fiscal objectives, targets and risks

Fiscal objectives, targets and risks Options to improve Victoria's fiscal framework

pbo.vic.gov.au Final October 2021

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Contents In brief ......................................................................................................................................... 1

Context ........................................................................................................................................ 3

Fiscal objectives and targets .................................................................................................... 6

Better aligning with governing legislation .......................................................................... 6

More specific timeframes .................................................................................................. 7

Report on progress in a single, central location ................................................................ 8

Enhancing durability through the economic cycle ............................................................. 9

Better aligning long-term objectives with targets ............................................................. 11

Legislating fiscal targets .................................................................................................. 12

Fiscal risks ................................................................................................................................ 13

Consolidate the statement of risks .................................................................................. 13

Assess magnitude and likelihood of critical risks ............................................................ 14

Provide probabilistic forecasts ........................................................................................ 16

Provide longer-term fiscal projections ............................................................................. 16

Appendix A — Data sources ................................................................................................... 18

Appendix B — Recent PAEC recommendations ................................................................... 20

Appendix C — Financial Management Act 1994 .................................................................... 21

Appendix D — Fiscal Transparency Code ............................................................................. 22

Appendix E — Legislated objectives by jurisdiction ............................................................ 24

Appendix F – Probabilistic forecasts ..................................................................................... 26

Fiscal objectives, targets and risks

1 Parliamentary Budget Office

In brief

Fiscal objectives and targets guide government budget decisions by setting constraints on planned

fiscal outcomes over a defined period. They generally focus on debt, budget balance, revenue and

expenditure. They support government transparency and accountability by enabling comparison

between planned and actual outcomes to measure a government’s fiscal performance.

Fiscal risks are potential shocks to government revenues, expenditures, assets, or liabilities, causing

actual fiscal outcomes to deviate from central forecasts. Identification, assessment and management

of fiscal risks are essential parts of a comprehensive fiscal framework and help limit fiscal disruption if

risks materialise.

The Financial Management Act 1994 (Vic) sets out legislative requirements for Victoria’s fiscal

framework of objectives, targets and risks. It requires that the Victorian budget specifies long-term

financial objectives and, for the budget year and subsequent 3 years (forward estimates):

▪ short-term financial objectives

▪ fiscal targets for key financial measures

▪ statement of risks.

Responding to these requirements, the Victorian Government publishes its updated fiscal strategy and

risks as part of each state budget and budget update.

In this advice, we identify options to enhance Victoria’s fiscal framework for:

▪ setting fiscal objectives and targets, and reporting against them

▪ identifying and assessing fiscal risks

▪ explaining how risks are considered in the fiscal strategy.

To assist, we utilised International Monetary Fund and Organisation for Economic Cooperation and

Development guidance on how budgets can present fiscal strategies clearly and comprehensively.

What we found

Recent Victorian budgets have not presented a transparent and cohesive fiscal framework.

Components are spread throughout the budget papers, and are vague, making objective assessment

of performance difficult.

Long-term financial management objectives and short-term objectives and targets lack alignment.

Most long-term objectives have no targets to guide policy or track progress against the objectives.

Across successive budgets, we found a trend of modified or abandoned fiscal targets and objectives

when economic and fiscal circumstances have changed. They have often not remained in place for a

sufficient period to be useful or credible.

In the Victorian Budget 2020/21 – the first to reflect the impacts of the COVID-19 pandemic – the

government modified or abandoned most of its fiscal targets. In the Victorian Budget 2021/22 it set

one new fiscal target – for the operating cash surplus. There are now fewer and less clearly defined

fiscal objectives and targets than prior to the pandemic.

The latest budget presents useful analysis of risks associated with a protracted economic recovery

from COVID-19. However, it does not provide a consolidated assessment of the wider risks to

Victoria’s fiscal outlook or clearly outline how the budget strategy is managing these risks.

Crucially, 4-year forecasts in the budget are not sufficient to show when the government expects net

debt to peak or stabilise. This has increased in importance given the layering of the long-term

economic and debt impacts of the COVID-19 pandemic on top of the significant transport

infrastructure program.

