Auditor-General’s overview

Commentary on He Tirohanga Mokopuna 2021.

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

Recent events have reinforced the challenges of anticipating and planning for the future. Yet long-term planning has never been more important.

The Government has spent an unprecedented amount of money responding to Covid-19. Net debt has risen substantially, and further increases are projected.

The scale of infrastructure investment needed to adapt to climate change and enable the country to transition to a net zero carbon economy is significant. Intergenerational cycles of poverty and social inequality continue to challenge policy makers. The population continues to grow, age, and become more diverse.

These are significant challenges, but they also present opportunities.

The Treasury is the government’s lead economic and financial adviser. It plays a critical role in assisting the government, Parliament, and the public to understand the challenges and opportunities that lie ahead, the long-term financial and economic implications of those challenges, and the options available for responding to them.

The long-term fiscal statement and the new long-term insights briefing are an important part of this.

The long-term fiscal statement sets out trends and pressures that could affect long-term financial sustainability. The long-term insights briefing is intended to provide information about medium- and long-term trends, risks, and opportunities. It also sets out policy options for responding to these matters.

Along with the investment statement and the well-being report, these documents are part of a suite of reporting obligations that the Treasury has. They are designed to provide independent advice on the government’s current and projected financial position, the country’s economic outlook, and the well-being of New Zealanders.

Together, these documents should stimulate public discourse and inform government decision-making.

There are difficult choices to make. It is too easy for governments to avoid those choices by focusing on short-term issues instead of those that have profound consequences for generations of New Zealanders to come. Decisions can become more difficult and costly the longer they are delayed.

My Office has commented on these reports because we see them as an integral part of responsible financial management and stewardship of New Zealand’s public finance system.

Late last year, the Treasury released He Tirohanga Mokopuna 2021. The document combines the Treasury’s latest long-term fiscal statement and its first long-term insights briefing into one. In the introduction, the Secretary to the Treasury highlighted that this was an “opportunity to analyse key trends and their potential long-term financial impacts directly alongside a range of policy options available to address them”.

I decided to review He Tirohanga Mokopuna 2021 to look at how well the Treasury had identified long-term insights about these challenges and opportunities and integrated them into a view of the Government’s long-term financial position. I wanted to understand whether He Tirohanga Mokopuna 2021 would be useful to assist the Government to make good financial decisions and increase the quality and depth of public information.

Our commentary on previous long-term fiscal statements has focused on the Treasury’s long-term financial model and the reasonableness of the associated projections.

I acknowledge the considerable work that the Treasury has done to prepare a second economic-based projection model that allows a wider analysis of the long-term financial implications of potential natural disasters, economic shocks, and certain challenges arising from climate change.

However, in my view, some of the models’ underlying assumptions and the limited number of scenarios that they incorporate still constrain the usefulness of the projections.

The Treasury’s decision to combine the long-term fiscal statement and the long-term insights briefing reduced the time it had available to prepare the latter. The Treasury also developed He Tirohanga Mokopuna 2021 while it, like other public organisations, was still grappling with the pressures arising from Covid-19.

These factors may have affected the ability of the Treasury to fully realise the benefits of combining these two documents. Although it made efforts to consult widely, many of the issues raised in consultation could not be fully explored.

As a result, the future events that the Treasury considered, their financial implications, and the resulting policy choices that it discusses remain narrowly focused and similar to those in previous long-term fiscal statements.

I accept that expanding the scope may not have been practical within the time constraints. However, in future documents, I would like to see the Treasury explore a wider range of issues in more depth.

I encourage the Treasury to consider other improvements for the next long-term fiscal statement. These are:

  • providing a more integrated set of scenarios and explore policy choices over different time horizons within the 40-year period to strengthen their relevance;
  • exploring the financial impacts of scenarios on the well-being of New Zealanders in more depth to strengthen the connection to the Living Standards Framework and the well-being report due to be published in 2022 and taking a broader approach to financial sustainability;1 and
  • testing the reasonableness of the assumptions underlying the financial projections further.

For future long-term insights briefings, I would like to see the Treasury make the most of the public engagement processes that it is required to carry out. There is also more thinking to be done about how the Treasury’s long-term insights briefing should inform and interact with those of other government departments.

In my view, the Treasury’s work needs to set out the economic and financial parameters that the long-term insights briefings of other departments should reflect. Done well, these documents could eventually collectively paint a coherent picture of the range of choices that the government has and the futures those choices may lead to.

However, to realise this potential, these documents need to have enough in them to stimulate debate, assist the government in prioritising important short-term decisions that have long-term implications, and support Parliament and the public to hold the government to account. Anything less risks being irrelevant.

I recommend that the Treasury reflect on the form and content of both the long-term fiscal statement and the long-term insights briefing to strengthen their purpose and place in the public finance system.

These documents are important for the long-term future of New Zealand, and they should matter.

I thank the Treasury for assisting my team with this review. I also thank Professor Norman Gemmell, Chair in Public Finance at Te Herenga Waka – Victoria University of Wellington, for his expert advice and assistance.

Signature - JR

John Ryan
Controller and Auditor-General

14 March 2022

1: The Treasury’s Living Standards Framework is one attempt to describe many of the things that matter for New Zealanders’ well-being, now and into the future. It describes well-being in three levels – individual and collective well-being, institutions and governance, and the wealth of Aotearoa New Zealand. In each level there are various domains that relate to, for example, New Zealander’s health, safety, family, and the natural environment.