Fiscal councils and state-funding of parties

I’ve been engrossed in the Kavanaugh hearings, so just something short today.

A few weeks ago the government released a consultative document prepared by The Treasury on the possibility of establishing an independent fiscal institution.   There is quite a lot of useful background information in the document, although what is lacking at this stage is a clear specific proposal.

The creation of such an institution was part of the Labour-Greens budget responsibility pact announced before the election.  Broadly speaking, I thought it had the makings of a step in the right direction, but whether it would be so or not would depend greatly on the specifics of how the institution was set up, what it was made responsible for, and (to a considerable extent) the early key appointees.

I was generally in favour of a small institution that could provide some independent analysis and commentary on fiscal policy, fiscal rules, and so on.  Many OECD countries have such institutions.  I’d go a little further and suggest that in a New Zealand context such a body could be made more useful, and with a bit more critical mass, if the responsibilities were broadened to include independent analysis and commentary on other aspects of macroeconomic policy, notably monetary policy and financial system regulation.

My unease was the about the push, initiated by the Green Party, for the independent fiscal institution to take on a taxpayer-funded role of costing political parties’ proposed policies and promises.    That aspect appears quite prominently in the consultative document.  I remain unconvinced that there is a gap in the market.   I’m also unconvinced that a small body would be able to maintain a critical mass of the sort of detailed expertise required to credibly cost and evaluate policies proposed by political parties, across the entire spectrum of policy, on the off chance that one particular party might want some, perhaps quite detailed, policy evaluated.  And I’m also uneasy about the policy and political (not necessarily partisan ones) biases of the sort of bureaucrats who would inhabit such agencies (check out past Treasury advice around capital gains taxes for example), and the creation of any sort of expectation that these people should be charged with costing and evaluating party promises.

But there is also an issue of mindsets.  Technocrats put a great deal of focus on precise costings and details, but elections are rarely about those details, and it isn’t obvious that they should be.  Elections are contests of ideology, personality, competence or otherwise, and only at the margins are precise numbers likely to be particularly important.  That is even more so in an MMP environment, where campaign promises and policies are no more than opening bids, and governments typically have to be cobbled together –  and policy details haggled over –  after the votes are in.    Sometimes parties find it in their interests to hire expert advisers to evaluate or cost their policies, and the political and commentary process evaluates and challenges what they produce in response.  Other times parties don’t.  People make their choices, and it isn’t clear they put that much weight on specific costings, no matter who they are done by.  Politics is a competitive and adversarial process, and I’m not sure there is much role for taxpayer-funded technocrats.

The idea of a policy costings unit looks like some mix of (a) trying to intrude technocrats into the process, and more concerningly (b), a backdoor route to have the state fund political parties.   Resources that would be spent by the costings unit, at the request of an individual political party, would be resources that party would not have to find for itself.  if that isn’t backdoor partial state funding of political parties –  potentially on quite a large scale –  I’m not sure what is.

Among the interesting charts in the report is this one, drawing on OECD databases.

fisc council chart

It is a very useful chart, outlining what various independent fiscal agencies do. But what I found most interesting was the eight countries to the right of the chart where the fiscal institution does policy costings, and the countries that aren’t in that grouping.

Every one of the countries where the fiscal entity does policy costing of some sort (in the US case, not for political parties in the run-up to a campaign, but the US system is very different overall) is that all of them are large by our standards.  Even the Netherlands has more than three times our population and Australia has five times our population (and more than that multiple of our GDP).  Some of those countries have quite large staffs for their fiscal institutions –  and they can afford it.

By contrast, not one of the small OECD countries with an independent fiscal institution is described by The Treasury as doing policy costings for political parties.  That seems pretty telling, and is unlikely –  across a variety of different political systems –  to be just a matter of chance.

The consultative document doesn’t give us a sense of resource requirements, but there aren’t likely to be big economies of scale in this game.  A Council of, say, 3 and perhaps 10 staff could do the fiscal (and macro) monitoring.  That looks to be the sort of scale quite common in the rest of the OECD.  Making a serious job of policy costing looks as though it could take multiples of that level of resources.   For what?

