What is wrong with Treasury costing opposition proposals?
With the announcement of a second costing of opposition policies in a week coming out of Treasury, and being used by the Treasurer for an upcoming election campaign, I thought it is a good time to discuss why some economists are so uncomfortable with this.
Both Chris Ricardson and Steven Hamilton have come out with significant concerns about this. However, Peter Tulip raises an important point - don’t we want honest costing in the public debate! Peter’s point is shared by a lot of individuals in the comments.
Let me give a tl;dr before I explain my own concerns. We do want information in the debate - but the value of that information depends on a public perception of independence and credibility. Acting as a political party’s coster prior to an election destroys any view that there is independent information - and will lead people to discount Treasury advice seriously in public in the future.
I hear a lot of policy people call the public “misinformed” or “inconsistent”. Instead I see a public that doesn’t believe information because of blatant meddling by ministers offices and PR over time.
Compared to New Zealand it is noticable how much Treasury veers towards seeing its role as one of defending the government rather than impartial advice. And this comes with costs. This is not the fault of anyone - certainly not the analysts doing the work, the leadership managing the process, or the ministers trying to use resources at their disposal. Instead it is an institutional problem (coordination failure) that degrades public trust.
So how did I get here?
Update: Article was updated on second costing - not a Coalition policy thing. So this is really just about the first announcement.
Matt, these policies are dumb and small who cares
I agree title writer, I don’t like these tax breaks as policies. I was even going to blog about them before this costing stuff kicked off.
But lets look what happened from a public perspective.
Coaltion announces a policy.
They get the PBO to independently cost the policy - but they do not release it (note: PBO should really have the ability to automatically release costings once a policy is in the public domain).
Treasury suddenly allocates its scarce resources towards costing this relatively small item - and then publicly disagrees with the PBO costing. They also do not release any details of their costing (as far as I can tell).
The Treasurer immediately takes these costings to attack the Coalition.
That doesn’t look that great right.
If you think this is all good, lets think about some similar scenarios.
Labour announces a similarly sized policy - would Treasury investigate and announce that the cost is 10-100x larger?
In the above example, would any political party of journalist have access to the costing to push it out in public?
Both parties put a similar policy in their manifesto and Treasury includes estimates in their pre-election strategic planning - would they then send those to the Treasurer?
The leader of a large country is imposing tariffs and driving international reviews about the structure of tax systems - in that environment would we use scarce tax policy advice resource on this, or on a costing of potential expensing policies.
In each of these counterfactual situations we would find the current Treasury behaviour a bit weird - both in terms of what is being costed and the way it has been delivered to the public. And in that regard when someone reads in the paper that Treasury did this costing that is bigger than everyone elses, and the Treasurer is using it for politics, is a public perception that civil service estimates are ideological unreasonable?
Would the person on the street now hearing about the cost of climate change start trusting it less because it is from Treasury?
When we say “trust the experts” it isn’t just about experience and education - which Treasury has in spades - it is about the perception of being frank and fearless (or free and frank in NZ speak).
Let me give a private sector example. I still remember working in economic forecasting for a place called Infometrics, and there was another firm in the same space called BERL. We both did our thing and loved life and economics. They then started costing the Labour party platform and made such costings a big part of their media presence - and we started hearing from people that they trusted their forecasts less as a result.
They didn’t change their forecasts. The people who did that work had nothing to do with the costings, and the costings themselves were likely above board. But the perception shift is tangible and real.
I have to be honest, when people act like “this is just advice, what do you mean there could be a perception issue” I do wonder if they are gaslighting me - I suspect Steven feels the same way given how he is responding to people.
Stop it, these people are just doing their job
I agree. The people doing the costing, the people managing them, the instructions from above - I am in no way criticising them! I am certain they have thought carefully about the costing and given their best free and frank advice.
But due to politics the full details of their advice are unavailabe for us to consider. Due to politics they were instructed to focus on this topic. Due to politics their work is being used to support the election prospects of one party - not solely as a means to inform debate.
It is one thing to say The APS is apolitical and provides the Government with advice that is frank, honest, timely and based on the best available evidence. But given the daily working relationship between Ministers and Agencies there needs to be something external that helps enforce this - and helps build a public perception this is the case.
To be clear, I am not even blaming Ministers - it sounds as if there has been a long-lasting expectation that weaponising Treasury before an election is common. Although compared to historic examples this is for a much smaller but high profile policy, which is a bit more unusual.
Recognising all of these tensions the PBO was established in 2012 - and I really love their work and the tools they make avaiable. The existence of the PBO and Productivity Commission provide a more tangibly independent voice - allowing Treasury to focus more specifically on relationship building and how they work with ministers.
And with that you can see why Chris and Steven were concerned - and I agree with them completely. The use of Treasury to undermine independent advice from the PBO for what appears to be blatantly political reasons is toxic.
How is this even a contentious point?
After the first release, I talked with a number of people I have great respect for who have Australian policy experience - given that the New Zealand public sector structure at its core is more separated from politicians I realised my surprise could just be a cultural difference (and the fiercely independent public servants I’ve had the privilege of working under in the past).
I was told that these types of things are common for both parties when in power, and there are checks and balances around the advice. However, there was unlikely to be too much of it. This put my mind at ease so I put down my keyboard - as any regular reader will know, I am a constant overreactor.
But then I saw a second costing released within 48 hours.
This is the game Matt, you are too ideologically pure about public service
True true - I have this vision of economics and public service that is idealistic. We are all humans after all and policy is never a straight line. My wife tells me I’m like this because I’m a Saggitarius, so my apologies.
So next time a Trump supporter complains to you about the deep state and how all facts are made up on the basis of ideology you’ll just respond “that’s just the game”.
…
Here’s the thing. I believe we do better when we face pressure. In this circumstance the frankness and fearlessness could be better - and it would be a disservice to everyone not to point this out.
I don’t like the Coalitions policy suggestion. I don’t like it when costing information isn’t released. I don’t like cost-benefit analysis and economics being used as a political game - instead of an objective way to inform the public to talk about trade-offs.
If we what independent costings of everything out then lets fund that independently and keep it arms length from the politicans - rather than having politics spoil everything.
If you think this sort of behaviour isn’t corrosive about public trust, get out of the public service bubble and have a yarn with some people - instead of focusing on their inconsistency or perceived faults, try to understand why they don’t trust the numbers all us economic boffins produce.