Budget Reform Journey: Throwing Fiscal Anchors and Clearing the Financial Fog

Analysis

By
Bright Lee

August 14, 2024

Almost everyone seems to agree that America has a federal spending problem. According to Gallup, only 10 percent of Americans are completely unconcerned about federal spending and the country’s budget deficit. But the widespread concern among the remaining 90 percent does not translate into support for spending cuts across the board. Even more surprising is the lack of support for spending reductions. Whether the topic was Medicare or aid to the needy worldwide, in no single category did more than 28 percent of respondents favor spending cuts.

It’s a striking paradox. While federal spending is largely seen as problematic, there’s also broad resistance to cutting spending on specific items. Maybe that’s because Americans do it all the time: We worry about the big picture, hesitant to give up our personal slice of the pie.

However, the International Budget Partnership’s Open Budget Survey has provided an analysis of the U.S. budget system that suggests an interesting narrative. Contrary to what people might think, the United States is a leader in budget oversight, scoring 83 points (higher than Sweden or New Zealand). It also gets a decent score for transparency—reasonable, given the role of independent institutions like the Congressional Budget Office and the Government Accountability Office. So what’s the Achilles heel?

Public participation.

In other words, the problem is not the lack of information itself, but rather the lack Improved information, public involvement in decision-making, and the public understanding deficit. The solution lies in creating a system that sets clear, long-term fiscal goals while making budget information accessible and relevant to average Americans.

Managing a national budget is no different to embarking on a personal fitness journey. In both cases, success depends on commitment, expert guidance, and regular progress reports. While the United States is stuck in a perpetual “I should start a diet… eventually” mindset—recognizing the need for financial fitness, listening to advice, but struggling to move beyond good intentions—that’s exactly what New Zealand did with its Fiscal Responsibility Act 1994 (FRA), treating its financial health like a well-planned exercise program.

FRA has set out eight non-binding principles for responsible financial management, including reducing public debt to manageable levels and maintaining an appropriate net worth as an economic buffer. Each time the government sets a budget, it must carefully justify its decisions in line with these principles. Budgets designed with these principles in mind then undergo parliamentary review before being distilled into five key reports and released to the public.

The results of this grand experiment are there for all to see. The government’s simplified budget website and annual fiscal policy statement present something rare in the world of public finance: clarity and conciseness. The report presents broad budget targets, short-term fiscal intentions, long-term goals with a three-year economic forecast and a 10-year spending management plan—a treasure trove of accessible information that makes sense to the average person.

But the real magic is in the results. The policy didn’t just set rules and make information available; it significantly improved the country’s financial health. Until the early 1990s, the United States and New Zealand had surprisingly similar levels and trajectories of public debt. Since then, however, one country has rapidly reduced its public debt, while the other has not. The New Zealand government and think tanks attribute much of this fiscal shift to the FRA, praising it as “an effective commitment tool that helped establish fiscal discipline.” It also provides flexibility in responding to unexpected economic recessions.

Source: Public Finance in Modern History Database, International Monetary Fund

The New Zealand model shows that setting budget rules and making fiscal data more digestible can promote fiscal discipline in traditional political spheres. But that is only part of the story. It can also help the public reconcile conflicting views on the nation’s finances—worrying about the nation’s purse strings while protecting its own interests—and address the lack of participation through public hearings and forums.

The Bipartisan Policy Center study revealed a fascinating insight that shows how a simple information overhaul can do a lot more than you might expect. While they initially found that most Americans believed the government was spending too little in many areas, perceptions changed significantly when participants were shown the “Federal Taxpayer Receipt,” a clear breakdown of government spending. Fewer people believed the government was spending too little in areas like Social Security or interest on the national debt. In other words, clear, accessible fiscal information can change public perceptions and potentially narrow the gap between macro-level concerns and micro-level preferences.

In addition, a transparent and user-friendly budget platform can serve as a springboard for greater public engagement in fiscal decision-making. New Zealand’s Open Budget Survey results show it ranks second out of 125 countries for public engagement. Their fiscal policy statements are not just information documents—they are also conversation starters. When their fiscal policy statements are published, citizens can provide direct feedback through a process called public submissions. Those with particularly insightful comments are invited to parliamentary hearings, where they can present their ideas directly to the Finance and Expenditure Committee. This system not only educates—it empowers. It turns interested citizens into active participants in the budget process, creating a clear and influential path to public engagement in national fiscal affairs.

While the U.S. budget process is different from that in New Zealand, where Congress largely holds the purse strings, the lessons are still profoundly important. The lack of clear, long-term fiscal guidance and accessible fiscal information in America is a glaring oversight. Implementing a system of guiding principles for budget negotiations, combined with a user-friendly platform for explaining fiscal decisions, could be a significant step toward transforming our fiscal landscape. The time for such a change is not only now—it is long overdue.