28 May 2009
Media Statement
Immediate Release

Treasury improves fiscal risks process

Treasury has introduced improved rules and processes to identify the fiscal risks published as part of today’s Budget.

The changes were made in response to The Ministerial Inquiry into Disclosure of Funding Shortfall in the ACC Non-earner’s Account and an undertaking by Treasury Secretary John Whitehead to put a new process in place for Budget 2009.

Treasury Deputy Secretary Dr Peter Bushnell said the changes go well beyond the recommendations of the inquiry and involve collecting information on all likely risks before making decisions at a senior level about what constitute defined “specific fiscal risks”.

“What we did before was use the specific fiscal risks disclosure rules as a filtering mechanism as information was collected. Under the new process the rules are not applied until a Fiscal Risks Committee of senior Treasury managers meets. The Committee considers the full range of information and determines whether and how matters are to be disclosed - guided by the revised rules and discussion with the Minister of Finance on the likelihood of matters being approved by the Government.”

Previously the specific fiscal risks were focussed on policy decisions the Government had not yet taken. The new rules broaden this to include all circumstances that are likely to have a material effect on the fiscal and economic outlook.

The other major change is the interpretation of the likelihood of a risk materialising – previously whether or not the matter was under “active consideration” by Ministers. In most instances this was taken to mean that a paper had been presented to Cabinet about it. The new rules replace this with a judgment around the certainty with which a risk can be quantified, and the possibility or probability of the matter being approved or occurring.

“It is subjective, but the rule of thumb used now is that matters with greater than 50% likelihood would make it into the Budget forecasts and those with more than a 20% possibility would be considered for inclusion as fiscal risks.” 2

ENDS

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