Finance Minister Bill English has announced the Government's intention to make changes to the Public Finance Act 1989 in order to increase the transparency around how government spending decisions can affect the wider economy and future generations.
The Government is proposing to introduce additional principles into Part 2 of the Act (which currently focuses on principles of responsible fiscal management) to require Ministers to consider the long-term implications of fiscal policy decisions.
Specifically, the proposed changes would require governments to:
- consider the impact of their fiscal strategy on the broader economy, in particular interest rates and exchange rates;
- set out their priorities for revenue, spending and the balance sheet, rather than focus narrowly on debt as is currently the case;
- take into account the impact of fiscal policy decisions on future generations; and
- report on the successes and failures of past fiscal policy.
The Government is also proposing to add, as a new principle of responsible fiscal management, a spending limit based on the rate of growth in inflation and population. This proposal was set out in the National-ACT Confidence and Supply Agreement. Spending on natural disasters, finance charges, the unemployment benefit and asset impairments would be excluded from this limit. Under this proposal, if a government decided to temporarily exceed the limit it would have to clearly explain its reasons and how it intends to ensure future spending stays within the limit.
The Government intends to consult other political parties on a number of proposals to change the Act and expects that a Bill setting out these proposals will be introduced to Parliament around the middle of the year.
Mr English's announcement can be accessed here.