The Government’s plans for an independent policy costings unit were back in the news this week, with the announcement that Cabinet had agreed that the proposed new body should enjoy the exalted status of an Officer of Parliament  (a status it would share with the Auditor-General and the Ombudsman –  where the case is clear-cut –  and the Parliamentary Commissioner for the Environment –  where any case seems more grounded in feel-goodism).

Back when I was still a bureaucrat, I favoured the establishment of a small Fiscal Council (along Irish or Swedish lines) and thought (and think) that the mandate of such a body could usefully be widened to monitoring and reviewing macro policy more generally.   But what the government appears now to have in mind is primarily a policy costings unit, as championed for several years by the Green Party.   I’ve written about the idea on several occasions and have become increasingly sceptical.

This post in early 2016 dates from when the Greens first openly called for such a body.  And there have been various others since, including here, here, and here.    There was a Treasury-led consultation process last year (the document is here) which I made a short submission to (submissions are here).

Rereading my submission now, I find my views largely unchanged, with the exception that I am now much more sceptical than I was then of the case for making any new entity an Officer of Parliament –  the more so if, as now seems envisaged, the entity serves primarily as a costings unit for political parties (thus, essentially playing the sort of role economic consulting firms do).  If such a body is to be established, an independent Crown entity model might have been more appropriate, better protecting the relative status of the two absolutely vital Officers of Parliament (Auditor-General and Ombudsman), which act as crucial checks on the Executive.     It would be odd to have a policy costings unit as an Officer of Parliament while the –  much more vital –  Electoral Commission is only an independent Crown entity.

My summary observation was as follows:

I am much more sceptical (opposed) to the case for an institution to cost political party proposals (and in this respect associate myself with many of the comments in the New Zealand Initiative submission).  Parties have adequate incentives already to make the case for their policies, in whatever level of detail the political (voter) market demands, and (as the NZI note) already have access to the Parliamentary Library resources, parliamentary questions, and Official Information Act requests.  A policy costing office –  not found in any small OECD country –  would be, in effect, just a backdoor route to more state funding of parties (and not necessarily an efficient route – bulk funding would be preferable if state funded was to be more extensively adopted).  It also reflects a “inside the Beltway” conceit that specific costings are highly important, and that use of a single “model” or set of analysts somehow puts everyone on equal footing  (it doesn’t –  public service analysts having their own embedded assumptions about what is important, what behaviours are sensitive to what levers etc.)   With the possible exception of the Netherlands, I’m not aware of any country where a political costings office products plays any material or sustained role in election campaigns and outcomes.

There is an important distinction here.  Private entities (parties and their supporters) have every incentive to invest in convincing voters of their case/ideology/competence/costings. By contrast, no one has a strong private incentive to do the sort of analysis and commentary –  often longer-term in nature –  that a traditional (narrow) Fiscal Council does.  That is why a reasonable case can be made for a public institution of this sort (preferably macro policy focused –  since the same absence of incentives applies to monetary and financial regulatory policy).

There has been plenty of talk this week of how 29 of 36 OECD countries have some sort of independent fiscal institution.  This was the chart from the consultation document.

But only a small number of those do policy costings, and none of the countries where the independent fiscal body does policy costings are themselves small.   I’ve not seen Treasury or the government engage with that point –  resources are more scarce in small countries, especially perhaps in relative poorer ones.   And although the US Congressional Budget Office is widely cited in such debates (and is pretty well-regarded) it doesn’t do policy costings for political parties or candidates as part of the election process, but rather produces independent expert analysis on proposals actually before Congress (the sort of role our less-politicised public service is supposed to play).   A policy costings unit for political parties, for use heading into an election, and paid for by taxpayers, remains quite unusual in OECD countries.

I’ve listed most of my objections previously, but just quickly:

