Alex Penk

By Alex Penk - 20/12/2018

Alex Penk

By Alex Penk -

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Financial responsibility goes beyond mere “Rules”

Sometimes the most important ideas are the ones that aren’t being discussed. This came to mind with the release of last week’s “mini-Budget,” with most of the commentary focusing on the Budget Responsibility Rules and especially on the Government’s commitment to keep its debt under 20 percent of GDP. But there’s another issue, slipping in and out of sight, that needs more attention.

Sometimes the most important ideas are the ones that aren’t being discussed.

The Budget Responsibility Rules sound boring, and they’re meant to. They’re supposed to establish the Government’s reputation as a prudent and responsible steward of the nation’s finances. They appear to be doing this job rather well, with one prominent commentator saying that the “fiscal caution” displayed by Minister of Finance, Grant Robertson, “remains a piece of solid reassurance that the economy is in safe hands.” That may be true, or it may not—the Rules themselves don’t actually tell us. Let me explain.

Imagine you’ve got a new job and you need to buy a car to get you to and from work each day. You’ll have to borrow to buy it, but you’ve worked out how much you can afford and you’re confident you can service the debt from your pay packet. You head down to the dealer and come home with your vehicle, congratulating yourself on a job well done because you kept your debt and your spending within your limits. But the next day the car won’t start, and you realise you’ve bought a lemon that won’t get you to work. Not such a good job after all.

The same could be true of the Government’s approach to spending and debt. If the policies they fund are ineffective, then simply being able to say that the limits in the Rules were observed meticulously will be cold comfort in the long run. For example, not long before the mini-Budget, we saw some early warning signs on one of the Government’s flagship policies, the “fees-free” policy for tertiary students. Although it makes the first year of study free, anecdotal evidence suggests it may not have made much of a difference to whether high school leavers are deciding to go on to tertiary study.

If the policies they fund are ineffective, then simply being able to say that the limits in the Rules were observed meticulously will be cold comfort in the long run.

It’s fair enough for the Minister of Education, Chris Hipkins, to point out that it’s early days for the policy, and we’ll need some proper evidence to judge whether it’s really a success or a failure. But it’s also fair enough to note that the success or failure of expensive, headline- and vote-grabbing policies needs to be put alongside debt and spending targets when we’re discussing whether the Government’s doing a good job of financial stewardship.

In other words, we need to keep policy evaluation—asking “what works”—in the picture. The Budget Responsibility Rules themselves seem to contemplate this, referring to the need for “evidence-based policy,” which makes it a little puzzling that the recent discussion of the Rules doesn’t seem to include any consideration of evidence for or against the effectiveness of key policies.

Good evaluation can be technical and expensive, but it gives analysts and journalists the tools they need to ask questions about “what works.” Good evaluation also requires clear objectives, because you can’t tell whether a policy works if you don’t know what it’s meant to achieve. That can be highly contentious, as demonstrated by a quick detour through the school reforms recently proposed by a Government working group. To some, the reforms would spell disaster, while to others they are just what the education system needs. But whether or not there’s agreement with a policy’s objectives, it should be possible to say clearly what they are meant to achieve and assess how successful they have been, and therefore whether the money spent on them represents an exercise of good stewardship.

Good evaluation also requires clear objectives, because you can’t tell whether a policy works if you don’t know what it’s meant to achieve.

We have an opportunity to get our approach right now, while we’re not under financial pressure from something like a recession. These sunny financial conditions won’t last forever, and when they change we will be grateful that we’ve developed the discipline not only of keeping spending and debt under control, but of asking good questions about the effectiveness of the policies they fund.

Of course, if a policy isn’t achieving anything worthwhile, then the Government should have the courage to say so, and to change course. I’d like to think that we voters would back that approach. After all, it’s what we’d expect to see from a good steward.

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Alex Penk

By Alex Penk -

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