An independent Policy Costings Unit?

The Green Party co-leader Metiria Turei yesterday called for the establishment of an independent Policy Costings Unit within The Treasury.

Today, the Green Party has sent a letter to each party leader, asking for support from across the House to establish an independent unit in the Treasury to cost policy promises.

Political parties could submit their policies for costing to this independent unit, which would then produce a report with information on both the fiscal and wider economic implications of the policy.

Instead of New Zealanders making their decisions based on spin and who can shout the loudest, they will have meaningful, independently verified information instead.

And here are some of the details of what the Greens are proposing.

greens pcu
I don’t think this is an ideological issue at all.  The National Party is opposed, but the Taxpayer’s Union –  generally sceptical of any proposals to spend more public money, and generally a bit more towards the right of politics than the left – has come out in support of the proposal.

 Taxpayers’ Union Executive Director, Jordan Williams, says “We agree with the Greens that an independent office to cost political promises would be good for democracy and public policy debates. While our preference is to have the office as one of Parliament, rather than Treasury, the Green’s policy has real merit.”

“Seldom does the Taxpayers’ Union call for new spending of taxpayers’ money but here we think the benefits to transparency and democracy far outweigh the cost.”

“This tool would make it harder for politicians to make up expensive policy on the hoof with taxpayers bearing the costs of the wish-lists. It would likely prevent the fiasco we saw with the Northland by-election bribes.”

Like the Taxpayer’s Union, I reckon that if New Zealand is going to establish such a unit it should be done as an office of Parliament, and I wonder why the Greens chose not to take that option.  Perhaps they took the view that such a unit would be cheaper if it operated within Treasury (drawing on the corporate functions of a larger organization).  But even if that were true, I suspect it would be a false economy.

If it is worth establishing such a body at all, it is worth doing it properly.  That means establishing a body with its own mission and esprit de corps, and staffing the organization with people who sense that their primary responsibility is to Parliament and to the political process, not with people whose career is advanced primarily by their performance within Treasury –  a line department that answers to the government of the day.  I’m not suggesting that people in a quasi-independent unit in Treasury could not do the job with integrity –  after all, Treasury at times provides secondees to the office of the Leader of the Opposition, and it hasn’t obviously tended to hurt those individuals’ careers on their return to the Treasury (one is now the State Services Commissioner, and another was the previous Secretary to the Treasury).  But the role would be better done by a properly independent body, able to attract someone of sufficient standing and authority to lead it (heading this sort of unit is not just a section manager’s job).  And if it were to established as an adjunct to any existing agency, I would probably suggest the Productivity Commission –  at arms-length from day-to-day politics –  rather than Treasury.

But is it worth going down this track?  I’m still ambivalent.  I don’t think there is enough thoughtful scrutiny of macroeconomic policy issues in New Zealand (and touched on some of that here), and before the Greens proposal goes any further it would be worth looking carefully at what is done in other countries.

I can think of two highly-regarded examples, from two quite different political systems.  In the Netherlands, the CPB has, for decades, provided costings for political party proposals.  Although it is not compulsory for parties to seek such costings, I understand that it has become the norm for them to do so –  an equilibrium, which looks (on the whole) like a good one.  The CPB is very highly-regarded and does a wide range of other work (not just electoral costings).  It is administratively a part of the Dutch Ministry of Economics Affairs (but with protections for its independence).  The CPB was founded in 1945 and had already functioned at arms-length from the government for decades before it began providing political party costings.  The CPB has more than 100 staff (not all doing political costings).

And in the United States, the Congressional Budget Office also plays a highly-regarded role as non-partisan “scorer”.  It is a quite different political system, and the role is not about scoring party promises doing into an election campaign, but in evaluating the fiscal implications of legislative proposals.

Both the CPB and CBO are highly-regarded.  I’m not sufficiently familiar with Dutch politics to offer any thoughts on how much impact the CPB costings have on retail politics in the Netherlands –  and I imagine that views differ anyway.  But regardless of technical capability and impartiality of the CBO, US fiscal policy and legislative processes don’t look overly attractive.  Of course, in a huge country there is cacophony of voices –  more or less expert –  and so it might be unreasonable to think that any publically-funded independent agency would make much difference to the debate.

What about the other Anglo countries –  the UK, Ireland, Australia and Canada?

The UK and Ireland have both established fiscal councils in recent years, and there have been calls for those agencies to be given a mandate to cost political party promises.  To date, neither country has altered the mandates of the fiscal councils (which are more macro in their focus).

Canada and Australia have each relatively recently established a Parliamentary Budget Officer.  The (fairly small) Canadian office does not appear to do political party costings (but can, on request of an MP, evaluate the cost of a proposal before Parliament), but the Australian PBO  (with about 40 staff) does make that facility available.  But here is the important thing –  politicians have been reluctant to use the facility, and there has been no obvious public backlash more or less compelling parties to have their policies evaluated by the PBO.   I’m not entirely sure why, but it is an alternative equilibrium to the Dutch one.  Which model would hold in New Zealand?  Perhaps, given resourcing constraints, smaller parties might use the Treasury office the Greens propose, but the proposals of the smaller parties generally matter less than those of the major parties.  Would Labour, or National in future when it is in Opposition, use the facility?  I don’t know.

