The Government has announced that it will introduce legislation in the Budget sittings of Parliament to establish a new fiscal framework, implementing the Government’s Charter of Budget Honesty election commitment.
The Government’s proposed legislation aims to produce better fiscal outcomes by putting in place institutional arrangements to improve the discipline, transparency and accountability applying to the conduct of fiscal policy.
The adoption of the new fiscal framework through legislation has the objective of applying the new arrangements to all future governments.
The Government’s proposed legislation incorporates many of the recommendations of the National Commission of Audit. The main features of the fiscal framework to be established by the legislation are outlined below.
Fiscal policy will be required to be formulated against a set of principles of sound fiscal management contained in the legislation.
To assist public evaluation of fiscal policy, governments will be required to present a Fiscal Strategy Statement each year. The Statement should:
Requiring the identification of fiscal objectives and expected outcomes will enhance public understanding of a government’s fiscal strategy. Moreover, the objectives and expected fiscal outcomes outlined in the Statement will form the basis for assessing the conduct of fiscal policy over time.
Enabling a government’s fiscal performance to be assessed requires information on both fiscal objectives and progress in achieving those objectives. To enhance the availability of information on fiscal developments the Government’s proposed legislation will require the following key reports:
The reporting requirements, discussed further below, should be taken as a minima.
The Budget Economic and Fiscal Outlook report will present fiscal projections for three years beyond the budget year together with the economic assumptions on which they are based. The Mid-year Economic and Fiscal Outlook report will update the information provided at budget time. These reports will ensure that up to date information is always publicly available.
The presentation of a Pre-election Economic and Fiscal Outlook report will ensure the availability of updated information prior to an election. This report is to provide an independent assessment of the economic and fiscal outlook prepared by the Secretaries to the Department of the Treasury and Finance. The report is to be released within 10 days of the announcement of an election.
The Intergenerational Report will help ensure that fiscal policy addresses both short-term and long-term policy issues by highlighting the long run financial implications of existing policy. This report will assess the long-term sustainability of current policies, including taking account of the financial implications of demographic change.
Another feature of the proposed fiscal framework will be a requirement that governments have regard to external reporting standards such as those for ABS government finance reporting and standards set by the accounting profession. In particular, where a government intends to diverge from these reporting standards, the proposed approach and the reasons for the departure should be explained in the Fiscal Strategy Statement with reference to the principles of sound fiscal management. This requirement will place a greater degree of discipline on government reporting practices.
The proposed fiscal framework will also modify the so-called caretaker convention regarding the costing of Government and Opposition election commitments.
During the caretaker period the proposed legislation will allow both the Prime Minister and Leader of the Opposition to request that costings of their announced policies be prepared by the Secretaries to the Treasury and Department of Finance.
Standardised policies for requesting and carrying out policy costings are to be developed in consultation and prescribed by regulation. The relevant Secretaries will publicly release the policy costings as soon as practicable after receiving a request.
The approach provides potential alternative governments with equal access to departmental resources for costing policies during the caretaker period. This is consistent with the principle that governments should not have privileged access to the public service during the caretaker period.
The availability and public release of independent costings by departments on request can assist in better informing the electorate about the financial implications of election commitments prior to the election.