US academic proposes independent fiscal budget agency

“Governments of course like to spend money because it makes people happy and gets politicians re-elected. They’re inclined to say [that] what they do costs less than it truly does. This causes a very large distortion – too much spending, too much investment that ultimately could lead to a crisis as there is not enough money to pay for everything.
“According to my research, governments around the world are making a very systematic error in the way they look at the cost of investment programmes, especially credit and insurance programmes, and they think money is cheap because they can go out and borrow at a very low interest rate. They would say the private sector has to pay a lot more for capital but for us capital is cheap.
“There is a problem with this argument, since the only reason governments [can] borrow at a very low price is [that] taxpayers are taking the risk. I always say taxpayers are actually the equity holders, but governments treat these equity holders as requiring no rate of return at all. In fact, as equity holders you would say this is probably a good investment but I would need a return to cover the risk.
“What I’m proposing is that there should be an accurate budgeting mechanism that reflects the true cost of capital needed to finance public policy such as the loans government-owned banks give for infrastructure and other projects.”
Regarding Thailand’s controversial rice-subsidy scheme, which recently cost the public as much as Bt600 billion, Lucas said, “I understand that the government [which highlighted this policy to get elected a few years ago] said it would cost far less than it turned out to.”
She said one way to prevent such problems was to take the responsibility of making public-policy cost estimates away from politicians and “give it to an independent budget authority whose job is to be accurate with the cost”.
“In addition, what the public needs to know [about healthcare or pension schemes and the like] is not only this year’s cost but the cost in the future,” Lucas said.
Pointing to the lack of independence of Thailand’s budget office, she added: “You need a new independent agency in the same way that you have the independent Bank of Thailand in charge of monetary policy. It’s their job to make sure that inflation stays low even though politicians do not care much. You need the same thing on the fiscal budgeting side, with independent funding.”
She said the fact that such a body could provide “an objective view on the cost of crucial public policy” would gain it respect from the public and, it could be hoped, politicians.
“In the US, we created the Congressional Budget Office 40 years ago to provide independent cost estimates, and [its] job is to tell the truth to inform the political process of decision-making. [Such a model] can be used in other countries, including Thailand.”