I might come back to the document if/when I make a submission next month, but in the meantime I’d urge a rethink, and encourage opposition parties not to fall for the siren song of more resources potentially becoming available to them.

11 thoughts on “Fiscal councils and state-funding of parties

  1. “” backdoor partial state funding of political parties “” isn’t that what you were complaining about a couple of days ago? However that was funding from a foreign state.

    Clearly the devil is in the detail. The last election had an $11b dispute as its centre piece debate. Would this fiscal council have resolved it? Maybe bravely for a comment on an economics website there were some issues more important than money that deserved a higher profile during the last election.


  2. Indeed. Of course, one argument made by some for more general state funding is to reduce reliance on Chinese (in particular) funding. I’m not persuaded – some moral fibre would reduce that dependence – and state funding would only further entrench the advantage of established parties (which I’d regard as bad in general, but really really bad in the specifics of how poor the established parties – large and small – are).

    Actually I think the $11bn “hole” issue at the last election supports my point (and I’ve made the case more fully previously). Labour’s numbers – done by their consultant – technically added up. Quite how realistic they really were was about politics, and framing, more than anything else. After initial confusion introduced by Steven Joyce, a lot of economists and analysts did weigh in, and help clarify things for those who really cared, without a cent of taxpayer money being spent. Unless the fiscal council was to go well beyond just costing and be asked to weigh in on the prudence/political sustainability of overall packages – which would be unwise, because in turn it would undercut the legitimacy of the institution – the “framing”/competence types of debates aren’t going to be resolved by technocrats, but by the cut and thrust of the political debate.

    (And, hey, I’m a technocrat, I wrote here that Labour’s fiscal numbers didn’t really look sensible or sustainable – even if they added up – but I still voted to change the govt. People alter plans in office, but elections are when you choose who to put in – or, more to my point, out – of office.)


    • Not too sure what technically added up means. If you are saying 1+1=2 then that’s what technical adding is. But if it was a test of assumptions then Labour and 7 economists were technically incompetent.


  3. The Kavanaugh hearings is just nonsense charges. Having had 2 wives and a dozed relationships, I would not believe any of the 3 women. From my 14 relationship experiences, women’s memories generally get more and more distorted as time passes, usually very ugly distortions that they genuinely believe as the truth blindly clouded by emotion.


  4. I cannot believe you do not wish a public institution to prepare parties costings.

    In Australia most times the conservatives did their costings they were a joke. One time an Accounting firm said yes the numbers add up without any knowledge of what the numbers would do for or even if they were appropriate for example.

    The ALP used to take costings seriously until 2007 when they obviously thought why should we if you lot do not.

    Now governments cannot criticize Opposition parties proposals IF the PBO has costed it and if they have not one can easily smell a rat.


  5. An interesting discussion here Michael. Eric Weinstein talks about the Gated Institutional Narrative (GIN) and how they act like border control as once one exception to the narrative gets into the institution the narrative is under threat. It follows a report linking Youtubers on the right by degrees of separation to those they consider the worst while leaning towards deplatforming.


  6. At first I was quite supportive of the idea of individual costings – the ruling party’s attempts at character assassination and exaggeration have always rubbed me up the wrong way.
    The two problems, as I see the, is that 1. any official costing would lend an atmosphere of credibility to a policy that may not be warranted; and 2. Budgets don’t run in a vacuum.
    On the second point, there are always more Budget bids than there is money available. Any decisions on Budget are made over months of evaluation, with poor Treasury analysts doing 18 hour days for months trying to make sense of them all. Number one question is always ” what are you going to stop doing, or wind back, in order to do this? An independent organisation will never answer that question, which is just as important as “should we do this initiative?”


    • We had 7 independent economists that wanted a change in government and sacrificed assumption interpretation to any degree of acceptable accuracy. How independent would a independent body actually is?


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