Policy costings office: a perspective from Australia

Over the years I’ve written a fair bit here about the idea of some sort of independent fiscal analysis body (most recent post here, with links to earlier ones).   There are ever-increasing numbers of such agencies around the world, partly because the EU says each of its member countries has to have one.  As I’ve argued here, I think there is a reasonable case for some sort of such body here – small and focused on all macro policy rather than just fiscal policy – but I’ve become increasingly sceptical of the sort of direction the current government has chosen to take.   They seem to be looking at something that serves mostly as free research for MPs costing policies, perhaps most closely resembling the Australian Parliamentary Budget Office set up a couple of election cycles ago.

The Treasury yesterday held an excellent guest lecture on the issue, with the visiting speaker being no less than Jenny Wilkinson, the Australian Parliamentary Budget Officer (CEO of the office) herself.  She spoke very well, answered lots of questions, and certainly left me (and I assume others) with a much better understanding of how the Australian system works.  Of course, as the incumbent CEO speaking in an open forum in another country, one doesn’t expect her to highlight any weaknesses or pitfalls but it was very valuable nonetheless.

Wilkinson included in her presentation this chart, used in our own government’s consultation document, categorising the responsibilities of the various independent fiscal offices around the advanced economies.

fisc council chart

Not many such agencies do policy costings for political parties.  Of those that do, all are in much larger economies than New Zealand.  And the US CBO is largely an adviser to Congressional committees, not costing proposals for candidates for office.

Small countries don’t have this sort of state-funded function.  One reason might be that there really aren’t many economies of scale.  Policy is probably no more complex in Italy or Australia (right hand of the chart) than in Iceland or Slovenia (left hand end) but there just aren’t so many resources to throw around in smaller countries.  Wilkinson told us that her office has about 45 staff, scaling up to around 55 around elections, and as if to confirm my prior that there aren’t many economies of scale she told us that Victoria’s own state PBO doesn’t have many fewer staff than her federal version.  Given that states and the Commonwealth between them do all the stuff our central government does –  and such an office has to be able to handle issues in any area of policy more or less on demand – it is hard to see how a high quality operation (and the Australian office appears to be one) could be run in New Zealand with fewer than 40 staff.  By contrast, the Parliamentary Commissioner for the Environment reports that it has 20 staff, and the Productivity Commission has three commissioners and about 15 staff.

As Wilkinson noted, every country’s fiscal institution has its own backstory.  One of the reasons I’ve been sceptical of a New Zealand costings agency is that, having followed New Zealand politics closely for 40+ years, it isn’t obvious when, if ever, a modern New Zealand election has turned on specific policy costings.  Wilkinson told us that the origins of the PBO relate to the period after the 2010 Australian election when both the Coalition and Labor were vying for the support of independents to form a government, and one of the independents insisted that both parties submit their programmes to the Commonwealth Treasury and the Department of Finance for costing.  Under the (rather loose) Australia rules, the (Labor) government’s policies had already been costed by the bureaucrats, but when the Coalition programmes were evaluated the officials reckoned there was a significant fiscal hole.    She went on to claim that in almost every election back to 1987 there had been significant debate about costings (of opposition parties) and that some elections “may” have turned on that (she didn’t given details of which, or how).  In the last two elections she claimed that use of the PBO has meant that costings are just no longer an election issue.

As she spoke there was discernible titter around the room, clearly remembering the “fiscal hole” debate before our own last election.  But I think it is wrong to think the Australian experience is relevant to that episode, which wasn’t about the cost of any specific programmes (which is what PBO evaluates for parties) but was mostly about the overall fiscal parameters and just how tight they’d prove.  As far I could tell, nothing in what a policy costing body was doing would have changed that debate (which resulted more from the current New Zealand focus on debt targets, of the sort they don’t really seem to have in Australia).

Another aspect of the presentation that surprised me was (a) the number of costings the PBO does, and (b) the extent to which demand is not concentrated just in the pre-election period.  In fairness, she noted that the latter had surprised them too.  In the most recent year (an election year) they’d done 2970 costings, while in the previous two non-election years they had averaged about 1700 costings. Only MPs can request costings, and there are 227 MPs (across House and Senate).     Those numbers don’t mean 2970 separate items of policy, as many of the costings will be, in effect, rework as members or parties iterate towards a policy that meets their ends and will be scored by the PBO as not costing too much.

