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Treasury: Auditor-General report on Affording Our Future

8 August 2013

Auditor-General report on Affording Our Future – Treasury’s 2013 Long-Term Fiscal Statement

The Treasury will study carefully a discussion paper released today by the Controller and Auditor-General into the processes adopted to prepare the 2013 Statement on the Long-Term Fiscal Position, Chief Economist and Deputy Secretary Girol Karacaoglu said today.

“I welcome Controller and Auditor-General Lyn Provost’s decision to issue a discussion paper looking at the processes used to prepare Affording Our Future, as well as the assumptions and models used in the 2013 Statement,” Dr Karacaoglu said.

“In her paper, the Auditor-General noted that since our first Statement published in 2006, the Treasury has improved how it prepares its long-term statements, making them more inclusive. In particular, she noted that the Treasury has strived to make Affording Our Future an accessible, public document,” Dr Karacaoglu said.

Overall, the Treasury is assessed to have done a good job in preparing Affording Our Future, and presenting it in an easy-to-understand format.

The Auditor-General makes some recommendations about how the Treasury could further improve its long-term fiscal reporting, including that consideration be given to utilising a wider set of indicators.

“I look forward to meeting with the Controller and Auditor-General to discuss her suggestions on how the Treasury can further improve its efforts to encourage an evidence-based national discussion on the long-term fiscal outlook.

“The Treasury is particularly interested in discussing the challenges involved in turning sometimes unfamiliar economic and accounting issues into information that is accessible and comprehensible to the general public, and is always open to ways to improve its efforts,” Dr Karacaoglu said.

The Treasury tabled Affording Our Future, its third Statement on the Long-Term Fiscal Position on 11 July.

Background information

The Treasury changed some of its processes ahead of preparing Affording Our Future, the 2013 Statement on the Long Term Fiscal Position:

It established an External Panel of academics and commentators to cross-examine and test initial assumptions and research and to critique analysis as it was being developed. Panel feedback assisted the Treasury to frame the illustrative options that were eventually incorporated into the Statement, including being clear about the costs and benefits of different options and also clear about the limits of our present knowledge. One illustrative option (that of adjusting personal income tax thresholds to compensate for price inflation but not for real wage growth) was first suggested in a draft paper written by Panel members, as opposed to originating from the Treasury.

The Treasury published draft research papers on its website and on the website of Victoria University in order to encourage further peer-review. This was done so that interested people could challenge Treasury work as it was progressed (rather than only after it was completed).

The Treasury co-hosted a public conference late last year at which academics and specialists were invited to present their findings, conclusions and recommendations.

The Treasury sponsored a senior secondary students’ competition, and worked with the McGuinness Institute to produce its own youth-authored alternative long-term fiscal statement.

The Treasury worked with colleagues across the major government departments to ensure the Statement and its Supporting Papers represented a whole of public service view.

The Treasury also worked with Victoria University to create an on-line tool and resource for people to have a go at addressing the long term fiscal challenge.

The Treasury is sponsoring workshops at tertiary institutions around the country to examine the analysis and discuss the issues.

Affording Our Future’s conclusion is that there is no long-term fiscal “crisis,” but there are a series of challenges ahead that will be easier to manage if they’re addressed sooner rather than later.

The story is that if Crown spending behaviour reverts to historic patterns after we return to surplus in 2014/15, then:

• under New Zealand’s current tax settings, future revenue levels would soon be surpassed by this growing expenditure, leading to persistent deficits. We will need to make policy adjustments, either to spending areas or to revenue, or a mixture of both

• that means there is no going back to the rates of year-on-year growth in state spending that we became accustomed to expecting from our governments over recent decades. No one should think that, after we return to surplus in 2014/15, that things can then go back to the way they were because they won’t – there will need to be adjustments to revenue, entitlements, expenses and expectations.

ENDS

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