Options to improve Victoria's fiscal framework

Parliamentary Budget Office 2

Options

We identified 6 opportunities to make the framework of objectives and targets more cohesive, and 4

opportunities to strengthen its consideration of risk.

No. Option

Fiscal objectives and targets

1 Directly align the framework of objectives and targets to legislative requirements, including for short-term

fiscal objectives.

2 Outline specific timeframes for the ‘targets for financial measures’ to increase transparency and

accountability.

3 Report progress against all fiscal objectives and targets in a central location.

4 Develop fiscal targets which are durable through economic cycles, in line with international guidance.

5 Set targets to measure progress against the long-term financial management objectives.

6 Consider enshrining well-designed and flexible fiscal targets in legislation, with a schedule for regular

review.

Fiscal risks

7 Publish a consolidated statement of the main fiscal risks, and how the fiscal strategy manages them.

8 Provide a summary of the most significant risks to the fiscal outlook, including:

▪ magnitude of risks, modelling the impacts of the most significant risks

▪ likelihood of risks, either quantified or estimated by graded categories.

9 Publish probabilistic forecasts for projections of key fiscal variables.

10 To meet good practice fiscal transparency standards, publish:

▪ longer-term (10-year) projections in the budget papers

▪ an intergenerational report periodically projecting long-term demographic, workforce and other

trends.

Conclusion

Setting and achieving fiscal objectives and targets is challenging. We respect each government’s right

to specify its financial management targets and long-term objectives in a manner consistent with the

requirements of the Financial Management Act 1994. We make no judgement on their substance.

However, we consider that the Victorian budget papers could present the state’s fiscal strategy in a

more cohesive way, more in keeping with the stated accountability purpose of the Act.

To allow Victorians to better understand the government’s fiscal performance, the government could

better align long-term and short-term goals, give more specific timeframes, and provide clearer

reporting of progress. These measures would also provide a more credible anchor to guide

government decision making.

A comprehensive fiscal strategy manages fiscal risks. If fiscal risks are realised, the longer-run

strategy may remain largely unaltered, even if short-term targets are not achieved. Longer-term

forecasts, combined with meaningful risk scenarios, provide insight into whether public finances are

sustainable, and how they might evolve under less favourable conditions.

When, and at what level, is Victoria’s net debt expected to stabilise as the economy reacts and

recovers from COVID-19? What are the long-term cost implications of current infrastructure policy

decisions? These are the types of questions that longer-term forecasting can shed light on.



Context

Why this advice matters

The latest budget forecasts net debt to rise to 26.8% of gross state product (GSP) by 30 June 2025,

well above the pre-pandemic target of 12%. Victoria has also lost its AAA credit rating with both major

agencies over the past several months, a cornerstone of state government financial management for

decades.

Victoria now has a reduced capacity to absorb additional fiscal shocks if further risks materialise. It has

never been more important that Victoria manages its finances using a clear, comprehensive and

transparent fiscal framework which:

▪ is easy for Victorians to understand

▪ can support sound government decision making.

The Public Accounts and Estimates Committee (PAEC) of the Victorian Parliament scrutinises the

government’s budget papers each year in its budget estimates inquiry. Despite this mechanism,

budget papers have regularly not supported recommendations aimed at improving transparency and

accountability in financial management. Appendix B lists recent PAEC recommendations that relate to

options we identified in this advice.

The International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development

(OECD) provide guidance on fiscal frameworks. It is important that the Victorian budget responds to

leading research on fiscal transparency and international benchmarks.

Scope

In this advice, we identify opportunities to enhance Victoria’s fiscal framework for:

▪ setting fiscal objectives and targets, and reporting progress against them

▪ identifying and assessing fiscal risks, and explaining how the fiscal strategy considers risks.

We present options to enhance the fiscal framework in future Victorian budget papers. We do not

recommend specific fiscal objectives and targets, or identify individual risks to Victoria.

Limitations

We prepared this advice in October 2021.

Background


Fiscal objectives and targets – also called fiscal rules – guide government budget decisions by setting

constraints on planned fiscal outcomes over a specific period. They generally focus on debt, budget

balance, revenue or expenditure, but may cover a range of variables. They are most effective when

they remain in place over an extended period, allowing subsequent comparison against actual

outcomes achieved. Fiscal rules are widely accepted as a foundation for sound public financial

management.

In this advice, ‘fiscal objectives’ refers to qualitative fiscal goals, and ‘fiscal targets’ refers to

quantitative fiscal goals. For example:

▪ a fiscal objective is ‘to ensure a sustainable net operating balance over the medium term’

▪ a fiscal target is ‘the net operating balance is at least $100 million in each year of the budget and

forward estimates’.



The Financial Management Act 1994 (Vic) sets out legislative requirements for Victoria’s framework of

fiscal objectives and targets. It requires that the Victorian budget specifies long-term financial

objectives and, for the budget year and the subsequent 3 years (forward estimates):


▪ fiscal targets for key financial measures.

Fiscal risks

Fiscal risks are potential shocks to fiscal outcomes that may cause deviation from central budgets and

estimates. These may in turn impact achievement or progress towards fiscal objectives and targets.

Identifying and publishing fiscal risks communicates the uncertainties a government expects around its

central fiscal outlook. Assessing fiscal risks helps to understand the likelihood of these risks, and their

potential impact on the budget. This in turn helps a government to proactively manage disruption to

the budget if risks subsequently materialise.

In this advice, we use the risk classifications from the OECD report, Best Practices for Managing

Fiscal Risks.

Figure 1 – Classification of fiscal risks

Classification Description Example

Macroeconomic risk Risks from either cyclical or

structural changes in the economy

An economic downturn in major

trading partners

Policy or program risk Risks that tax collection or spending

controls do not work as planned

Higher than expected take up of a

government program

Uncertain budgetary claims Risks from commitments or

obligations that are uncertain or

impossible to measure – also

known as contingent liabilities

Guarantees, indemnities and legal

claims

Balance sheet risk Risks associated with assets and

liabilities owned by the government

Equity shareholdings or loans

Debt risk Risks associated with holding debt Changes to interest and foreign

exchange rates

Source: OECD.

The Financial Management Act 1994 (Vic) sets out requirements for the consideration of risk,

specifically:

▪ prudent management of financial risks as a principle of sound financial management

▪ preparation of a statement of risks as part of the fiscal strategy in the budget papers.

Appendix C presents the sections of the Financial Management Act 1994 (Vic) that relate to fiscal

objectives and targets, and risk.



International guidance for fiscal frameworks

The International Monetary Fund (IMF) Fiscal Transparency Code is an international standard for

disclosure of information about public finances. It:

▪ provides principles and practices corresponding to 4 pillars of fiscal transparency:

– fiscal reporting

– fiscal forecasting and budgeting

– fiscal risk analysis and management

– resource revenue management.

▪ outlines ‘basic’, ‘good’, and ‘advanced’ levels of fiscal transparency practices, providing countries

with milestones toward full compliance.

Appendix D lists the Fiscal Transparency Code principles and practices for fiscal objectives and

targets, and consideration of risk.




In this section

The Victorian budget papers list 3 sets of fiscal objectives and targets – long-term financial objectives, targets

for financial measures and sustainability objectives.

In this section, we identify opportunities to improve the fiscal framework of objectives and targets by:

▪ better aligning with governing legislation

▪ incorporating specific timeframes

▪ reporting on progress in a single, central location in the budget papers

▪ enhancing durability through the economic cycle

▪ better aligning long-term financial management objectives with targets

▪ enshrining fiscal objectives or targets in legislation.

Better aligning with governing legislation

The IMF Fiscal Transparency Handbook states:

Clarity about fiscal policy objectives is critical for guiding the budget process and

holding the government accountable for its strategies and priorities. It enables ex

post comparison of what was achieved and thus holds the government

accountable for its performance (page 73).

The Financial Management Act 1994 (Vic) requires Victorian budgets to specify long-term financial

objectives and, for the budget year and the subsequent 3 years (forward estimates):


▪ fiscal targets for key financial measures.

