Part 4: Context, objectives, and process for the 2013 Statement

4.1
In this Part, we consider the context and the Treasury's objectives for the 2013 Statement. We then discuss the process used by the Treasury to prepare the 2013 Statement.

The context for the 2013 Statement

4.2
Since the 2006 Statement, New Zealand has experienced the effects of various economic crises and natural disasters. Partly because of a history of sound financial management, New Zealand has come through these events relatively well.

4.3
However, these events have significantly affected the Government's financial position. Figure 4 uses the Treasury's 2006, 2009, and 2013 models to compare the relative percentages of net debt to GDP. From these models, we then show what the percentage would have been had the projection periods been held constant at 40 years.

Figure 4
Net debt to GDP at the start and end of each of the three projection periods for the 2006, 2009, and 2013 models

4.4
The state of the economy at the time of the release of each statement is an important determinant of net debt to GDP at the end of the projection period. However, the length of the projection period used also has a significant effect on the projection, as is shown when the projection period is held at 40 years. For the 2013 projection, using a 40-year period would reduce the percentage of net debt to GDP at the end of the projection period, from 198.3% to 132.1%.

4.5
We have seen some of the Treasury's supporting material that summarises the context for the 2013 Statement.¹⁶ The dominant theme in scene-setting papers is New Zealand's changing demographics. References are also made in various papers to the effects of the 2007 global financial crisis and the financial effect of the Canterbury earthquakes.

4.6
The 2013 Statement notes that the global financial crisis and the Canterbury earthquakes have "further weakened the government's financial position".¹⁷ Specific mention is made of the country's "high levels of net external debt".¹⁸ The 2013 Statement comments about current economic activity and the main drivers of financial sustainability, and discusses climate change, oil and gas, and fresh water.

4.7
The 2013 Statement discusses "Where we've come from and where we're heading".¹⁹ However, apart from showing how various modelling assumptions have changed since 2009, there is little else connecting the 2013 Statement to its predecessor statements in 2006 and 2009.

The Treasury's objectives for the 2013 Statement

4.8
The 2013 Statement must relate to a period of at least 40 consecutive financial years, and be accompanied by a statement of all significant assumptions underlying any projections it includes. The Treasury must use its best professional judgements about the risks and outlook for the long-term financial position.²⁰

4.9
Although no formal post-implementation review of the first two statements was carried out, the Treasury recognised that these statements did not fully meet its desired objectives. In June 2012, a Treasury official told the New Zealand Association of Economists' Conference that:

The 2006 statement attracted relatively little attention. The second, incorporating the effects of a domestic recession and the 2008 global financial crisis … produced a wider debate about what choices could be made to prevent the projected debt position.²¹

4.10
Compared with previous statements, the Treasury's objectives for the 2013 Statement placed far more emphasis on the surrounding process of engaging the public. In an early (but undated) draft project plan, the Treasury noted that:

… the next long-term fiscal statement will present new approaches and a wider range of options for addressing the long-term fiscal problem … The overriding objective is to create a forum for rational policy discussion. The outcome will be a public that is better informed and accepting of the case for policy change starting in this decade.²²

4.11
The Treasury also saw the 2013 Statement as an opportunity to show its joined-up structure, values (bold, innovative, and ambitious), quality of policy analysis and advice, and its Living Standards Framework.

4.12
Overall, the objective of the Treasury was to learn from the two previous statements and to begin "a wider and more open public process".²³

How the Treasury prepared the 2013 Statement

Preparatory work and governance

4.13
Preparatory work for the 2013 Statement began in early 2011. In April 2011, the Treasury's Executive Leadership Team received recommendations about the processes to address "the long term fiscal challenge [as] a strategic priority for the Treasury".²⁴

4.14
In May 2012, the Treasury's Executive Leadership Team approved a detailed project plan (the May 2012 plan) for the preparation of the 2013 Statement.

4.15
The Manager of the Treasury's Macroeconomic and Fiscal Policy team led the core project team of six. Various internal advisory groups governed the project, including:

• the Statement Choices Group, which shared and discussed working-level information from the various policy teams within the Treasury;
• the Statement Governance Group, which oversaw the project and consisted of the managers of the various policy teams within the Treasury;
• the Treasury Advisory Forum, which provided recommendations to the Executive Leadership Team; and
• The Treasury Board, which provided advice to the Leadership Team and the Chief Executive.

4.16
We have seen examples of regular status reports and Executive Leadership Team papers on the project. These are comprehensive and cover achievements, priorities, progress, budgets, and risks.

4.17
Based on our observations, the preparatory work and governance arrangements appear reasonable and appropriate considering the 2013 Statement's priority within the Treasury's strategy.

4.18
The Treasury has given considerable thought to having a wider and more open process for the 2013 Statement. In our view, the Treasury has largely achieved this. Paragraphs 4.19-4.37 set out some details of the Treasury's new and innovative approaches.

The Treasury's new and innovative approaches

4.19
To increase public awareness and participation and better prepare the 2013 Statement, the Treasury used:

• an external panel and external research to extend the breadth and depth of analytical debate;
• the Treasury's new Living Standards Framework to help frame research papers and debate;²⁵
• a public survey, a secondary school competition, and a public conference to increase the level of external engagement and participation; and
• enhanced communication with stakeholders and general audiences.

