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Strengthening fiscal responsibility rules – Nicola Willis

The Government will bring in more transparent and responsible fiscal management in the wake of the unacceptable approach of the previous Government, Finance Minister Nicola Willis says.

“The previous Government put New Zealand on a completely unsustainable fiscal path: high levels of public spending left the books out of balance, three times delaying a forecast return to surplus and vastly increasing the burden of public debt.

“The former Finance Minister consistently exceeded the operating allowances he set for himself ahead of Budget, meaning actual new spending routinely exceeded planned levels.

“This pattern, together with the volume of future fiscal risks, confirms Labour’s promised return to surplus as forecast in the Pre-election Economic and Fiscal Update would never have been delivered.

“We knew Labour had left us a fiscal mess to clean-up, yet I am shocked by the extent of the financial time-bombs they’ve left behind.

“Our coalition Government has acted swiftly to remove some of these unfunded fiscal risks: including by stopping the Lake Onslow Project, the Income Insurance Scheme, and the commitments to Auckland Light Rail and Let’s Get Wellington Moving.

“Other time-bombs will take more time to defuse.

“Cost blow-outs in major infrastructure projects abound. The iReX Interislander ferry project is just one example. I have also been advised that the Transport Investment Programme that the previous Government signalled a commitment to deliver had an estimated total cost of $288 billion, while only $85 billion of funding had actually been appropriated to meet these costs.

“As part of the Budget 2024 process I have asked Ministers to identify major capital projects at risk of cost blow-outs, delay or failure, so that the Government can work carefully to manage them.

“The previous Government also left a large number of funding “cliffs” where funding for a programme or policy had been provided for only a limited period even while there was a clear public expectation it would continue.

“One egregious example was the time-limited funding provided for Pharmac medicines on which thousands of New Zealanders rely.

“Treasury have advised me of 20 further instances of fiscal cliffs where the costs over the forecast period are estimated to be more than, or close to, $50 million. I am advised that fully continuing funding for all of these programmes would come with an indicative fiscal cost of $7.2 billion over the forecast period.

“I have asked Ministers to identify other fiscal cliffs in their portfolios that may fall short of the Treasury’s $50 million materiality threshold. An example of this is the funding for period products in schools, originally funded at $8.1 million per year, which ends after 2024/25.

“The Government will carefully work through each of these financial challenges ahead of Budget 2024, making careful choices about future funding. We will restore a culture of care and discipline with the public purse.

“Despite the fiscal wreckage left by Labour, I retain confidence that Treasury has at all times worked to uphold its responsibilities under the Public Finance Act.

“Even so, we must ensure future economic and fiscal updates provide a clearer picture of emerging financial challenges.

“As such I have instructed Treasury to undertake immediate work to improve transparency on fiscal risks for the Economic and Fiscal Update for Budget 2024. This work will include greater quantification of risks where possible, and more useful grouping of risks to highlight the overall impact of different types of risks on the Government’s books, such as capital cost escalations. This will build on the improvements the Treasury has already made in the Half Year Economic and Fiscal Update to identify in one place risks created by time-limited funding.

“I have also directed Treasury to progress work to entrench these improvements into the Public Finance Act and supporting rules to strengthen fiscal responsibility and discipline. Proposed new requirements include:

  • Greater disclosure of the quantum of specific fiscal risks including considering grouping the total value of risks, where factors such as commercial sensitivity might prevent individual risks being specified.
  • Regular public reporting on the progress of all significant capital investments that have had or require Cabinet consideration.
  • Providing greater advice on the overall impact a large number of specific fiscal risks could pose to the fiscal forecasts.
  • A specified list of all time-limited funded programmes to be provided in future updates, together with an explanation of the Government’s reasoning for funding being time-limited.

“After six years of Labour’s economic and financial mismanagement we’re cleaning up the mess.”

 

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