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New Zealeand Fiscal Responsibility Act, generally, regarded successful model of financial reporting legislation, has restored credibility to the the country's accounts. Tony Dale and lan Ball, who played a key role in the development of the legislation, explain how it works
Over the past decade, the New Zealand public sector has been substantially reformed.
Through the changes encapsulated in the Public Finance Act, State Sector Act and StateOwned Enterprises Act, the majority of these reforms have been focused on the performance of individual government departments, Crown entities and state trading activ..
The importance of the Crown's overall financial position to the country's economic performance has not been ir nored, however. The Public Finance Act has required accrual based whole-of-government financial* statements to be prepared, audited and published since 1991. As important as this is, it only relates to aggregate ex-post reporting In 1994, this was rectified - and the reforms taken one step further - with the enactment of the Fiscal Responsibility Act.
GENESIS OF THE LEGISLATION
During the 1970s and 1980s, New Zealand governments ran ongoing fiscal deficits. A consequence of these teficits was growing levels of net public debt, which peaked at 52 per cent of GDP in 1991/92
Upon taking office in 1990, the National Government made deficit elimination a principal economic objective. Through a "twin planks" policy of controlling expenditure and broadening the tax base(not rates), they reduced the deficit to between one and..eo per cent of GDP. The next step was to rely on improving economic growth to increase tax revenue, thereby elim ating the deficit. However, this strategy relied on halting nominal expenditure growth broadly constant, even while the pressure on the government to spend continued unabated.
In 1993, the the Finance Minister, the Hon Ruth Richardson, looked for a way to make the economic trade-off between the macro objective (the aggregate fiscal position) and micro objectives (increased expenditure on individual activi t.ies f government) more balanced. Her view was that when considering the need for additional expenditure on...