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Public Finance (Well-being) Amendment Bill - Submission to the Finance and Expenditure Committee [2019] NZHRCSub 6 (30 October 2019)
Last Updated: 14 June 2020
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![2019_600.png](2019_600.png)
![2019_601.png](2019_601.png)
Submission on the Public Finance
(Well-being) Amendment Bill
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30 October 2019
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Contact:
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John Hancock
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Senior Legal Adviser
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NZ Human Rights Commission
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Introduction
- The
Human Rights Commission (“the Commission”) welcomes the opportunity
to make this submission to the Finance and Expenditure
Committee (“the
Committee”) on the Public Finance (Well-being) Amendment Bill (“the
Bill”).
- The
Bill reforms the Public Finance Act 1989 (“the PFA”), the statute
that governs the budgetary process and spending
decisions by Government. The
objective of the Bill is to “contribute to the delivery of the
Government’s priority of
embedding a well-being approach within the Public
Service.”1 It does this by amending the PFA
to:
- Require
the Government to state the well-being objectives that will guide the
Government’s Budget decisions, explain how those
objectives support
well-being over the long term, and explain how these objectives have guided
Budget decisions.
- Require
the Treasury to periodically report on the state of well-being in New Zealand
and select indicators for that purpose. It is
intended that the report may be
combined with other Treasury periodic reporting responsibilities in order to
reinforce the integration
of the well-being approach within the overall PFA
framework. The first report is due in 2022 after which it will be issued every
4
years.
- The
Commission supports the Bill. The Bill’s proposed reforms provide greater
harmony between New Zealand’s fiscal/macroeconomic
and human rights
frameworks. There is considerable synergy between the Government’s
well-being objectives and its broader human
rights
commitments.
- However,
the Commission recommends that:
- clause
6 of the Bill be amended to include explicit reference to human rights
obligations and commitments;
- consideration
be given to requiring that human rights impact assessments be included within
the mechanisms that lead to issuance of
Budget Policy Statements under
s26M;
1 General Policy Statement, Explanatory Note to the
Bill
- that
the periodic Wellbeing reports issued prior to 2030 include the measurement and
tracking of progress against the 2030 Sustainable
Development Goals
(“SDG”) targets.
The background to the Bill
- Public
policy discourse in New Zealand does not usually associate the PFA and
government fiscal and macroeconomic management with
human rights. However, as
this piece of legislation regulates government fiscal and expenditure
decision-making, the PFA has an indirect,
yet highly significant, impact on
human rights outcomes in New Zealand.
- In
particular, the PFA directly engages New Zealand’s obligation under
Article 2 of the International Covenant on Economic,
Social and Cultural Rights
(“ICESCR”) to allocate “the maximum extent of available
resources” in order to progressively realise economic, social and
cultural rights. This duty is replicated in other international human
rights treaties that New Zealand has ratified, such as the Convention on the
Rights of the Child.2
- The
primary purpose of the PFA is to provide “a framework for parliamentary
scrutiny of the Government’s expenditure proposal
and its management of
its assets and liabilities.”3 Central to the operation of this
framework, and indeed to the funding of Government activities more generally,
are the “principles
of responsible fiscal management” set out in s
26G of the PFA. The principles are of mandatory application4 and
entirely regard fiscal considerations. Section 26G provides that the Government
“must pursue its policy objectives”
in accordance with the
principles. The Bill does not seek to amend section 26G.
- Until
very recently, the PFA was silent on how this framework relates or is relevant
to broader Government areas of responsibility,
such as its human rights
commitments or improving socio-economic and environmental
outcomes.
