In New Zealand, as in most other countries, the year is the standard time frame for budget decisions, operations, and reporting. This short frame does not preclude strategic thinking, but it does mean that there is no assured link of future plans and current actions. Without this connection, well-intentioned plans often turn into hollow promises.
Because strategic plans cost money to implement, the most obvious link is to the budget. Using the budget to finance planned objectives is especially important when initiatives have to be paid for by reallocating resources rather than by spending more money. Past attempts to link plans and budgets, such as the planning-programming-budgeting systems (PPBS) tried in the 1960s and 1970s, were unsuccessful, and there is little basis for expecting more favourable results if they were tried again. PPBS and similar approaches sought to forge programmatic links - the budget was to be the process for financing the programmes agreed in the plan. Recent innovations indicate that it may be more fruitful to link plans and the budget in financial rather than programme terms. By establishing a multi-year budgetary framework, the government could reserve funds in future budgets for approved initiatives.
The Fiscal Responsibility Act (FRA) 1994 establishes a procedure for medium-term budget planning. The FRA requires the government to present its medium-term fiscal strategy in a Budget Policy Statement that is published several months before the budget is submitted to Parliament. The FRA does not commit the government to any particular fiscal posture, but it does enunciate principles of responsible fiscal management pertaining to operating revenues and expenses, Crown debt and net worth, management of fiscal risk, and tax policy. The Budget Policy Statement announces the government's intentions over the next three years regarding these principles and explains any deviation from them. It also assesses medium-term intentions in the light of long-run objectives. The government updates its fiscal strategy when it issues the annual budget and explains any variance from the previous statement. An economic and fiscal update is also issued one to two months before national elections.
The Budget Policy Statement deals with macro-budgetary policy; it does not discuss particular estimates or Votes except where these may be affected by major policy initiatives. One of its objectives is to provide for debate on fiscal strategy before detailed examination of the budget. While this aggregated framework is appropriate for fiscal strategy, it also provides a starting point for linking budget allocations to strategic objectives and policies, and a transparent and authoritative means of allocating resources on the basis of the government's priorities.
To do so, however, requires that the fiscal strategy be disaggregated into categories by which resources are allocated and controlled. The bridge between the aggregate fiscal strategy and particular votes is the baseline. The government maintains a rolling baseline that covers the budget year and the following two financial years. This baseline is not merely a projection; it sets out, by Vote, the agreed budget amounts for each of three years, and it is rebased each 6 months in the light of new economic forecasts and changes in government policy. Annual budget preparation revolves around bids to change the baseline or to reallocate spending within it. Any changes to the baseline must be consistent with the medium-year fiscal strategy. Thus, even though the estimates are prepared and appropriations made annually, these decisions are taken within a multi-year framework.