The time has come for an Independent Fiscal Institution

By Derek Gill
TINZ Director

The time has come for an Independent Fiscal Institution.

Pressure is mounting for New Zealand to finally introduce an Independent Fiscal Institution (IFI). The case for an IFI was highlighted by the recent spectacle of political squabbles over costs of election year policies, diverting attention from their merits and drawbacks.

This is a rerun of the fiasco in the 2023 election where we saw an unseemly debate about the robustness of the costs of the proposed tax cuts. The real debates should have been about the merits of the policies - not the cost.

The public of New Zealand deserves better - particularly as election promises get hard wired into coalition agreements.

New Zealand is an outlier by being slow in introducing an IFI

80% of OECD countries have some type of independent fiscal institution including the leading OECD countries we typically compare ourselves with - Canada, Australia, the UK, Sweden and the Netherlands.

A Parliamentary Budget Office on the Australian model would have three main functions —to evaluate public finances, strengthen parliamentary oversight, and provide non-partisan costings of political party policies.

Support from political parties from across the spectrum

The commitment to an IFI was embedded in the 2017 Coalition Agreement. The Coalition Government then released a public consultation paper and in 2019 Cabinet agreed on the functions of the proposed Parliamentary Budget Office¹.

But the government of the day failed to get it over the line - more by accident than by design - without the final approval from the then Opposition finance spokesperson. More recently the Minister of Finance has expressed interest and Treasury is providing the current Government further advice on an IFI https://www.treasury.govt.nz/sites/default/files/2025-03/oia-20250050-v2.pdf

Amongst the current political parties National Labour and the Greens now support the idea of an IFI - although differing on the details of the function and design.

A wide range of commentators argue that New Zealand needs an IFI

Organisations including the OECD and the Treasury itself, the New Zealand Initiative and numerous commentators (Cameron Bagrie being the latest) have argued that New Zealand needs to set up an independent fiscal watchdog. Transparency International NZ has repeatedly lent its support for an IFI such as with this 2023 appeal.

Why the TINZ Recommends an IFI for NZ

Policy Costings: New Zealand lacks an effective, permanent mechanism to independently cost opposition parties' election platforms. An IFI would provide a more level playing field and provide robust costings to inform post-election government formation.
Independent Scrutiny: While the New Zealand Treasury has statutory independence in the preparation of economic and financial forecasts and provides advice to the government, its primary role as a trusted adviser conflicts with providing highly public, independent critiques of a government's performance against its own fiscal strategy. Parliament lacks access to the adequate expertise required to undertake its scrutiny function.
Robust transparent fiscal information: Having an IFI would strengthen the Treasury’s independence on economic and fiscal forecasts just as having the Auditor General reinforces Treasury independence on accounting matters.

Around the world Budgets are at risk of losing credibility. New Zealand is not immune to that risk - we have had a series of 'bow wave' fiscal forecasts that each year suggest a return to surplus in two years and each year the bow wave pushes the return out another year. Having an IFI would reduce the risk that fiscal credibility will be lost.
Long-Term Sustainability: An IFI could use the Treasury's long-term statements to foster objective public and parliamentary debate on fiscal forecasts, debt sustainability and fiscal risks. The costs of an IFI is low - in most OECD countries IFIS are small - half have less than 20 staff - and have been estimated to cost around $2m p.a. This is a small price to pay for increased fiscal responsibility and credibility.

Leaving aside democratic legitimacy, avoiding adding one basis point i.e. 1% of 1% interest paid on government debt would recover the cost of an IFI (0.022 basis points) forty-five times over.

The time for an IFI has come, when National, Labour, and Green parties collectively make up a super majority (785) in the New Zealand Parliament that supports a form of IFI.

Creating an IFI would significantly strengthen New Zealand’s fiscal constitution. All that has been lacking is the political will to make it happen.

Derek Gill

Derek Gill is a TINZ Director and was the Open Budget reviewer for New Zealand in 2021 as well as 2023. Derek has spent most of his career working on public finance and public management issues during his career at the NZ Treasury, the OECD, as a deputy at what is now called the Public Service Commission and as a researcher at NZIER and Victoria University of Wellington School of Government.

The time has come for an Independent Fiscal Institution

New Zealand is an outlier by being slow in introducing an IFI

Support from political parties from across the spectrum

A wide range of commentators argue that New Zealand needs an IFI

Why the TINZ Recommends an IFI for NZ

Derek Gill

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