Figure 2 compares these requirements with Victoria’s framework of fiscal objectives and targets.

Figure 2 – Victorian budget objectives and targets

Financial Management Act 1994 Section 23G Objectives, targets and budget location

(1) A financial policy statement must—

(a) specify the government’s long-term financial objectives within

which financial policy for the financial year to which the budget

or budget update relates and the following 3 years will be framed

Long-term financial management

objectives in Strategy and Outlook Budget

Paper No. 2, Table 1.2

(d) specify, for the financial year to which the budget or budget

update relates and the following 3 financial years

It is not clear whether the budget provides

specific short-term financial objectives.

They may be the ‘sustainability objectives’

in the Statement of Finances Budget

Paper, Chapter 1 (i) the government’s short-term financial objectives

(ii) the targets for each specific key financial measure ‘Targets for financial measures’ in Strategy

and Outlook paper, Table 1.3

Note: Statement of Finances Appendix C – Compliance Index: Requirements of the Financial Management Act 1994 states that

Strategic Outlook Chapter 1 and Statement of Finances Chapter 1 comply with Sections 23E-G, but doesn’t detail further.

Source: Parliamentary Budget Office.



The long-term financial objectives and targets for key financial measures correspond to the Financial

Management Act 1994. However, it is not clear whether the ‘sustainability objectives’ (listed in the

‘Statement of Finances’) correspond to the requirement for short-term financial objectives.

Option 1 – Directly align the framework of objectives and targets to legislative requirements, including for short-

term fiscal objectives.

More specific timeframes


A fiscal objective carries considerably more weight if it is to be achieved by a

specified date, rather than being stated as an open-ended commitment. Good

practice is to establish intermediate milestones to determine with precision if

progress is being made year by year to reach the fiscal objective (page 76).

Over the past decade, Victorian budgets have increasingly set fiscal targets with vague timeframes.

Figure 3 – Targets for financial measures

2012-13 to 2014-15

budgets

2015-16 to 2019-20

budgets

2020-21 to 2021-22

budgets

Net debt General government net

debt reduced as a

percentage of GSP over the

decade to 2022.

General government net

debt as a percentage of

GSP to be maintained at a

sustainable level over the

medium term

General government net

debt as a percentage of

GSP to stabilise in the

medium term.

Net operating

balance

A net operating surplus of at

least $100 million and

consistent with the

infrastructure and debt

parameters.

A net operating surplus

consistent with maintaining

general government net

debt at a sustainable level

over the medium term.

None

Net operating

cash surplus

None None A net operating cash surplus

consistent with maintaining

general government net

debt at a sustainable level

after the economy has

recovered

Infrastructure

investment

Infrastructure investment of

1.3 per cent of GSP

(calculated as a rolling

5-year average)

None None

Superannuation

liabilities

Fully fund unfunded superannuation liability by 2035

Note: This figure contains all targets formally identified in Table 1.3 of the Strategy and Outlook budget paper from the past 10

budgets. It does not include goals that budgets mention in discussion of fiscal strategy but not formally identified as targets.




Prior to 2015-16, the targets for financial measures had specified timeframes, whether:

▪ on an annual basis – such as ‘a net operating surplus of at least $100 million’

▪ set for a specific year – such as ‘general government net debt reduced as a percentage of GSP

over the decade to 2022’.

However, since 2015-16, the targets for financial measures have referred to the ‘medium term’ rather

than setting targets for a specific year or years. The budget papers should explicitly state the period

that the ‘medium term’ refers to. For example, the Australian Government budget specifies the

'medium term' as 10 years.

Option 2 – Outline specific timeframes for the ‘targets for financial measures’ to increase transparency and

accountability.

Report on progress in a single, central location


The budget documentation should include a section that clearly states each target

or rule, discusses historically the extent of compliance with, or deviations from, the

rules, and how the budget forecasts are consistent with them (page 76).

In the latest Victorian budget, the lists of fiscal objectives and targets, and reporting on progress

against some of them, are dispersed across budget papers.

Figure 4 – Location of reporting on objectives and targets in budget papers

Objectives and targets Location in budget papers Reporting performance against

targets and objectives

Long-run financial objectives Budget Paper No. 2 ‘Strategy and

Outlook’, Table 1.2

No quantitative targets for reporting

Targets for financial measures Budget Paper No. 2, ‘Strategy and

Outlook’, Table 1.3

Victorian Budget 19/20: 2019-20

Financial Report, Chapter 2 –

General Government Sector

Outcome, ‘Fiscal Objectives’ Fiscal sustainability objectives Budget Paper No. 5 ‘Statement of

Finances’, Chapter 1


It would help readers to understand how outcomes and forecasts are tracking against objectives and

targets if future budgets:

▪ consolidate all fiscal objectives and targets in a central location – most likely in Budget Paper 2 as

part of the budget strategy discussion

▪ report systematically on progress against targets in the same location

▪ show how the projections over the budget year and forward estimates align with achievement of

the objectives and targets.

Option 3 – Report progress against all fiscal objectives and targets in a central location.



Enhancing durability through the economic cycle


To provide a credible anchor for decision making, fiscal objectives must have been

in place long enough, at least a period of three or four years, and any changes to

specified fiscal targets/objectives should have been undertaken only under the

respective escape clauses under the fiscal rule (page 76).

While some of Victoria’s objectives and targets have remained in place for significant periods – for

example, the target to eliminate the unfunded superannuation liability by 2035 has been in place since

the 2000-01 budget – the government has modified or abandoned several objectives and targets when

economic and fiscal circumstances have changed. Figure 5 shows the evolution of the ‘sustainability

objectives’ listed in the Statement of Finances Chapter 1 over the past 10 budgets.

Figure 5 – Sustainability objectives

Fiscal

outcome

2012-13 to

2014-15

budgets

2015-16 budget 2016-17 to

2018-19

budgets

2019-20

budget

2020-21

budget

2021-22 budget

Net debt None Net debt as a

percentage of

GSP reducing

from the

commencement

of the budget

year to the end of

the forward

estimates period

Net debt to

GSP no

greater than its

peak over the

last 5 years by

the end of the

forward

estimates

Net debt to

GSP will be

not greater

than 12 per

cent over

the medium

term

None

Net

operating

balance

A net

operating

surplus of

at least

$100 million

Net operating surpluses in each year over the

budget and forward estimates

The operating deficit will

reduce over the budget and

forward estimates

Operating

cash

balance

None An operating cash

surplus will be

achieved before

the end of the

forward estimates

Expenses None Expenditure growth no

greater than revenue growth,

on average, over the budget

and forward estimates

None

Note: This figure contains all sustainability objectives identified in Chapter 2 of the Statement of Finances from the past 10

budgets. It doesn’t include goals mentioned in fiscal strategy discussion but not formally identified as sustainability objectives.


Most sustainability objectives changed frequently from 2012-13. The government changed the net

debt sustainability objective 3 times in 5 budgets before dropping it in the 2020-21 budget.

The government also modified its ‘long term financial objective’ of sound financial management in the

2020-21 budget, removing the reference to maintaining a AAA credit rating just prior to losing it.



The IMF publishes guidance on flexible but enforceable ‘second generation’ fiscal targets, which:

▪ were developed after the Global Financial Crisis following widespread international lack of

compliance with fiscal targets

▪ aim to allow governments to sustain government spending through economic downturns, while

containing debt levels through the economic cycle.

Figure 6 – IMF guidance on fiscal targets

Fiscal target Description

Debt anchor The debt anchor is a medium-term objective for net debt, usually expressed as a

percentage of GSP. It may allow a buffer for debt to rise to facilitate responses to future

shocks such as natural disasters or recessions.

Operational rules Operational rules are usually short-term targets for:

▪ the net operating balance – for example, the budget balance not to exceed a specific

percentage of GSP

▪ expenditure – for example, capping real or nominal expenditure growth to not exceed

a fixed percentage of GSP.

Operational rules can also apply to a structural budget balance. Structural budget

balances adjust for the economic cycle, separating movements in the budget position

between cyclical and structural components.