In many respects, the PBO seems to operate as a (in NZ parlance) “shadow Treasury”.  The PBO is apparently required to use the same economic parameters etc as the government is using (through the Commonwealth Treasury and the Department of Finance), so there is no independent view on how the economy or programmes might work.  What the PBO is doing is, in effect, telling parties how the Commonwealth bureaucrats would score/cost their policies if they found themselves in office after the election. I guess that has some uses, but it is hardly independent advice or an alternative perspective –  it not only cements the dominance of existing parties in Parliament (since only existing MPs can use it) but cements the dominance of the paradigms and models of the existing public service departments.

Related to this, and in answer to a question from me, Wilkinson observed that what the PBO can best do is cost programmes that represents small deviations from the status quo (they have good tools to estimate direct and immediate fiscal costs/gains) while wider economic second round effects, and the associated fiscal impacts, are likely to be small.  But, and using her own (deliberately extreme) example, if some party were to campaign on getting rid of the welfare state, her office could do the direct fiscal costs, but could offer little or nothing on the wider economic (or social) effects of such a policy, including the possibility that it might have large long-term indirect fiscal implications.    They will only offer qualitative statements about those wider effects.  Which left me thinking that the the PBO probably does very well on things that don’t matter that much, and can’t offer much on the bigger issues that elections probably should really be about  (whether about the welfare state, climate change, productivity or whatever).     We don’t devote 45+ FTEs to a specialised institution to help parties develop their welfare or productivity policies.   And while fiscal costs will always matter, arguably reasonably credible aggregate fiscal rules (commitments to surpluses or low debt) provide most of the effective discipline that is needed (at least, that would be my interpretation of the last 25 years of New Zealand).  Plans change in office, as do economic and political circumstances.

Another thing not to like about the PBO model is that it operates in secret.  Costings are not published by the PBO before an election (although the PBO will correct things if a party mischaracterises material PBO has provided them), whereas (in NZ) the Official Information Act would generally, and appropriately, apply to work and costings undertaken by executive government agencies at public expense.

From a New Zealand perspective, I’m also not persuaded how important detailed programme costings are.  Australia has an electoral system that usually produces a majority (in the lower house) government from a single party/bloc.  We don’t.  At least while we have a party (or parties) who can go either way after an election, any election manifesto is really little more than an opening bid.  Sure, there is more onus on the big parties to have a decent set of numbers, but (say in 2017) both knew that whatever they took into the election would, in government, depends on what price they had to pay to secure New Zealand First support (and, in Labour’s case, on how large the Green share of the centre-left vote was).  Perhaps you might spend a lot on detailed costings (of the PBO sort) of the service was free to the user, but what real value is there to the public in that service.  Especially when, for example, New Zealand First has never been a party unduly focused on providing lots of detail in its manifestoes (somewhat rationally so, since what they can actually get will depend on vote share and coalition partner –  they don’t expect to lead a government themselves).

I could go on, but that is probably enough for now.  As I say, it was a very useful presentation (I hope Treasury makes her slides available) from a technocrat’s technocrat.  I’m left sceptical on two main counts:

  • first, whether elections ever much do, or really should, turn much on precise fiscal costings. Perhaps it appeals to inside-the-Beltway technocrats to conceive of that model, but I see elections as mostly about things like competing visions, competing personalities, competing diagnoses, and competing claims to competence.  If so, why spend so much on highly-detailed and expensive state-funded costings, that the parties themselves don’t think it worth spending their own money on?
  • second, we should think harder about the whole panoply of support and information etc we provide to political parties and the public, preferably without further reinforcing the favoured position of established large parties.  Thus, it is interesting to note that written parliamentary questions are much much less used in Australia, as a way of garnering information, than is the case in New Zealand. (“In the years 2008–2014 only about 8 questions in writing were being asked each sitting day, but this number increased to 19 in 2015, and was 14 in 2016.”).   What about better resourcing select committees (to me a better use of money)?  And if we threw in a free PBO service, should we reduce existing money parliamentary parties are funded with?  If not, why not?  And would resistance to that idea suggest the costings were some epicurean nice-to-have rather than a central element of a well-functioning democracy?  And then, of course, there is the OIA.  Mightn’t it be better to require agencies to release documented costings models themselves, in ways that would allow political parties and their consultancy firms to use them to the extent they judge appropriate (and not otherwise).

And if I had the analytical resource implied by 40-45 more staff and had to deploy it somewhere in the public sector, it is far from obvious that a policy costing operation (with supporting analysis and research as the PBO) would offer the highest benefit-cost ratio