Fiscal policy: in defence of the last Labour government

Bryce Wilkinson of the New Zealand Initiative was out yesterday with a comment, in the Initiative’s weekly newsletter, on the Labour/Greens proposal to establish a fiscal council.  I wrote about –  and welcomed – that proposal a week or so back.

Until I saw Bryce’s note, I had forgotten that the New Zealand Initiative had proposed the establishment of a fiscal council.   So add their names to the list of supporters:  the OECD (the technocratic wing of the European centre-left) favours a fiscal council, the Treasury’s independent reviewer of fiscal policy (a long-time senior IMF official) recommended a fiscal council, the New Zealand Initiative favoured a fiscal council, and even the (fairly right wing) 2025 Taskforce (of which Bryce was a member) favoured looking at something like a fiscal council.  And now our Labour Party and Green Party also do.   As many other OECD countries now have something of the sort, it all seems to amount to a reasonably strong case.

Of course, doing it well would be a challenge –  getting a succession of the right people would really matter.  But that is true of many of our public watch-dog and monitoring roles.

As Bryce notes, the current National-led government hasn’t adopted the recommendation.

Why not? Probably, it sees little need given its proven commitment to restoring fiscal surpluses. True virtue is its own witness. Establishing a superfluous agency to attest to its virtue would undermine it. To which our churlish response is that fiscal virtue is as ephemeral as the political winds and John Key’s promise to steer clear of New Zealand Superannuation was less than fiscally virtuous.

And he then asks

So why are Labour and the Greens on the virtuous side of this issue? After all, the last Labour government left National facing fiscal deficits for as far as the average geriatric eye could see.

That observation likely answers the question. Newly found virtue lacks credibility. Governments that can’t make credible commitments are weak governments. However, we hasten to add that this does not make it less of a virtue. A commitment to fiscal virtue is a fine thing.

I’ve already pointed out privately to Bryce that that seemed more than a little unfair to the previous government.   Let me explain why.










Figure 2.6 – Total Crown OBEGAL

Figure 2.6	- Total Crown OBEGAL.

Source: The Treasury



John Whitehead
Secretary to the Treasury

14 May 2008






core crown expenses


Of course, this note has been a defence of the previous Labour government.  The Greens don’t have experience in government, and don’t have the same degree of historical credibility.    So in that sense, no doubt Bryce Wilkinson is right to argue that part of the motivation for the recently announced package is the desire to use commitments like this to help establish some credibility (even at the expense of burning off some of their own loyalists).

And I can only endorse Bryce’s final observation on the fiscal council proposal.

So three cheers to Labour and the Greens for this initiative. May they stick to it.