- However,
the recent enactment of the Child Poverty Reduction Act 2018
(“CPRA”) tilted one of the PFAs procedural functions
towards a
specific social and human rights outcome, that being the reduction of child
poverty in New Zealand.5 The CPRA does this by requiring
Appropriations Bills issued under the PFA to include a statement that discusses
progress in reducing
child poverty against the statutory income targets in the
previous financial year. It also identifies whether and, if so, to what
extent,
measures in or related to that
2 Article 4
3 Section 1A
4 With an exception for temporary departures under s 26G(2)
5 Section 48 of the Child Poverty Reduction Act, introducing s
15
Appropriations Bill will affect child poverty. In other words, it establishes a
legislative process whereby Parliament is provided
with an annual assessment of
the impact of retrospective and prospective budgetary allocations in reducing
child poverty.
- The
CPRA provides a prelude of sorts to this Bill. Its enactment signalled a subtle
shift of emphasis within the legal framework that
governs fiscal
decision-making. However, the policy framework underpinning the Bill’s
reforms goes back nearly a decade earlier
to the development of the
Treasury’s Living Standards Framework in 2010.
The Living Standards Framework
- The
Living Standards Framework is based on five principles.6 These
are:
- there
is a broad range of material and non-material determinants of living standards
(beyond income and GDP);
b. freedoms, rights and capabilities are important for living
standards;
- the
distribution of living standards across different groups in society is an
ethical concern for the public, and a political one
for governments. It also
has efficiency implications, into which empirically-based economic analysis can
provide useful insights;
- the
sustainability of living standards over time is central to ensuring that
improvements in living standards are permanent, with dynamic analysis of
policy needed to weigh up short and long-term costs and benefits;
and
- measuring
living standards directly using self-assessed subjective measures of wellbeing
provides a useful cross-check of what is important for living
standards.
- The
Living Standards Framework goes on to define New Zealand’s overall
national wealth as comprising of four capital
“stocks”:
- financial
and physical capital;
- human
capital;
6 Gleisner B, Llewellyn-Fowler M, MacAlister F,
Working Towards High Living Standards for New Zealanders, Treasury Paper
11/02, May 2011 available at https://treasury.govt.nz/publications/tp/working-towards-higher-living-standards-new-
zealanders-tp11-02-html
(emphasis added)
- social
capital; and
- natural
capital.
- The
above principles and definitions of capital are underpinned at the theoretical
level by “the capabilities approach”
economic model developed by the
pioneering economist and philosopher Amartya Sen and other leading political and
economic thinkers.7 As the Treasury has observed, it is designed as a
“flexible and multi-purpose framework rather than a precise theory of
wellbeing”
that “emphasises the importance of ensuring that
people have the opportunities necessary to participate in society and live a
fulfilling
life”.8
- Human
rights principles and objectives are interwoven throughout the framework of the
capabilities approach. Sen considered that five
instrumental and intersecting
freedoms - political freedoms, economic facilities, social opportunities,
transparency guarantees,
and protective security - contribute to the general
capability of a person to live in freedom, an objective he argued is “the
primary end and principal means of
development.”9
- Sustainable
development theory also provides a methodological basis for the Living Standards
Framework and, in particular, its capital
approach to assessing living
standards. Treasury has noted that this approach has some “key advantages
as a conceptual framework”
and has gained considerable support among
academics and international institutions:
“...it broadens definitions of living standards by
incorporating a range of values and factors beyond economic production.
Secondly,
it provides a way to think about stocks, flows and sustainability in a
way which is readily understood, because it is based on well
established
economic frameworks.”10
- The
measurement of “subjective well-being” or happiness is another
important factor in the Framework’s methodology.
Treasury notes that broad
societal indicators become important when measuring and comparing levels of
happiness between nations.
These include economic, political and personal
freedom, the rule of law, tolerance, security and
equality.11
7 Gleisner B et al at pp 11-13
8 Gleisner B et al, at pp 11 and 13
9 Ibid at p 12, citing Sen, A. (1999) “Development as
Freedom”. Oxford: Oxford University Press
10 Ibid
11 Ibid
- Overall,
the principles and design of the Living Standards Framework and the
“wellbeing approach” that it is designed
to deliver and which this
Bill is bringing into law, are remarkably cohesive when considered against a
human rights approach to defining
and propagating
wellbeing.
