Your wealth - Closer public financial management urged

Rob Hosking, Parliament

Friday 23rd April 2004

Parliament is discussing sweeping changes to how public finances are managed, and is being urged to make the public accounts more akin to those of a business.

The government is rolling the Fiscal Responsibility Act into the Public Finance Act in the far-reaching Public Finance (State Sector Management) Bill, before the finance and expenditure select committee.

The bill extends some aspects of the Fiscal Responsibility Act, adding a requirement that the Treasury review, every four years, the fiscal implications of the ageing population and other long-term trends likely to affect governments of the future.

There are also changes to the annual Budget Policy Statement, which at present is a combination of medium-term fiscal issues and a preliminary to that year's Budget.

The new proposals will separate the medium-term fiscal issues into the Fiscal Strategy Report, which accompanies each Budget in the middle of the year.

The Budget Policy Statement which is now usually released in December will have a much more specific focus on the coming Budget.

The Business Roundtable has also told MPs to use the bill to improve the accountability of the government in line with that of a business.

Tax revenue has been much higher than expected almost every year since 1999, and this should have been treated in a similar way to a company's unexpected cashflows, the Roundtable submissions on the bill argue.

"Governments should not be treating revenue generated by economic growth as a free cashflow available for discretionary spending. This revenue belongs to taxpayers, and the presumption should be that it should be returned to them. The burden of proof should be on the government, not the taxpayers, to establish ... that any spending projects will produce greater benefits for taxpayers than tax reductions.

"Just as, in a company, a firm's revenue belongs to the shareholders and boards and managers must be fully accountable for returning that money to them or spending it solely in their interests."

While supportive of some of the provisions in the bill, others risk making the executive less accountable than it is now.

In particular, it allows ministers to shuffle money between categories of spending, with an appropriation where there is no change in the actual amount of money provided.

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