• there isn’t an obvious gap in the market.   At present, political parties produce costings (sometimes reviewed by independent experts) to the extent they judge it to be in their own interests to do so.  Voters, in turn, can judge whether the presence or absence of any costings, or any debate around them, matters much.  Existing parliamentary parties have access to considerable taxpayer resources which they can draw on to develop and test policy proposals,
• it isn’t obvious when, if ever, a New Zealand election in at least the last fifty years has turned on the presence, absence, quality (or otherwise) of election costings.  It is a technocratic conceit to suppose otherwise: people vote for parties for all sorts of reasons (values, mood affiliation, fear/hope, being sick of the incumbent, trust (or otherwise)) which have little or nothing to do with specific policy costings,
• the relevance of specific policy costings (and indeed overall fiscal plans) is even less under MMP than it was in years gone by.  Party promises are now little more than opening bids, as coalitions of support are put together after the election to govern (and on almost every specific piece of legislation).  We simply aren’t in a world where a few dominant ministers dominate a Cabinet which in turn has a majority (or near so) in the government caucus, which in turn has an unchallenged majority in Parliament,
• the “fiscal hole” argument (from the 2017 campaign) remains an utter straw man in this context.   First, when Steven Joyce made his claims in 2017 lots of people, including experienced ex-Treasury officials, weighed in voluntarily, and debate ensued about whether, and in what sense, Joyce was saying something important.  The system –  open scrutiny and debate –  worked.  And, secondly, a policy costings unit –  of the sort the government apparently envisages – would not have made any useful contribution to such a debate, which was about the overall implications of Labour’s fiscal plans, not about the costs of specific proposals Labour was putting forward.     Elections are messy things –  always were and probably always will be, and that isn’t even necessarily a bad thing.
• some of the arguments made for a policy costings unit might have more traction if, somehow, every political party and candidate could be forced to use it (say, submit all campaign promises to the costings unit at least three months prior to an election, with the costings unit issuing a report on all of them say at least one month prior to an election).  But even if you thought that might be a good model, it isn’t going to happen (and there is no credible way that such a model could be enforced).  Instead, the proposed costings unit will be used when it suits parties, and not when it doesn’t, and will probably be most heavily used by parties that are (a) small, (b) cash-strapped, and (c) like to present themselves as policy-geeky.  The Greens, for example.  One might add that the unit would most likely be used by parties that believe their own mindset is most akin to that of those staffing the unit –  likely to be a bunch of active-government instinctively centre-left public servants.  Embedded assumptions can matter a lot –  The Treasury used to generate wildly over-optimistic revenue estimates for a capital gains tax, and it was probably no coincidence that as an agency they supported such a tax. 
• the policy costings unit seems, in effect, to largely represent more state-funding for (established) political parties.  That might appeal to some, but even if you thought more state funding was a good idea (and I don’t) it isn’t obvious why this particular form of delivery is likely to be the best or the most efficient.  Money might be better spent on research and policy development (say) rather than “scoring” at the end of the process, for detailed plans that will almost inevitable change before they are ever legislated.  And if we want to spend more on policy scrutiny, I reckon a (much) stronger case could be made for better-resourcing parliamentary select committees.
• the interim proposal for next year’s election would enable only parties already in Parliament to utilise the facility.  Again, this has the effect of further entrenching the advantage established parties have in our system (I hope it will be re-thought when the legislation itself is considered).
• practicalities matter: there probably won’t be much demand on a policy costings unit in the year after an election, and could be quite a bit in the year prior to one.  How then will be unit be staffed and a critical mass of expertise maintained?  If people are seconded in from government agencies, would we really have an independence (including of mindset and model) at all?  And costings skills aren’t readily substitutable with bigger-picture fiscal policy (or macro policy) analysis skills.
• the lack of transparency around the proposed institution should be deeply concerning.  As far as I’m aware there has not yet been any indication as to whether the policy costings unit would be subject to the OIA (as the Auditor-General and Ombudsman are not, and nor is Parliament more generally).   The Minister of Finance has indicated that any costings the unit did would only be released with the consent of the political party seeking the costings.  That should be a major red flag.  In my view, any new unit should be (a) explicitly under the OIA, and (b) the enabling legislation should require that any costings done for political parties should automatically be released 20 working days after being delivered to the relevant political party (or more quickly if the costing is delivered within 20 days of an election).  A policy costings unit should not be a research resource for political parties – the only possible basis for confidentiality – but a body that at the end of the process provides estimates based on the details the relevant party has submitted. (As I understand the system in Australia, costings provided during the immediate pre-election period are automatically released, but others are not.)

In sum, I’ve become quite strongly opposed to the notion of a costings unit.  Mostly it probably won’t do much harm – I thought some of the comments from Simon Bridges were a bit overblown –  and relative to other stuff governments waste money on to buy off their bases or to win over small support parties (Super Gold Card anyone) it is probably small in the scheme of things.  It won’t improve policymaking, it won’t change the character of elections, but it might –  at the margin –  create a few more jobs for economists.

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