The Bill
- The
Bill itself is succinct and has two primary functions:
- The
introduction of amendments that will require the Government to state, in its
Budget Policy Statement issued under s 26M of the
PFA, its well-being objectives
that will guide its Budget decisions (Clause 6); and in preparing the
accompanying fiscal strategy
report under s 26K, explain how those objectives
support well-being over the long term, and explain how these objectives have
guided
Budget decisions (Clause 5, new section 26KB).
- Require
Treasury to issue a periodic report on the state of well-being in New Zealand
and select indicators for that purpose (Clause
8, new section
26NB).
- In
doing so, the Bill simply augments current PFA reporting functions. It does not
introduce radical structural reform or, as is the
case with the CPRA amendment,
a mechanism to track, speculate and evaluate the impact of a specified
appropriation.
Clause 6, Section 26M – Wellbeing objectives and the
Budget Policy Statement
- The
Bill notably does not include a definition of “wellbeing”. However,
consistent with statutory interpretation jurisprudence12, the term
must be considered within the policy context in which it has arisen. It follows
that the principles behind the Living Standards
Framework (set out above) will
provide the methodological and theoretical basis for identifying what
constitutes “wellbeing”
for the purposes of the
PFA.
- Clause
6 introduces wellbeing objectives into the content of the annual Budget Policy
Statement that the Minister of Finance must
prepare under s 26M of the PFA.
Their inclusion will:
- indicate
how the Government’s wellbeing objectives will guide their budgetary
decisions;
12 Commerce Commission v Fonterra Co-Operative
Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [22].
- relate
to social, economic, environmental, and cultural wellbeing and to any
other matters that the Government considers support long-term wellbeing in New
Zealand; and
- explain
how the wellbeing objectives are intended to support long-term wellbeing in New
Zealand.
- The
four dimensions of wellbeing referred to in clause 6 (set out italics at 21b
above) correlate with, but do not replicate, the
four capital stocks of the
Living Standards Framework. This suggests that the Government is empowered to
take a broad approach to
defining and applying concepts of wellbeing when
considering budgetary priorities and long-term economic and fiscal
planning.
- The
Commission submits that within this broad approach, human rights should be a
primary consideration. This would be consistent with
“the capabilities
approach” that underpins the Living Standards Framework, which recognises
that the realisation of human
rights, including economic and social rights, is
integral to increasing the capability of people to live free, dignified
lives.
Human rights, wellbeing and budgetary planning
- It
is a settled matter of New Zealand law and public policy that legislation will
comply and be implemented consistently with international
human rights treaty
obligations. The Government’s Legislation Design and Advisory Committee
Guidelines provide that new legislation
must not be inconsistent with existing
international treaty obligations.13 The Courts will also interpret
legislation consistently with New Zealand’s obligations under
international human rights treaties,
wherever
possible.14
- It
follows that Parliament ought to be able to scrutinise, and be satisfied, that
budgetary priorities align or are in harmony with
New Zealand’s human
rights obligations, including the human rights commitments that New Zealand has
made on the international
stage. These commitments may include United Nations
(“UN”) treaty body recommendations that arise from the periodic
reporting
process under human rights treaties, or the recommendations of UN
Member States that have been accepted by the New Zealand
13 Legislation Design and Advisory Committee,
“Chapter
9: Treaties and international obligations” Legislation Guidelines:
2018 edition (March 2018) http://www.ldac.org.nz/guidelines/legislation-guidelines-2018-
edition/international-issues/chapter-9/
14 E.g. Helu v Immigration and Protection Tribunal [2015]
NZSC 28 at [143]- [144]; Tavita v Minister of Immigration [1993] NZCA 354; [1994] 2 NZLR
257 (CA); R v Goodwin (No 2) [1993] NZCA 391; [1993] 2 NZLR 390 (CA); Simpson v
Attorney-General [1994] NZCA 287; [1994] 3 NZLR 667 (CA).