Why might politicians be reluctant to have such a agency evaluate their policies?  Yes, there might be cynical reasons –  the proposals are just too expensive and parties don’t want that cost authoritatively exposed.    But there might be other reasons.    In the end, people often don’t vote for one party or another on the basis of detailed costings, but on “mood affiliation” –  a sense that the party’s general ideas are sympathetic to the broad direction one favours.  And I can’t think of a New Zealand election in my time when the results have been materially determined by the costings (accurate or inaccurate) of party promises  – perhaps in 1975 National might have won a smaller majority if the cost of National Superannuation had been better, and more openly, costed, but I doubt it would have changed the overall result.

And then, of course, there is the fact that economists, and public agencies largely made up of economists, have their own predispositions and biases.    The Economist touched on this issue quite recently.  It isn’t that economists are necessarily worse than other “experts”, or that people consciously set out to favour one side or another in politics, but (say) whatever the merits of the sorts of policies the Greens have favoured, it is unlikely that the New Zealand Treasury (1984-90) would have evaluated them in ways that the Greens would have found fair and balanced.  Perhaps ACT might have the same reaction to today’s Treasury?  If it were only narrow fiscal costings an agency was being asked to evaluate, perhaps these predispositions of the analysts would not matter unduly (although even there, much depends on the behavioural assumptions one makes), but the Greens’ proposal includes analysis of the “wider economic implications” of policy proposals.

On balance, I still think there is a role for something like a (macro oriented) fiscal council in New Zealand, perhaps subsumed within the sort of macroeconomic or monetary and economic council I suggested here (but perhaps that just reflects my macro background).   And there is probably a role for better-resourcing select committees.  But when it comes to political party proposals, if (and I don’t think the case is open and shut by any means) we are going to spend more public money on the process, I would probably prefer to provide a higher level of funding to parliamentary parties, to enable them to commission any independent evaluations or expertise they found useful, and then have the parties fight it out in the court of public opinion.  The big choices societies face mostly aren’t technocratic in nature, and I’m not sure that the differences between whether individual proposals are properly costed or not is that important in the scheme of things (and perhaps less so than previously under MMP, where all promises are provisional, given that absolute parliamentary majorities are very rare).  If there are serious doubts about the costings, let the politicians (and the experts each can marshall) contest the matter.

At very least, though, if this interesting proposal is going to go anywhere, it should be underpinned by a more in-depth analysis of the experiences, and contexts, of other countries.

 

7 thoughts on “An independent Policy Costings Unit?

  1. I would probably suggest the Productivity Commission – at arms-length from day-to-day politics – rather than Treasury.

    What exactly does this mean?:
    Productivity Commision:
    We recommend that you:
    a agree to the inquiry selection process set out in Appendix 1
    Agree/disagree
    b agree that Commission’s second tranche of inquiries be selected on the degree that
    they:
    • are relatively uncontroversial given the desire to establish broad political support for the Commission
    http://www.treasury.govt.nz/publications/informationreleases/productivitycommission/pdfs/t2011-2000.pdf

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    • I mean does “broad political support” extend to the population as a whole or (what Chris Trotter calls) “the political class”?

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  2. I didn’t have too much problem with that line. I think we are better off for having a reasonably analytical non-partisan agency looking at some of the micro policy issues (even though the Commission has its own biases and blindspots, and there is plenty in their reports that I disagree with).

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    • We have a very powerful political establishment which would want to block any bad news on immigration. On that issue the Green Party would stand with National and the Labour Party would have a leg in both camps (I think) Add to that the progressives in the media and the finance/property/construction sectors. Doesn’t that cover everyone? I assume the Productivity Commission hasn’t yet looked at immigration as the Australian Productivity Commission did?

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  3. I suspect the reference was probably quite general – having any mainstream party, incl the Greens or Maori, calling for the abolition of the PC or suggesting strongly and ideological bias would create real problems for the PC’s durability (personally I will be a bit surprised if it survives anyway).

    you are right that NZPC has not been asked to look at immigration. I think that is unfortunate, but am less sure where the parties might come down on the issue. Labour and the Greens could easily shift to the skeptical side (between pressure on NZ workers and that on the environment), but of course Labour and National are together responsible for the immigration policy of the last 25 years.

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  4. The UK based ‘Institute for Fiscal Studies’ is somewhat of a hybrid as it receives government department funding support but is a private not for profit entity. However, during the most recent UK election, it provided some very useful analysis on proposed policies outlined by competing parties during the campaign period (albeit ad hoc). Seems like a good idea on the surface as is the notion to search the globe for alternative operating/governance models. A thought: is more funding for parties to generate independent research a similar arrangement to an issuer of a credit investment paying an agency for a credit rating??

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  5. Fair question! I suppose the difference is that there is no regulatory protection for people doing econ analysis and research for parties, in the way there is for ratings agencies. In the political debate, it seems to be that caveat emptor is good advice, and we benefit from robust competition of ideas (and estimates) rather than technocratic belief a single official agency is the fount of wisdom on such matters.

    But yes, the IFS is a hugely valuable contribution to the Uk debate, and there are issues about how a small country gets that well-informed debate.

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