By Mike Thatcher | 21 March 2012
Governments have taken huge risks with their economies and created a situation where the sovereign debt crisis was inevitable, according to New Zealand’s former finance minister.
Ruth Richardson said that politicians had made 'foolish and unfunded' promises to their electorates. These were giant ‘Ponzi schemes’ based on ‘robbing the unsuspecting young to pay the over-grasping old'.
Richardson, who was a minister from 1990 to 1993, was speaking at a seminar in Vienna organised by the International Federation of Accountants.
‘Imaginative accounting and arithmetic gymnastics have become the toxic norm for state entities,’ she said. ‘Were a private entity to behave in this fashion, at the very best the banks and then the bailiffs would exact swift sanctions, while at the worst, criminal sanctions would be applied.’
She blamed governments’ adherence to cash accounting and pointed to the alternative approach taken in New Zealand. In the 1990s, accrual accounting was adopted, output-budgeting introduced and performance management implemented for all state entities.
Richardson told Public Finance International that she thought the UK’s deficit reduction programme now represented ‘best practice’.
‘The coalition has said “we are going to nail this in our first term”. They haven’t blinked. There is no way you can deal with the deficit in a half-hearted fashion.’
Other speakers at the conference highlighted the slow progress on the adoption of modern accounting standards and the role this played in the sovereign debt crisis. Fewer than 60 countries have adopted accrual accounting, while only four – one of which is the UK – have adopted full accrual budgeting.
Vincenzo La Via, chief financial officer of the World Bank Group, said that the quality of financial reporting by governments was not high. ‘With a few notable exceptions, reporting tends to be tardy, frequently omits significant transactions and is characterised by inadequate disclosure.’
He added: ‘I find it remarkable that in the wake of the crisis, there have been relatively few calls for reform of government reporting.’
