Opinion & Commentary
Fiscal authority the way to go
One of the governance reforms that both Julia Gillard and Tony Abbott conceded to the rural independents was the creation of a parliamentary budget office to assist parliamentarians in costing alternative policies.
While the concept of a fiscal authority independent of the executive is a step in the right direction, the form and focus of this proposal are wrong.
More could be achieved through an independent commission rather than a parliamentary office, which would still be too close to politicians.
The idea of a parliamentary budget office is based on the United States Congressional Budget Office (CBO), but the CBO is a creature of a different system of government.
Although executive government (the President) proposes a budget to Congress, it is the Congress that formulates the budget independently of the executive.
What emerges at the end of this process often bears little resemblance to what the President proposed.
In Australia, the budget is an executive function operating within a parliamentary system and the parliament does not need the equivalent of the CBO to help formulate a budget.
While the CBO must be given credit for its often candid analyses of US fiscal policy, fiscal outcomes in that country have been so bad it is difficult to imagine the existence of the CBO has changed anything for the better.
We have argued that a Fiscal Commission should be created along the lines of the Productivity Commission and the Australian Competition and Consumer Commission.
While the focus of the parliamentary budget office proposal has been on the costing of election promises, the functions of the Fiscal Commission would be much broader.
Where is the money coming from is a legitimate question for political parties to answer and they should be expected to lay out a credible medium-term fiscal strategy, but election policy costings are a uniquely Australian obsession.
An independent Fiscal Commission would cost election and other policy commitments, but its main role should be something else to strengthen the independence, transparency and accountability of the entire budget process. In particular, it would prepare the economic forecasts and other parameters for the regular fiscal policy statements including the annual budget and the mid-year review; cost all government tax and spending measures; ensure adherence to recognised accounting principles; produce analytical reports such as estimates of the structural budget balance; and prepare long-term fiscal sustainability reports every three years.
The Commission would also monitor compliance with fiscal policy principles and rules specified in the Charter of Budget Honesty or similar fiscal responsibility legislation.
None of this is to suggest that the Treasury and Finance departments are incompetent or politicised. The point is that they are not independent of government but legally part of it and responsible to their ministers. They can act independently to the extent that the government allows, but in practice there will always be strict limits to this. Some have also advocated giving an independent fiscal authority responsibility for conducting an activist fiscal policy aimed at demand management, just as the Reserve Bank has independence in relation to monetary policy. An independent Fiscal Commission responsible for preparing economic forecasts and other budget parameters would give greater credibility to fiscal policy, reduce pointless partisan conflict over what are often little more than assumptions and ensure political debate was squarely focused on the actual substance of spending and tax proposals.
Robert Carling is a Senior Fellow and Stephen Kirchner is a Research Fellow at The Centre for Independent Studies. They are the authors of the CIS publication Fiscal Rules for Limited Government: Reforming Australia's Fiscal Responsibility Legislation.