4.20
We understand that the Treasury intends to commission formal post-implementation review processes to help guide and improve future statements. In our discussions with the Treasury, the need for some form of post-implementation review has been recognised as an important part in the overall process.

4.21
We consider that these measures give the Treasury a good platform for taking the next steps to engage with its various audiences, including the Government, members of Parliament, the media, and the public at large.

External panel

4.22
A major change from earlier processes was the use of an external panel of independent experts and commentators to help ensure a robust review and a credible range of options for managing the long-term financial position.

4.23
The Pro Vice-Chancellor and Dean of Victoria Business School, Victoria University of Wellington chaired the panel of 16 members, which met for six sessions from August 2012 to April 2013.

4.24
It appears that the Treasury gained considerable value out of the external panel sessions.

External research

4.25
The May 2012 plan shows that, as well as preparing 18 internal papers, the Treasury planned to commission 19 external research papers. These papers were to cover traditional areas, such as tax and retirement issues, and less traditional areas, such as intergenerational distribution.

4.26
A set of research papers that support the 2013 Statement is available on the Treasury's website. Most of the authors of these papers were members of the external panel.

Public survey

4.27
In March 2012, Colmar Brunton was commissioned to carry out a survey of 1000 citizens that covered retirement, health, and tax matters. The findings included that:

• 59% of people expected to work past their 65th birthday (either part time or full time), and 81% of these people were not concerned by the prospect; and
• 55% of respondents said that, if taxes had to be increased, the corporate tax rate should increase.

Secondary schools competition

4.28
The Treasury and Victoria University jointly sponsored a Long-term Fiscal Schools Challenge for secondary schools in the first half of 2012, taking a lead from the Reserve Bank's annual Monetary Policy Challenge. Teams were invited to prepare a report proposing policy options that addressed New Zealand's long-term financial challenges. Of 19 schools that took part, 13 were chosen to present their proposals to a panel of judges from the Treasury and Victoria University at a "Finals Day" in Wellington. The three winning teams were then invited back in September 2012 to present their recommendations to the Treasury and the Minister of Finance and to receive their prizes.

4.29
A subsequent internal report by the Treasury, which included a survey of the teachers involved, concluded that the competition had been "successful and worthwhile". The report proposed that another Schools Challenge be run later in 2013.

Public conference

4.30
The Treasury and Victoria University of Wellington's Chair of Public Finance co-sponsored a two-day conference. It was called "Affording our future" and was held on 10 and 11 December 2012.

4.31
The conference brought together academic specialists, commentators, and practitioners from a range of fields (including all members of the external panel) to discuss financial sustainability, the main financial pressures facing the country, and the implications for major policy areas.

4.32
Apart from Treasury staff and the expert panel, 151 people registered to attend the conference. One-third of these came from government agencies, and the rest from media and other organisations.

4.33
Thirty of the attendees were young people attending a parallel conference run by the McGuinness Institute. These young people prepared a publication – Youth Statement on New Zealand's Long-term Fiscal Position.²⁶

4.34
The December 2012 conference was successful and well attended. Much of the focus of the conference was on changing demographics and the effect of this on health and superannuation. Most of the conversation was about potential adjustments to current policy settings. However, the wider context of the private sector, households, and the environment received little attention. For example, climate change was mentioned only when the final external panellist spoke.

Enhanced communication

4.35
The Treasury has consistently emphasised the need to find better ways to communicate with potential and actual audiences of the 2013 Statement. The expert panel and conference are obvious examples of this, but the Treasury is also seeking new audiences (as in the Schools Challenge), and experimenting with social media (such as Facebook and the Ning social networking platform). The Treasury has also brought in outside experts to help with framing the 2013 Statement and its main messages.

4.36
The Treasury has published all commissioned research and conference papers on its website.

4.37
There has been positive media coverage of most of the Treasury's innovative activities. This has raised the public profile of the 2013 Statement. The Treasury plans to maintain this profile by releasing of a range of statements and related activities in the months after the 2013 Statement's publication.

16: Some of the accompanying research papers provide more detailed contextual material, such as on structural changes in the New Zealand economy since 1974, external influences on the economy, and the history of government spending, the welfare state, and social policy.

17: The Treasury (2013), Affording Our Future: Statement on New Zealand's Long-term Fiscal Position, page 12.

18: The Treasury (2013), Affording Our Future: Statement on New Zealand's Long-term Fiscal Position, page 3.

19: The Treasury (2013), Affording Our Future: Statement on New Zealand's Long-term Fiscal Position, page 6.

20: Public Finance Act 1989, Section 26N, available at www.legislation.govt.nz.

21: Rodway, P. (2012), "Long-term Fiscal Projections: Reassessing Assumptions, Testing New Perspectives", page 3, available at www.nzae.org.nz.

22: The Treasury (2012), unpublished project plan document.

23: Rodway, P. (2012), "Long-term Fiscal Projections: Reassessing Assumptions, Testing New Perspectives", page 3, available at www.nzae.org.nz.

24: The Treasury (1 April 2013), Executive Leadership Team paper.

25: See Figure 6 and The Treasury (2012), "Improving the Living Standards of New Zealanders: Moving from a Framework to Implementation", a conference paper available at www.treasury.govt.nz.

26: Youth Statement on New Zealand's Long-term Fiscal Position is available at http://longtermnz.org.