Decoding Parliament’s money talk

By Phil Smith RNZ

OPINION:

MPs go on about money endlessly, despite all our mothers’ chiding that focusing on cash is in poor taste. It’s not that they’re gauche nouveau riche pillocks, it’s because a Parliament is each nation’s fund-raiser, banker and auditor, while the Government is the main spender.

Among Parliament’s key roles is giving the Government permission to raise money, and permission to spend money.

For this trifecta, they also spend inordinate amounts of time ferreting into the details of spending to make sure it is all appropriate. And also, just looking for things to complain about.

The problem with the money focus is (and I apologise to accountants everywhere for saying this) talking about money can be really boring.

But there is a downside to ignoring it; Our aversion to maths means we end up not knowing how it all actually works, but it is important, so it’s worth having a clue.

The dryness is worth it; every time we say “appropriations” an accountant gets their wings.

The flavors of Parliament’s money bills

Confusingly, Parliament passes at least five different kinds of money bills each year, and it’s easy to mix them up.

The first couple of bills are easy.

• Taxation: There is always at least one tax bill (usually more) which adjusts or confirms tax rates (or makes other tax adjustments). Those bills are Parliament giving the Government permission to raise revenue. They are always named like this: Taxation (the specific purpose of this one) Bill. (Yes, there’s also customs and excise etc, but we’re keeping it simple.)

• Estimates: You already know there is always a Budget – a spending plan from the Government that Parliament needs to approve. It’s not called the Budget though – it’s called the Appropriation (insert the financial year Estimates) Bill, or the Estimates. For “appropriation”, think “approved spending”. “Estimates” is because it is really an estimate of spending.

So tax and spend – that part is simple. After that it gets more fiddly.

• Supplementary Estimates: Because no Budget plan is perfect and things change, adjustments to the Budget plan are collated into a second appropriations bill for approval before the end of a financial year (30 June ). It is called the Appropriation (insert the financial year Supplementary Estimates) Bill.

• Confirmation and Validation: Once all the numbers are finally in and signed off, a final accounting is compiled of the financial year’s spending. It is called Appropriations (insert the financial year Confirmation and Validation) Bill. The “confirmation” is confirmation of the spending that was captured by the two earlier bills, the “validation” is of the spending that was not captured by those earlier permissions.

There is one more kind of spending permission bill which is not prefaced by the title Appropriations, but instead “Imprest Supply”.

The appropriations are a specific approval to spend, Imprest Supply is a more general approval.

Imprest Supply

The Government’s bBudget plan for the financial year from July 1 is outlined to Parliament in May, but not finally approved until months later. This year’s approval is required by September 19, nearly three months into the new financial year.

Obviously, the country can’t grind to a halt while it waits for the Budget to get sign-off – that would be dumb.

So in the meantime Parliament approves a very large bag of petty cash for the Government “to be going on with”. A quarter of a year’s worth of Budget, plus a “rainy day” allowance, for other possibilities and cash in case other kinds of payments might come due.

Last week Finance Minister Grant Robertson outlined the formula that treasury uses to come up with a figure:

“Treasury calculates the amount needed in an imprest supply bill by initially taking a quarter of the annual appropriations for each vote as an approximation of three months’ worth of government expenditure.

“Treasury then provides for an additional margin for items where expenditure may be unknowingly incurred unevenly over the fiscal year; any risks that may materialize in the first three months of the fiscal year, particularly with respect to but not limited to Covid-19; in-principle transfers that need confirming in the first three months of the new fiscal year; and an allowance for any multi-year appropriations that first appear in the Appropriation (2022/23 Estimates) Bill. Treasury also then builds a contingency in on that “

That adds up to a lot of petty cash. Large numbers can be hard to visualize, so imagine about 400 tonnes worth of $100 bills. That’s about as much as you could lift as cargo on three 747s.

Thankfully, actual printed money is pretty rare now and no one suddenly arrives at Parliament with pallet loads of cash (that would be exciting though). (Those estimates are based on the weight of US currency, the Reserve Bank doesn’t list the weight of New Zealand bills.)

A limit, not a target

Robertson also noted that generally much more is allowed than is spent.

“If we look at the last couple of years, in the 2020-21 equivalent of this legislation, $51 billion was sought, but only $12b was charged against the imprest supply. In 2021-22, $41b was sought, but only $23 b … was charged against the supply. So it is a conservative approach, but one that avoids unappropriated expenditure from coming through.”

Any spending that happens under that Imprest Supply version of permission but that isn’t specified in the original Budget Estimates would get included in next year’s Supplementary Estimates bill. So it all eventually gets specific approval – even if it’s after the fact.

TLDR*

Parliament gives Government permission to collect revenue (tax etc), and then both specific and general approvals to spend it. That spending permission (appropriation) comes in four different flavours: Estimates (the plan); Supplementary Estimates (the adjusted plan); Validation and Confirmation (the actual spend); and for “walking-around money” and a “rainy day fund” there is the Imprest Supply (petty cash).

* TLDR (or TL;DR) is a common internet acronym for “Too Long; Didn’t Read”