s Jonathan Boston about his new book on whether politicians need to start looking past the next election cycle and making policy for the future.

And from Twitter: