Every year, the Parliamentary Budget Office (PBO) prepares a large number of policy costings for parliamentarians. In 2016–17, for example, we prepared over 1,600 policy costings. Each costing provides an estimate of the proposed policy’s financial implications on the Australian Government Budget over the next decade.
Our objective is to provide independent costings of policy proposals that can be interpreted in the same way as those presented by the Government in the Budget. PBO costings are therefore prepared to the same standards and using the same concepts as Budget costings. The purpose of PBO costings is to support a more informed policy debate by allowing all parliamentarians to include the financial impact of their policy proposal in their policy development processes.
Our costings present estimates of budget impacts on each measure of the budget balance (fiscal, underlying cash and headline cash) and the Government’s balance sheet, where relevant. These costings include an estimate of the changes to the revenue or expenditure streams directly associated with the policy as well as any changes in departmental resources required to deliver a policy proposal. A disaggregation of the impacts is usually provided to illustrate the impact on different components of the Budget.
PBO costings include the static (‘day after’) and direct behavioural impacts of policy proposals. We generally do not include quantitative estimates of broader economic effects in our costings but provide a qualitative statement about these effects if they are likely to be significant.
There are four key elements of a policy costing:
• the policy specification
• the data and key assumptions informing the costing
• the costing model and methodology
• a summary of the factors affecting the reliability of the costing estimate.
Each of these elements are summarised in PBO costing minutes, in addition to the quantitative estimates of budget impacts, to provide transparency around the costing estimates.