3. MAGGIE BARRY (National—North Shore) to the Minister of Finance: How does the Government intend to strengthen the Public Finance Act 1989 in the Budget this month?

Hon BILL ENGLISH (Minister of Finance) : The Government proposes to introduce several new principles to the Public Finance Act to ensure greater transparency around the implications of Government decisions for the wider economy and for future generations. The proposed changes would require Governments to consider the impact of their spending and taxing on the broader economy, particularly interest rates and exchange rates; set out the priorities for revenue and spending, not just debt; take into account the impact of fiscal policy decisions on future generations; and report on successes and failures of past fiscal policy. We are also looking at adding a spending limit to the Public Finance Act.

Maggie Barry: Why is the Government proposing to strengthen the Public Finance Act?

Hon BILL ENGLISH: The current Public Finance Act has served New Zealand well, in terms of maintaining a focus on low debt, since 1994. However, the global recession and the events in the years immediately preceding that recession point to a need for a broader focus. In particular, in times of surplus Governments come under pressure to increase spending, which can put extra pressure on the economy and generate higher inflation, higher interest rates, and higher exchange rates, and this is bad for exports and jobs, and our long-term economic health.

Maggie Barry: How would the proposed spending limit work?

Hon BILL ENGLISH: The proposed spending limit would limit increases in spending to the rate of growth in inflation and population. It would exclude natural disasters, finance charges, and asset impairments, which are outside the Government’s control, and also exclude the unemployment benefit. If a Government decided to exceed the limit, it would need to clearly explain the reasons and outline how it intended to ensure that future expenses remained within the limit.

Maggie Barry: So how would the proposed changes contribute to the Government’s wider economic programme?

Hon BILL ENGLISH: The Government is committed to rebalancing the economy away from property speculation and excessive Government spending and borrowing, to an economy based on savings and exports. The changes in the Public Finance Act will provide more transparency for those times when a Government is tempted to increase spending and borrowing when it is not necessary.