Treasury asks external panel to test its long-term cost projections; Govt faces rethink on how it approaches costs of demographic changes, panel chair Buckle says

By Alex Tarrant

The government is being challenged to rethink its approach to major public policy issues as well as the options for dealing with long-term cost pressures.

But this latest challenge isn’t coming from Opposition parties or left-wing thinktanks. It has come from inside government itself.

As Treasury prepares its latest set of long-term fiscal projections, published about every four years, it has asked an external panel of advisors to run a series of workshops to test its assumptions and help make the debate about possible policy options more publicly accessible.

Just as governments were forced into major rethinks following events like the Great Depression and World War Two, recent projections suggest the government needs to take seriously issues such as demographic changes over coming decades, the head of the panel, Bob Buckle, told interest.co.nz.

Buckle, the Dean of Commerce at Victoria University’s Business School, said the process was part of an evolution taking place within government in relation to how it approached key public policy issues.

Triggered by the openness of how the 2009 Tax Working Group (also chaired by Buckle) conducted its review of New Zealand’s taxation system, Treasury had asked for its long-term assumptions to be tested publicly by outside experts.

Finance Minister Bill English has led the charge for government departments to tap outside expertise and resources as they formulate policy. Last month he told an Australia New Zealand School of Government meeting that:

"Other people can help us. In fact, I would say this: Unless you are working with other people, you’ve probably got it wrong. If you’re still living in a little bubble where 'the public service cares, and we know what we’re doing, and other people are a bit stupid,' you are wrong.

“I haven’t come across a single example in the last three-and-a-half years where that’s the correct diagnosis of the situation.”

A series of seminars involving Treasury, the panel, and other outside experts will be held between the end of August and November to test Treasury’s assumptions and discuss various policy options for dealing with projected cost increases, Buckle said.

The seminars will culminate in the Affording our Future conference in December which would “bring together a range of renowned national and international speakers for two days to consider, discuss and test the available evidence about the emerging fiscal challenges that confront our ageing society," Buckle said.

The Public Finance Act stipulates long-term projections must be published about every four years to look at cost pressure projections over the next 40 years.

There were publications in 2006 and 2009, with the next set to be produced in 2013.

The past reports had been useful in providing some indication of what the effect of things like rising incomes and demographic change could do to the long-term fiscal position, Buckle said.

“But they haven’t really had the traction they would like to have had on the issues emerging from that,” he said.

This time around, there would be a bigger emphasis on the policy options available than with previous reports.

The process would firstly look at what the problems were, and then discuss the various options for dealing with them. However, the external panel was not producing a report on a series of preferred options, like the Tax Working Group did.

“This is to test Treasury in the process of them preparing their report,” Buckle said.

“Through this whole process the policy options will be discussed and debated by the panel, and we’ll have those things coming up on the panel’s website after each seminar,” he said.

That would allow for more discussion to be had publicly in the media.

New Zealand was experiencing a population transition as people lived longer, more active lives.

“But the interaction of that, together with the policy parameters around pensions, around healthcare etc, means that the impact on the public finances could be quite significant,” Buckle said..

“When you think that [those policies] were designed for a slightly different set of circumstances, then it’s only responsible to say, are the current configuration of public finances and public policies sustainable in this environment?” he said.

“It’s not unlike during the depression years, and the aftermath of the Second World War - governments rethought the role of governments."

“During the 70s and 80s, with the insights of the consequences of economic liberalisation processes around different parts of the world, we learnt a lot of lessons about that. New Zealand governments, eventually, started to realise protection and pervasive regulation was not the way to get improved economic growth and higher living standards,” Buckle said.

“Every so often things come along which challenge governments to rethink how they’re doing things. The projections in 2006 and 2009 suggest this is something we need to take seriously,” he said.