Fiscal rules

January 17th, 2014 at 7:00 am by David Farrar

Readers will be aware that Australia is facing huge deficits, despite the promise of the previous Government to get into surplus.

As a response to this, the Centre for Independent Studies has proposed some fiscal rules to bind future Governments. They are:

  1. require the federal fiscal balance to be maintained within a range of +2% to -2% of GDP on both an actual and forecast basis
  2. limit the net debt to GDP ratio to 10%
  3. cap the federal revenue and expenditure shares of GDP to 25%
  4. capping real growth in federal spending at 2% per annum

Fiscal rules are not new for Australia. The Labor Hawke/Keating Government set rules being:

  1. Not to raise tax revenue as a share of GDP
  2. Not to raise government expenditure as a share of GDP
  3. To reduce the budget deficit in absolute terms and relative to GDP

Anyway what I like most of all is their mechanism to encourage Governments to keep to the fiscal limits or rules. They propose:

This would involve cutting federal politicians’ overall remuneration by 1% for every percentage point breach of each fiscal rule for the
duration of the breach.

Now that appeals!

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18 Responses to “Fiscal rules”

  1. Mobile Michael (367 comments) says:

    Performance Pay for MPs, I like it.

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  2. NK (919 comments) says:

    Act tried to introduce the Taxpayers Rights Bill which did similar things. It should campaign on it again.

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  3. Yogibear (227 comments) says:

    Our fiscal principles in the Fiscal Responsibility Act were a brilliant touchstone for Bill English to guide us through the last few tough years.

    The real test is whether responsible fiscal management can be maintained when times are good.

    I’ prefer to see a counter-cyclical aspect to fiscal rules, particularly any rules related to GDP. That would mean, as the economy grew aggressively, government spending would not automatically rachet up by the same proportion.

    Half the fiscal problems we face now are because Labour went on a pro-cyclical binge from around 2002-2007 (WFF, interest free student loans, massive increases in the public service headcount etc etc).

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  4. lazza (296 comments) says:

    Fiscal reporting of our Council’s financial ratios … akin to these Australian models is scheduled to be introduced this year. This will fall short of requiring Councils to “observe/comply” … it is merely a “reporting” regime.

    A good start though which may lead in future to “compliance”.

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  5. Viking2 (10,749 comments) says:

    I’ prefer to see a counter-cyclical aspect to fiscal rules, particularly any rules related to GDP. That would mean, as the economy grew aggressively, government spending would not automatically ratchet up by the same proportion.

    Half the fiscal problems we face now are because Labour went on a pro-cyclical binge from around 2002-2007 (WFF, interest free student loans, massive increases in the public service headcount etc etc).
    ===================
    quite correct.
    GDP is a useless measure to use. Upwards always will encourage profligate spending.
    Downwards will have the opposite effect except that when it goes downwards social spending rises.

    We need a real wealth measurement that measures our contries wealth and then we can make the right decisions. Without wealth in real terms we have no capital nor spending money, just loans and interest payments.

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  6. RRM (8,997 comments) says:

    Now that appeals!

    F**K YES!

    We are CONSTANTLY hearing catch phrases like “you have to offer appropriate remuneration to attract top people to important public roles”…etc etc etc

    Well – if they’re so good they can command top salaries, then surely they’re good enough to perform, and good enough to have their pay performance-related?

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  7. lazza (296 comments) says:

    RRM you said:

    “Well – if they’re so good they can command top salaries, then surely they’re good enough to perform, and good enough to have their pay performance-related?”

    Right On!

    Also a Very Good-relevant topic/responses.

    Lets hope NZ Inc, particularly our local and central government service deliverers, get/are placed onto a performance improvement “curve”.

    Why? when we (NZ), excel in so many areas, should we continue to passively accept unaccountable performance and still pay through the nose for mediocre or worse performance.

    Lets make it an election issue.

