General policy statement
The purpose of this Bill is to ensure that New Zealand governments, in the context of their macro-economic planning, balance economic opportunity with environmental responsibility.
To that end, this Bill—
provides a framework for parliamentary scrutiny of sustainable development indicators of New Zealand as a context for guidance for decisions pertaining to the Government’s expenditure proposals and the Government’s management of its assets and liabilities; and
specifies the principles of sustainable development for New Zealand as a context for guidance for the conduct of fiscal policy.
Economic indicators in the Public Finance Act 1989
For the past century or so, the orthodox methods of macro-economic management have used traditional indicators of fiscal and monetary policy.
The principal mechanism for governmental management of national economies is the annual Budget, in which the Government obtains parliamentary approval for public funding in line with its desired outcomes and fiscal policy objectives.
The Budget is introduced in the Financial Statement by the Minister of Finance (the Minister). Budget documents, providing the information on which such parliamentary scrutiny is based, include the Appropriation (Estimates) Bill; the Budget Economic and Fiscal Update; the Fiscal Strategy Report; the Estimates with Supporting Information; and the Budget Policy Statement. These are now legal requirements, their content being described in the Public Finance Act 1989 (the principal Act).
The current and forecast financial statements that support the above documents and parliamentary debate are produced in conformity with a set of Generally-Accepted Accounting Policies (GAAP). In 2002 the Accounting Standards Review Board decided that reporting entities in New Zealand should use the New Zealand International Financial Reporting Standards for periods commencing from 1 January 2007.
Such financial statements exclusively use financial and economic concepts. Under the principal Act (section 26P), the forecasts in the Economic and Fiscal Update must include New Zealand’s gross domestic product (including its major components) (GDP), consumer prices, unemployment and employment, and the current account position of the balance of payments. Beyond this legal requirement, other concepts customarily employed in fiscal management include interest rates, public and national debt, and net international investment positions. Thus, in presenting the Budget and providing the supporting documentation for parliamentary approval and public awareness, the Government is confined to using financial and economic concepts to measure current and projected
For the past 60 years, GDP has become the central concept for measuring economic growth and wellbeing. GDP is the sum, taken together, of (i) the nation’s economic output (gross value added); (ii) incomes (wages, dividends, profits); and (iii) expenditure (consumption and investment).
International initiatives towards sustainable development indicators
In recent decades, concerns have developed that GDP in itself is not a sufficient concept to measure and assess the wellbeing of human society. These concerns attracted governmental attention in the 1980s and were first articulated by the international community at summit level in the 1999 UN Conference on Environment and Development (UNCED). In the UNCED Declaration and Programme of Action, calls were issued for further research into concepts that would add knowledge and clarify issues pertaining to the carrying capacity of the planet and individual countries. UNCED enshrined the concept of sustainable development, not only for developing countries but for developed countries as well.
Since the early 1990s, researchers and official policy-makers have thus been working to develop a new understanding of the relationship between economic activity and the planet’s ecosystem. The challenge, generally recognised, is to ensure that the benefits that traditional economic activity has generated over the past century, at least in some countries, are continued, yet are balanced by environmental responsibility—at both the global and national levels.
International work towards these goals has intensified since the mid-1990s—
In 2001 the European Council adopted a Sustainable Development Strategy. Pursuant to this, Eurostat has been active in developing a set of indicators.
The UN’s Economic and Social Council and Statistics Division have been working on ways of linking environmental accounting with economic accounting within the traditional System of National Accounts (SNA). In 2003, the Handbook of National Accounting: Integrated Environmental and Economic Accounting Rev. 1 was issued.
In 2008 a conference on climate change and official statistics, organised jointly by the UN, EU, and World Bank, concluded, among other things, that there is a political consensus on the need to go beyond GDP, and there is a role for composite indicators such as the Ecological Footprint and Human Development Index—indicators that are easily understandable, easy to communicate, and raise awareness in the public.
In Canada, the National Roundtable on the Environment and the Economy (NTREE) produced in 2003 a report on Environment and Sustainable Development Indicators for Canada (ESDI). The ESDI included a set of sustainable development indicators designed to supplement and provide a context for macro-economic indicators (such as GDP) but not to change them. The NTREE recommended that Statistics Canada publish these new indicators annually and that the Minister of Finance incorporate them in the federal budget statement. It also proposed that the Government expand the SNA to include new accounts covering natural, human, and social capital. These indicators comprised (a) natural capital, comprising air quality, fresh water quality, greenhouse gas emissions, forest cover, wetlands, and (b) human capital, comprising educational attainment.
