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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Submission on the Public Finance (Well-being) Amendment Bill

30 October 2019

Contact:

John Hancock

Senior Legal Adviser

NZ Human Rights Commission

[e-mail]

Introduction

1. 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”).

2. 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:

1. 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.

2. 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.

3. 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.

4. However, the Commission recommends that:

1. clause 6 of the Bill be amended to include explicit reference to human rights obligations and commitments;

2. 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

100. 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

5. 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.

6. 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

7. 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.

8. 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.

9. 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.

10. 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

11. The Living Standards Framework is based on five principles.⁶ These are:

1. 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;

100. 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;

4. 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

5. measuring living standards directly using self-assessed subjective measures of wellbeing provides a useful cross-check of what is important for living standards.

12. The Living Standards Framework goes on to define New Zealand’s overall national wealth as comprising of four capital “stocks”:

1. financial and physical capital;

2. 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)

100. social capital; and

4. natural capital.

13. 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

14. 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

15. 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

16. 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

17. 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

18. The Bill itself is succinct and has two primary functions:

1. 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).

2. 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).

19. 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

20. 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.

21. 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:

1. 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].

2. 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

100. explain how the wellbeing objectives are intended to support long-term wellbeing in New Zealand.

22. 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.

23. 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

24. 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

25. 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.

26. 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

27. 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

28. 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

29. 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

1. 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

2. Are revenue, allocations and expenditure adequate and effective to realise human rights obligations, including SDGs?

100. 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?

4. According to the budget, is the government taking steps towards the progressive realisation of human rights?

5. Do revenue, allocations and expenditure all comply with the government’s obligation of non-discrimination?

30. The OHCHR has also identified a range of budget methodologies which have potential use in human rights monitoring and assessment.¹⁹ These include:

1. Socioeconomic analysis of the budget – this is seen as useful for identifying discrimination in revenue generation or expenditure according to category.

2. 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.

100. 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.

4. 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.

31. 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

32. Methodologies that enable the fiscal and economic indicators of structural discrimination to be identified and addressed through the budgetary process will therefore be essential.

33. 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.

34. 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

35. 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:

1. 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.”

2. 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:

1. Consideration of New Zealand’s human rights treaty obligations; and

2. Progress made towards meeting New Zealand’s commitments to the SDG Targets.

Clause 8 – the Wellbeing Report

37. 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.

38. The report is required to use “appropriate” indicators to describe:

1. the state of wellbeing in New Zealand; and

2. how the state of wellbeing in New Zealand has changed over time; and

100. the sustainability of, and any risk to, the state of wellbeing in New Zealand.

39. 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.

40. 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:

1. 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.

2. That the periodic Wellbeing reports issued up to 2030 include the measurement and tracking of progress against the 2030 SDG targets.