Governing for the Future by Boston Jonathan;Boston Jonathan;

Author:Boston, Jonathan;Boston, Jonathan;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2016-10-31T00:00:00+00:00

Aside from disputes over which particular rules (or combinations of rules) are best, there is also disagreement about their appropriate coverage and how they should be interpreted and applied (Committee on the Fiscal Future of the United States, 2010). For instance, should there be ‘escape clauses’ (and, if so, of what sort)? Should there be sanctions (other than political embarrassment) for non-compliance? What kinds of sanctions are most appropriate and under what circumstances should they be triggered? In terms of sanctions, the options include hard mechanisms, such as automatic expenditure cuts or revenue increases in the event that certain fiscal goals are not met and soft mechanisms, such as a requirement for a formal public acknowledgement by the government that designated fiscal objectives have not been met. Both types of sanctions are fundamentally political in nature: the former imposes costs (i.e. higher taxes or reduced services) on citizens who in turn can be expected to criticize the government, while the latter rely on the power of shame and blame.

There are explicable philosophical and technical reasons for the lack of consensus on which particular fiscal rules are best and how they should be implemented. One of these relates to the inherent difficulties of budgetary forecasting, assessing future fiscal risks, and determining the effectiveness of specific policy instruments. Equally, different ways of interpreting terms like ‘fiscal sustainability’ and ‘fiscal prudence’ are possible. What, for instance, is the appropriate planning horizon – 30, 40, 50, or 100 years? Similarly, what are the appropriate measures or indicators? Should the focus be on the government’s operating or primary balance, the level of gross or net debt, the government’s net worth, or some combination of all these? And whichever option or mix of options is chosen, how should the relevant fiscal rule be formulated, what considerations should be taken into account in setting any targets to comply with the rule, and to what extent should short-to-medium-term deviations from the desired long-term goals be tolerated (e.g. to accommodate adverse shocks)?

Take, for instance, the suggestion that governments should reduce ‘total debt to prudent levels’, as required by S26(G)(1)(a) of New Zealand’s Public Finance Act. Determining what constitutes a ‘prudent’ level of government debt requires consideration of a range of variables. These include assessment of:

The vulnerability of the economy to adverse shocks (e.g. climatic, seismic, and economic);

The magnitude of the fiscal buffer required to accommodate such shocks;

The nature and extent of the government’s contingent liabilities (e.g. including any explicit or implicit guarantees to financial institutions);

The nature and size of any expected future pressures on expenditure (e.g. as a result of demographic trends or changing migration patterns);

The nature and size of any sovereign wealth fund or other financial assets earmarked to meet future needs;

The scale of private sector debt;

The role of government debt in funding capital expenditure and the extent of future public investment needs (e.g. to maintain or improve infrastructure); and

How the level of government debt will affect the risk premium on borrowing (Buckle & Cruikshank, 2013).

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.