Government during the five-yearly Universal Periodic Review process before the
UN Human Rights Council.
- This
supports the development of a policy-level mechanism that assesses the human
rights impact of the budgetary priorities set out
in a Budget Policy Statement
issued under s 26M. This process – a human rights impact assessment (HRIA)
– is defined
in the broadest sense as:
“a systematic process...based on the normative
framework for international human rights law, which aims to measure the impact
of an activity or project on the realization of human
rights.”15
- HRIAs
can be applied to a variety of sectors and contexts. These include trade
agreements, international aid and development, social
sector planning, fiscal
decisions and business practices.16
- HRIAs
can (and should) be applied to government budgetary planning, analysis and
priority-setting. As the Office of the High Commissioner
for Human Rights
(“OHCHR”) has observed:
“In establishing the fiscal envelope, a government is
not simply engaging in a technical exercise; it is making a number of
policy
choices...these choices should be informed by and responsive to a
government’s human rights obligations. In other words,
these human rights
obligations should serve as a framework for the negotiations that are involved
in setting the fiscal envelope.”17
- The
OHCHR has observed that Ministries of Finance, such as the Treasury, have key
human rights responsibilities; specifically, they
are responsible for ensuring
that the overall budget is formulated in a manner that is in keeping with the
government’s key
human rights obligations. The OHCHR consider that this
requires Ministries of Finance to ask the following
questions:18
- Is
the budget sensitive to and respectful of the government’s human rights
obligations and appropriate for the realisation of
rights?
15 OHCHR, 10 April 2011, Report of the Independent
Expert on the effects of foreign debt and other related international financial
obligations of States on
the full enjoyment of all human rights, particularly
economic, social and cultural rights, Cephas Lumina: Guiding principles
on foreign debt and human rights A/HRC/20/23, Para 41
16 See World Bank & Nordic Trust Fund, Study on Human
Rights Impact Assessments, February 2013
17 Realizing Human Rights Through Government Budgets (OHCHR
and the IBP) at p 51
18 Ibid
- Are
revenue, allocations and expenditure adequate and effective to realise human
rights obligations, including SDGs?
- Do
they show that the government is using the maximum of its available resources
[per its obligations under Article 2 of ICESCR] to
realise those
rights?
- According
to the budget, is the government taking steps towards the progressive
realisation of human rights?
- Do
revenue, allocations and expenditure all comply with the government’s
obligation of non-discrimination?
- The
OHCHR has also identified a range of budget methodologies which have potential
use in human rights monitoring and assessment.19 These
include:
- Socioeconomic
analysis of the budget – this is seen as useful for identifying
discrimination in revenue generation or expenditure according to
category.
- Budget
Summaries – these are seen as important educational tools, whether
to raise public awareness or to highlight to legislators how specific
items or
areas in the budget respond, or need to be modified, to comply with human rights
obligations.
- Tax
incidence analysis – this process analyses tax settings to
determine what groups are ultimately most impacted upon by taxes. This can help
identify whether
specific taxes the government uses are discriminatory in their
impact.
- Benefit
incidence analysis (BIA) – this process analyses specific
policies, programmes or expenditure to determine which groups will ultimately
benefit most
from them. BIAs help identify whether the likely beneficiaries of
such expenditure will be the same as the intended
beneficiaries.
- The
assessment questions and methodologies set out above in paragraphs 29 and 30 fit
cohesively with the objectives and principles
underpinning the Living Standards
Framework and the wellbeing approach being implemented into law by this Bill. In
particular, the
Framework recognises the ethical, moral and political
implications arising from the distribution of living standards among different
groups of people.
19 OHCHR, IBP Realizing Human Rights Through
Government, Annex 1
- Methodologies
that enable the fiscal and economic indicators of structural discrimination to
be identified and addressed through the
budgetary process will therefore be
essential.
