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Good accounting makes for better elections

By Ian Ball, chairman, CIPFA International

In many developed countries, the build up to a general election usually follows a similar pattern. After the election is announced, there is a fraught campaign between the main political parties, where, to woo voters, expensive promises are made, many of which are not financially realistic. Yet New Zealand is a country which has broken this mould.

A month before the general election, the country’s government released a pre-election economic and fiscal update (PREFU), which tells voters the current state of the government’s books, including how much tax is flowing into the system and where it is being spent. It also forecasts the financial position of the government over the next four years. The main effect of this document is that it constrains political promises to what can be afforded, and it also has some effect in grounding the electorate’s expectations.

Of course, it does not stop parties from making promises. The National Party and the Labour Party have made some campaign pledges. The Labour Party to scrap University tuition fees for the first three years of study and The National Party to reduce taxes and increase spending on infrastructure. However, these are only made after the release of the fiscal update, to ensure they are based on sound financial information. The provision of such current information to voters is something that other countries would struggle to produce.

The update uses accrual numbers for key fiscal indicators, including forecasts of the government’s net worth. Many countries have introduced accrual-reporting systems, but are not employing the information it provides in their budgetary systems. This means they would be unable to produce such a comprehensive and accurate fiscal update. Consequently, policy pledges made during electoral campaigning in these countries are often not based on the state of the economy and the current and forecast fiscal position of the government in question. It also means that voters are not as financially aware.

New Zealand’s fiscal update enables voters, whether directly or via the media, to be informed about the performance of the Government to date, and the outlook going forward. And so, the electorate has come to regard high quality fiscal information and high standards of fiscal responsibility on the part of politicians as normal. Therefore, there is the perception that their vote will not only hold the existing Government properly to account, but will also reflect their judgements on the affordability of party promises and the potential impact on the Government’s fiscal position.

The publication of the fiscal update has now taken place ahead of elections in New Zealand for more than two decades. Along with other elements of public financial management, it has contributed to high levels of fiscal performance and resilience. Indeed, the New Zealand Government’s net worth has continued to grow, both in absolute terms and as a percentage of GDP, further strengthening its fiscal position.

Underlying the production and release of the fiscal update is the principle that democracies work best when voters are fully informed, and it discourages political parties from promising what is either not feasible or not fiscally responsible. Something that other countries should learn lessons from and encourage during electoral campaigning.

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