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  8. Judith (5,660 comments) says:

    Whilst in essence I agree with the fact that if they are a top performer then the fact their remuneration is decided by performance shouldn’t be a worry to them. However the problem with doing that for MP’s is who will decide what is ‘top performance’. I can think of four I wouldn’t give a cent to, although I’m sure there are others that would rate their performance as terrific and happily pay them the top amount, whilst placing a kiss on their butt cheeks at the same time.

    I think it would be an impossible task to get consensus on who is a top performing MP.

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  9. RRM (8,997 comments) says:

    Judith – I think the idea is that if the Government’s KPIs are not met by 2%, all of them get docked 2% of their pay.

    I briefly wondered – what about the opposition? They don’t control the state spending, should they get docked too?

    Then I thought – fuck them, yes they should. Give them a taste of it in opposition, and then hopefully they will think twice before going nuts when in government.

    Might even encourage the opposition to work more constructively with the government for the good of the country, instead of this child-like style of opposition we currently have, where every govt initiative or even press release is immediately rubbished as a matter of course…

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  10. Longknives (4,051 comments) says:

    “I can think of four I wouldn’t give a cent to,”

    Go on- shock us all…..

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  11. Ross Nixon (599 comments) says:

    Here’s an idea that no one has thought of (yeah right) for NZ; cut down the number of MPs to 99.

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  12. Harriet (4,013 comments) says:

    ‘Independent’? Bullshit!!!!

    “….cap the federal revenue and expenditure shares of GDP to 25%…….This would involve cutting federal politicians’ overall remuneration by 1% for every percentage point breach of each fiscal rule for the duration of the breach….”

    That is then read by all governments as “just don’t breach 25%”

    ‘Independent’ should also read:

    “……This would involve INCREASING federal politicians’ overall remuneration by 1% for every percentage point LOWER than the fiscal rule for the duration of the PARLIMENTRY TERM….”

    That would then mean that if another government is elected they would also financialy benefit from keeping in place the good work that the previous government has done – with the idea of bettering it.

    That’ll keep the greedy bastards honest. :cool:

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  13. anonymouse (652 comments) says:

    I sometimes do wonder why fiscal conservative think thanks actually bother publishing things like this, everybody knows they are simply pi$$ing in the wind, particularly in Australia, where the Liberals did a grubby deal with the Greens to remove the debt ceiling rules from the previous government.

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  14. Yogibear (227 comments) says:

    Anonymouse – The FRA principles have endured and been largely complied with since 1989 to the benefit of NZ. The last real fiscal conservative was Bill Birch, yet they’ve guided Winston Peters, Michael Cullen and Bill English.

    My question to you is whats the counterfactual – have no rules?

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  15. Wayne Mapp (55 comments) says:

    The CIS might think this is a good idea. But clearly the Liberals (and for that matter National in NZ). It would mean reducing govt expenditure by about a quarter. Might appeal to ACT, but actually to virtually no-one else. Can you really imagine John Key agreeing to reduce govt expenditure by one quarter. There goes universal super at 65, and I imagine free doctors visits for kids under 6. You can name a whole host of things that would go. Which is why no OECD govt has their expenditure at 25% (well maybe the US, but who wants their medical system).

    More significantly we have elections to decide these issues. Clearly Left voters would think it ridiculous and would never be bound by it, And they do win around 40% of elections in NZ and Aus.

    It is one thing to be prudent, run surpluses, have moderate taxes, but quite another to put oneself in a straightjacket like CIS proposes.

    [DPF: The 25% is for the federal govt. State govts are on top of that.

    I don't advocate cutting expenditure by a quarter. I do advocate having the level of govt expenditure grow less quickly than the economy as a whole]

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  16. Viking2 (10,749 comments) says:

    Map, you have just confirmed that the Nats are really born again socialists which we all new.

    You guys just cannot conceive that Kiwi’s are resourceful enough, when allowed, to run their own lives without the state stealing from others to prop them up.