- Further,
as we observed in our submission to the Committee on the 2019 Budget Policy
Statement (“BPS”), there is also
alignment between the sustainable
development principles underpinning the Living Standards Framework and the UN
Sustainable Development
Agenda and SDG Targets that the New Zealand Government
has committed to meeting. Indeed, as we submitted, the Budget Policy Statement
is an ideal platform upon which the Government’s fiscal and economic
planning can be aligned with the SDGs. The BPS is informed
by the Indicators
Aotearoa statistics framework, which is designed, among other things to track
and measure the progress New Zealand
is making towards the 2030 SDG
targets.20 As noted, there was considerable correlation between the
priorities set out in the 2019 Budget Policy Statement Wellbeing Outlook
and
some of the SDG targets.
- The
development of an HRIA process to inform the preparation of the BPS under s 26M
would largely be done at the policy level. One
way of doing this, for example,
could be to expressly include an HRIA component within the Treasury’s
Living Standards Dashboard.21
- However,
in order to provide a legislative basis for this, clause 6 of the Bill could be
amended to add “...including its [the Government’s] human
rights obligations and commitments.”
36. The Commission accordingly recommends:
- That
the Committee consider amending clause 6 (new section 26M(4)) to provide that
“...wellbeing objectives...must relate to
social, economic, environmental,
and cultural wellbeing and to any other matters that the Government considers
support long-term
wellbeing in New Zealand including its human rights
obligations and commitments.”
- That
the Committee consider the inclusion of a human rights impact assessment process
within the mechanisms that lead to the issuance
of
20 https://www.stats.govt.nz/assets/Consultations/indicators-aotearoa-new-zealand-nga-tutohu-aotearoa-
consultation/indicators-aotearoa-new-zealand-nga-tutohu-aotearoa-and-the-un-sustainable-development-goals.pdf
21 https://treasury.govt.nz/information-and-services/nz-economy/living-standards/our-living-standards-
framework/measuring-wellbeing-lsf-dashboard.
The Dashboard is an analytical tool that has been designed to improve
Treasury’s advice to Ministers on current and future well-being.
Budget Policy Statements under s 26M. The human rights impact
assessment process should include:
- Consideration
of New Zealand’s human rights treaty obligations;
and
- Progress
made towards meeting New Zealand’s commitments to the SDG
Targets.
Clause 8 – the Wellbeing Report
- Clause
8 of the Bill introduces a requirement that Treasury prepare a Wellbeing Report
every four years, commencing no later than
2022. The Minister of Finance is
subsequently required to furnish the report in Parliament.
- The
report is required to use “appropriate” indicators to
describe:
- the
state of wellbeing in New Zealand; and
- how
the state of wellbeing in New Zealand has changed over time;
and
- the
sustainability of, and any risk to, the state of wellbeing in New
Zealand.
- The
Commission supports the introduction of this report into the PFA’s
structure. As above, we would recommend that the development
of the report
includes an HRIA process that incorporates SDG reporting for reasons outlined in
detail in the preceding paragraphs.
We also reiterate our suggestion that the
Living Standards Dashboard could be augmented for this purpose. It is also
notable that
the timing of the periodic reports approximately correlates with
the SDG target date, as the second periodic report is likely to
be due by 2030.
This report will therefore be of considerable value in assessing progress
against the SDG targets.
- Another
issue of note is the lack of any requirement that the Treasury consult with
others in the preparation of the report. While
one would expect that the
development of such a multi-faceted report would involve contributions from
others and the consideration
of external views, the Bill simply provides that
the Treasury exercise its best professional judgment in preparing the report.
The
report is a highly significant “state of the nation” report and
steps should therefore be taken to maximise public awareness
and opportunities
to contribute.
41. The Commission accordingly recommends that:
- The
Committee enquire with the Treasury as to the degree of external consultation
and awareness-raising that is intended in the preparation
of the wellbeing
report and consider whether clause 8 of the Bill should be amended to require
this.
- That
the periodic Wellbeing reports issued up to 2030 include the measurement and
tracking of progress against the 2030 SDG
targets.
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