Escape clauses Escape clauses can help a fiscal target remain in place over a longer period, because an

economic shock will trigger the escape clause rather than abandonment of the target.

Escape clauses should also define the conditions under which a government must revert

to following the operational rules.

Note: This figure draws from the IMF report, Second-Generation Fiscal Rules: Balancing Simplicity, Flexibility and Enforceability.


Case study: Iceland’s fiscal target framework

Debt anchor A general government debt ceiling of 30% of Gross Domestic Product.

Operational

target

The fiscal deficit to be less than 2.5% of Gross Domestic Product in each year, with the fiscal

balance in surplus over a 5-year period.

Escape

clause

Fiscal balance objectives may be departed from for up to 3 years in case of economic shocks,

national crisis or other circumstances that cannot be remedied by available measures.


The lifespan of Victoria’s fiscal objectives and targets can be increased if the government set them in

line with international guidance on second generation targets, based on lessons learned through the

Global Financial Crisis.

Option 4 – Develop fiscal targets which are durable through economic cycles, in line with international

guidance.



Better aligning long-term objectives with targets

The Victorian budget’s long-term financial management objectives are not well aligned to fiscal

sustainability objectives and its targets for financial measures.

Figure 7 – Alignment of objectives and targets

Government

priority

Long-term financial

management objectives

Fiscal

sustainability

objectives

Targets for financial measures

Sound

financial

management

Victoria's finances will be

managed in a responsible

manner to provide capacity to

fund services and

infrastructure and support

households and businesses in

the economic recovery at

levels consistent with sound

financial management

An operating cash

surplus will be

achieved before the

end of the forward

estimates

A net operating cash surplus

consistent with maintaining general

government net debt at a sustainable

level after the economy has

recovered from the coronavirus

(COVID-19) pandemic

The operating

deficit will reduce

over the budget and

forward estimates

General government net debt as a

percentage of GSP to stabilise over

the medium term

General government interest expense

as a percentage of revenue to

stabilise in the medium term

Fully fund the unfunded

superannuation liability by 2035

Improved

services

Public services will improve

over time

Building

infrastructure

Public infrastructure will grow

steadily over time to meet the

needs of a growing population

Efficient use

of public

resources

Public sector resources will be

invested in services and

infrastructure to maximise the

economic, social and

environmental benefits

A resilient

economy

Increase economic resilience

by supporting an innovative

and diversified economy that

will unlock employment

growth, long-term economic

growth and productivity in

Victoria

Note: This figure uses the objectives and targets from the Victorian Budget 2021-22.




Four of the 5 financial management objectives have no corresponding short-term objectives or targets

to measure progress against. This limits:

▪ the capacity of the long-term objectives to inform decision-making

▪ public scrutiny of progress against the long-term objectives.

Option 5 – Set targets to measure progress against the long-term financial management objectives.

Consider legislating fiscal targets

While some international jurisdictions have legislated requirements to set fiscal objectives and targets,

some have taken the further step of legislating specific fiscal targets. Examples include the United

Kingdom and Germany at the national level, and British Columbia and the German states at the

subnational level.

Among Australian jurisdictions, only NSW has legislated specific fiscal targets. The Fiscal

Responsibility Act (NSW) legislates:

▪ maintaining a AAA credit rating as the overarching objective

▪ annual growth in general government expenses is less than long-term average general

government revenue growth

▪ elimination of the unfunded superannuation liability by 2030

▪ a review of the legislation after 5 years, including fiscal objectives and targets.

Other Australian jurisdictions, including Victoria, have legislated requirements to set fiscal objectives

and targets as part of the fiscal strategy, but have not legislated the specific fiscal targets themselves.

Appendix E shows requirements for fiscal objectives and targets in other state legislation.

Figure 8 – Pros and cons of legislating specific targets

Pros Cons

Raises accountability – governments cannot change

or abandon targets they are unlikely to achieve

without a parliamentary vote.

Increases visibility of target – once in legislation, a

target is more likely to influence decisions and debate

on fiscal policy.

Legislation can embed a requirement for regular and

orderly review of the targets and objectives.

