A louder bark for Australia's fiscal watch dog
Julian Pearce, Ross GuestAbstract
This research note analyses the arrangements both in Australia and overseas in relation to fiscal rules and parliamentary budget offices/independent fiscal institutions. When first introduced in Australia, fiscal rules were expressed in numerical terms (such as target debt to GDP) but have more recently been expressed in more general terms (such as ensuring there are ‘fiscal buffers’). The note recommends that fiscal rules be required to be specified in quantitative terms and to cover a specific time frame. Compliance with the fiscal rules can then be assessed numerically. Australia's national independent fiscal institution, the Parliamentary Budget Office (PBO), shares many similarities with like organisations overseas, but it has a much more limited remit. The role of the Australian PBO should be expanded to include assessment of compliance with fiscal rules, a much higher public profile, and, unlike most overseas counterparts, preparation of fiscal policy recommendations. This research note is intended to contribute to informed public policy debate and so improve fiscal policy decisions and fiscal policy implementation.
Points for practitioners
Fiscal rules and independent fiscal institutions—in Australia, the Parliamentary Budget Office (PBO)—play an important countervailing force against biases in fiscal decision‐making.
Changes to the
Charter of Budget Honesty
should be made to require that fiscal rules in Australia be expressed more clearly by specifying the time frame over which they need to be met and as numerical targets (such as a numerical target debt as a percentage of GDP in, say, 3 years).
The role of the PBO should be expanded to include assessment of compliance with fiscal rules, as occurs in many overseas economies, adopting a much higher public profile, and preparation of fiscal policy recommendations. Other recommendations include the PBO providing assessments of the total fiscal impact of election commitments before, rather than after, elections. Some expansion in the PBO's role, such as adopting a much higher public profile, can be undertaken without legislative change.