The same year the Parliament of Canada adopted the Wellbeing Measurement Act (the Act) to “develop and provide for the publication of measures to inform Canadians about the health and wellbeing of people, communities and ecosystems in Canada”. The Act aims to establish a measuring system that distinguishes activities that benefit or harm people and ecosystems. It would reflect quality of life and maintain natural resources accounts. Two standing and management committees are mandated to define and publish an annual set of indicators of the economic, social, and environmental wellbeing of people, communities, and ecosystems in Canada. A Commissioner reports annually to Parliament with an analysis and evaluation of current wellbeing in accordance with the indicators.
Most recently, in France, the President, “unsatisfied with the present state of statistical information about the economy and the society”, established a Commission on the Measurement of Economic Performance and Social Progress (co-chaired by Stiglitz, Sen, and Fitoussi). The
“Sarkozy Commission” of 2009 critically reviewed
“the classical GDP issues”, considered issues of sustainable development and the environment, and explored new concepts such as the “Quality of Life”. It advanced 12 recommendations for improving the way in which societies measure their human progress, and in which governments should henceforth engage in management planning.
Initiatives by New Zealand
In the past decade New Zealand has undertaken some work towards incorporating the new approach to macro-economic management—
In 1999 a governmental project was completed under the Sustainable Management Fund to establish a framework for environmental accounts at the regional level.
In 2000 the Government provided a modest allocation ($73,000) to pilot work on sustainable national accounts and business accounts. The aim was to develop a social and environmental audit programme in partnership with business and community groups, and supporting work with Statistics New Zealand on alternative national accounts.
Statistics New Zealand has consistently worked on developing an appropriate set of indicators since then—
In 2002 it produced an experimental set of sustainable development indicators in its report Monitoring Progress towards a Sustainable New Zealand.
In 2006 it participated in an international working group jointly convened by the UN’s Economic Commission for Europe and the OECD to work on statistics for sustainable development. The aim was to ensure greater consistency in measurement and international compatibility, with the “capital approach” as its basis of measurement.
In 2009 it produced the first comprehensive set of indicators in its report Measuring New Zealand’s Progress using a Sustainable Development Approach 2008. The report identifies indicators in 15 topic areas and advances a set of principles of sustainable development. The report will stand as the defining work in New Zealand towards an integrated set of environmental-economic indicators for future macro-economic management.
In 2010 it updated 13 of the 16 key indicators from the 2008 document. These updates either included new data sets or made methodological improvements to the analysis of the greenhouse gas intensity of the economy, the energy intensity of the economy, and net greenhouse gas emissions.
In 2012 the New Zealand Treasury released a tool to help policy analysts think across the 5 key aspects that are important for improving living standards for New Zealand in today’s environment. These included economic growth, sustainability for the future, increasing equity, social infrastructure, and reducing risks. Natural capital is outlined as an explicit criterion to be considered.
The extent of this work already accomplished is encouraging. What remains to be done, now, is to ensure that such an analytical framework is incorporated into governmental policy-making and parliamentary scrutiny. This Bill is designed as the first step towards that end.
The Bill aims primarily at supplementing traditional economic indicators with sustainable development indicators and, to the extent feasible with the present “state of the art”, to integrate them together for informed macro-economic policy-making. The principal means to that end is to ensure that the Minister of Finance, and in a supporting role the Treasury, achieve that degree of integration in presenting the annual Budget and related information.
It is appropriate for the Minister of Finance to include, henceforth, a set of indicators of sustainable development with the traditional economic indicators, because the Minister has responsibility to ensure that the economic management of New Zealand is managed along sound principles and practices, and the long-term economic health of the country depends upon protection of its environmental integrity.
In assessing the feasibility of achieving this, regard is had to the judgment of the Sarkozy Commission that “placing a monetary value on the natural environment is often difficult and separate sets of physical indicators will be needed to monitor the state of the environment”. This is the approach adopted by Statistics New Zealand in its 2009 report, making it appropriate for the Government to use the work already done in New Zealand for the present legislative purpose of the Bill.