This week’s budget projected no return to balanced books. It is difficult to see how recent budgets from National and Labour comply with the Public Finance Act’s fiscal responsibility provisions. 

It is a problem.  

Headline figures projecting a return to surplus ignore ongoing accumulating deficits at the Accident Compensation Commission (ACC). ACC is expected to spend $2.9 billion more than it earns in 2026 and 2027, with ACC’s deficit reducing to $2.3 billion by 2029. 

When those deficits are included, the government is in deficit through 2029.  

Making sure ACC is on sound footing matters in its own right. But governments should not have an incentive to push expenditures over to ACC to avoid fiscal rules.  
Deficit measures that adjust for the pace of economic growth continue to see deficits of about 0.5% of GDP in 2029. And those require us to believe rather ambitious assumptions about spending restraint.  

The problem was caused by substantial spending increases under the prior Labour government.  

Recent work published in Policy Quarterly highlighted substantial non-Covid spending increases under Finance Minister Robertson. The government is taking a very long time to unwind Labour’s spending increases. And ignoring ACC’s deficits overstates the government’s fiscal prudence. 

The Public Finance Act requires fiscal responsibility. The legislation says that governments should aim at balanced budgets. It allows for deficits when circumstances warrant. But it requires the government to explain why it is in deficit and its plan for a return to surplus.  

One simple way of understanding the rule: the government should not have spending plans that exceed government revenues during normal times. In more jargon-laden terms, it requires not running cyclically adjusted or structural deficits.  

Governments ran those kinds of deficits from 2020 through 2025. And Budget 2025 projects those kinds of deficits through to the end of the forecast period when ACC’s deficits are included. 

Deficit spending was eminently justifiable during Covid. But it is incredibly difficult to see how that kind of deficit can persist for a decade if the Public Finance Act has any real meaning.  

I was fortunate to be allowed to attend this year’s Budget lock-up, but not fortunate enough to be called on to ask any questions.  

I would have liked to have asked one of the Secretary for the Treasury. Do the Public Finance Act’s fiscal responsibility provisions still have any real meaning? They seem able to justify just about anything a Minister might want.