    Worse you consider that bribing people at election time (with other peoples money) is good for people.

    Its not.
    Sure we need safety nets, sure their are people that need our help but the rest just need hand ups not hand outs which appears to be a politicians safety net.

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  17. Wayne Mapp (55 comments) says:

    A long held National goal is to get govt expenditure down to 30% of GDP. It is a far bit above that now, but some of that is the hangover from the GFC. As surpluses are bedded in, paying the interest on the debt reduces as a percentage of GDP. As I recall we got quite close to 30% in 1999.

    To go down to 25% is probably just a bit too much for most Nats. They know too many things would have to be cut to get there. Though I appreciate ACT would be quite happy to get to 25%. That will only happen if Act got 10% of the vote, and put pressure on the Nats in a coalition.

    And of course ACT needs to specify the 25% cuts they would make. It is around $16 billion, lets say $12 billion as the cost of debt reduces. So tell us what they would be (or at least remind us what they would be).

    [DPF: 28% is a figure I have in mind. Achievable with spending restraint rather than spending cuts]

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  18. Viking2 (10,749 comments) says:

    Map. do you really believe we need to pay mothers of young children to take their children to day care whilst many of them (the mothers) go out to play?

    Do you really beleive that young people should be kept at school at humungus costs when they could be gainfully employed in the workplace where they can learn work skills and pay tax as opposed to wracking up household costs and student loans?

    Do you really beleive we should be paying all these commissions for everything imaginable (poiliticans retirement incomes) to infest our lives with more regulations, more dogooding that fails any economic tests?

    Can you tell us why Polytechs and Universities are apparently the only place young people can get educated and then leave with worthless degrees and huge student loans to be going into work places at age 22 or more where 20 years ago juniors were doing the same sort of work and had bugger all cost to worry about. Employers trained them? (which we still need to do).

    All this money spent on this education and try getting a trained engineer that is worth the pay or a decent builder who actually knows how to construct a house and why.

    Why are we taxpayers propping up so much useless overhead?

    Don Brash pointed out at the beginning of Keys regime that we could lower the % quite easily.
    Instead we have borrowed away as bad as ever.
    The shit will hit the fan the day our dollar starts its inevitable fall from the stellar heights its at. (probably 2 years away or when Europe collapses as it must do.

    Bill is about to announce the election bribe of course. More paid parental leave.
    Do you think that is a good way to reduce the %?

    Do you think its wise to encourage the continuing immigration of people who lack basic knowledge in reading, writing etc just to go onto the benefit and then to use further taxpayers money getting an education? (i can give examples)

    Do you think its a wise use of taxpayers resources to have immigrants come, get an education and a passport only to leave as soon as they can to Aussie or back whence they came? ( again I can give examples) without contributing even a small share to the costs of that education?

    That’s just the tip of the iceberg. There are many more and you and your lot can’t see how to fix our money problem.

    Most middle class welfare is just not needed and if it was cut then down would come costs, taxes and up would go innoivation and productivity.

    Today my staff (half are Maori) asked if we they could work on Waitangi Day and have Friday off instead so they had a long weekend. Now becuase of stupid laws theoretically we would have to pay then 1.5 times the hours they worked and another day inlieu as against just a days unprductive pay. We can say no which goes against the wishes of my staff and leaves them pissed off for which I blame the stupid Nats or we can beak the law and go ahead. We then take what is essentially an unacceptable risk that if at sometime one gets the hump with us and goes off to some stupid fucking govt. noddy we can be prosecuted and fined, for which I consider the Nats to be useless pricks abusing the rights of individuals to make their own choices by enshrineing such shot stupid law into legislation.

    Why do you socialist pansies see the need to interfere in peoples relationships with one another?
    You lack clear principles about anything much.

    Its therefore no surprise that you are indeed addicted to handing out other peoples money that you steal from them.
    Which is why you are unable to reduce Govt. spending.

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