Economics: Independent panel signals switch

The Treasury is engaging in bout of obligatory future-gazing, looking four or so decades ahead. Before its job is done we can all pitch in with our ideas, but more immediately the work involves an independent panel of experts chaired by Professor Bob Buckle from Victoria University. Officials hope the panel comes up with ideas they haven’t thought of for incorporation in report next year.
The law requires the Treasury to provide Parliament with Statement on the Long-term Fiscal Position at least once every four years. The Statements provide 40-year projections on the Crown’s fiscal position and – perhaps more important – identify challenges that will face future governments.
Most obviously, these include demands for pensions, health services and so on as the median age of the population rises and pressures are heaped on the Government’s spending, revenue and debt. The Statements provide Members of Parliament not with firm recommendations, but with evidence-based options on how to meet the challenges.
Michael Cullen was Minister of Finance when the Treasury had its first crack at peering 40 years ahead. He was disappointed, finding fault with an approach that basically aimed to show where the numbers were pointing under current settings. It was legitimate grouch.
The 2009 report painted grimmer outlook than the first because the fiscal impacts of the global financial crisis influenced the base numbers. This emphasised the importance of the macro-economic position at the start of the projection period. But that report did get more traction than the first and some of the challenges it spotlighted were reflected in political party manifestos before the 2011 general election.
To win more hearts and minds the Treasury is taking different tack this time, encouraged by the success of the tax working group whose reports presaged changes to the tax system in 2010. That group published its issues papers and invited public feedback.
The Treasury will come up with fiscal projections and policy options, showing what is likely to happen over the next four decades, depending on which policy lever is pulled. The panel (Dr Cullen is among the members) will meet monthly from August to November, provide critiques, make suggestions and – along with others not on the panel – produce research. Workshop minutes and papers will be published and everything will be pulled together for public conference (over day and half) in December.
The Treasury has learned from the Reserve Bank’s monetary policy challenge in schools, too, and its reaching out to the public involves competition among senior school economic students. This should trigger debate in schools and among parents and grandparents.
The Treasury hopes this process will help to ensure the next Statement is robust and provides range of viable options for managing the Crown’s financial position, all in the best interests (what else?) of taxpayers. But greater hope is that the process will facilitate wider debate of what New Zealand will or might have to do to keep the public debt under control while the aging population gets its hip replacements and draws on the pension system.
If all goes to plan, people should be familiar with the issues and prepared to bite the bullet when the Treasury publishes report in March next year as further platform for deliberations. This approach recognises that, with some things, the public needs time to absorb what’s at stake and to brace for governmental reorganising of priorities and expectations. It’s slower process than was appreciated in 2006 and it requires the patient moulding of public opinion, because it can take two or three electoral terms before the shifts occur.
In the upshot, the need is to ensure services such as health and long-term care can be provided some 40 years hence without raising taxes too much. But it will be long wait to see if the 2013 Statement that emerges from this is document with 20/20 foresight. M

Bob Edlin is leading economic commentator and NZ Management’s regular economics columnist.

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