The government can still amend legislation to change

or abandon an objective or target which they have not

achieved.

Legislating specific fiscal targets can cement potential

drawbacks of fiscal targets in general, such as:

▪ having a narrow focus, including not factoring in

the cost or the purpose of borrowing

▪ exacerbating cyclical economic variations by

placing arbitrary restraints on expenditure

▪ encouraging manipulation of fiscal outcomes with

a focus on performance against targets rather

than achieving the overarching strategy.


Legislating specific fiscal targets can strengthen a fiscal framework and increase accountability,

provided they are well-designed, flexible and reviewed regularly.

Option 6 – Consider enshrining well-designed and flexible fiscal targets in legislation, with a schedule for

regular review.



Fiscal risks

Consolidate the statement of risks


An increasing number of countries produce summary reports in the form of a fiscal

risk statement as part of their budget documentation…

A comprehensive fiscal risk statement helps to identify possible gaps and to

ensure full coverage of risks. Its content should reflect the key fiscal risks facing a

country and their evolving circumstances (page 99).

Fiscal risks arise from a range of different sources – macroeconomic risks, policy and program risks,

uncertain budgetary claims, balance sheet risks and debt risks. The Victorian budget papers currently

consider risks across the budget papers. This makes it difficult to determine which are the most critical

risks to the budget.

Figure 9 summarises the content of these discussions and their locations based on the 2021-22

budget and Victorian Budget 19/20: 2019-20 Financial Report.

Figure 9 – Risk statements in the Victorian budget

Risk type Content Location

Macroeconomic

risks

One-page description of global and domestic

economic risks to Victoria's economic

outlook

Budget Paper No. 2: Strategy and Outlook

Chapter 2 Economic context

Nine-page appendix outlining results from

modelling fiscal impacts from a renewed

global outbreak of COVID-19, and the

sensitivity of fiscal projections to one per

cent changes in economic variables


Appendix A Sensitivity analysis

Policy and

program risks

Five pages describing general risks to

revenue, expenditure and Victoria's asset

investment program and specific fiscal risks.


Chapter 4 Budget position and outlook

Eight-page chapter on quantifiable and non-

quantifiable contingent assets and liabilities,

such as from guarantees, indemnities and

Budget Paper No. 4: Statement of

Finances

In this section

Fiscal risks are potential shocks to government revenues, expenditures, assets, or liabilities that may cause

fiscal outcomes to deviate from forecasts. Identification, assessment and management of fiscal risk are

essential parts of a comprehensive fiscal outlook.

In this section, we identify opportunities to update the Victorian budget’s risk assessment framework to:

▪ provide a consolidated statement of risks

▪ assess the magnitude and likelihood of the most critical risks

▪ provide probabilistic forecasts of fiscal outcomes

▪ provide long-term projections of public finances.



Risk type Content Location

Uncertain

budgetary

claims

warranties, and legal proceedings and

disputes.

Chapter 6 Contingent assets, and

contingent liabilities

6-page section with additional information on

contingent assets and liabilities.

Victorian Budget 19/20: 2019-20 Financial

Report Chapter 4 Risks, contingencies and

valuation judgements

Balance sheet

and debt risks

11-page section on interest rate risk, foreign

currency risk, equity price risk, credit risk,

liquidity risk.

Victorian Budget 19/20: 2019-20 Financial

Report Chapter 4 Risks, contingencies and

valuation judgements


It would improve transparency if the Victorian budget provided a consolidated statement with full

coverage of fiscal risks. This could be in a more comprehensive appendix to the Strategy and Outlook

paper, or could form a separate budget paper.

The IMF Fiscal Transparency Handbook also states:

In addition to the disclosure of fiscal risks, it is useful to provide an explanation of

how these risks have been taken into consideration in setting the government’s

overall fiscal stance, and what policies the government is pursuing to reduce and

manage these risks (page 107).

A new consolidated statement of risks could include a comprehensive discussion of how the fiscal

strategy is managing the main risks, outlining:

▪ how the government has considered the risk profile in developing the overall fiscal strategy

▪ the level of risk the government is willing to bear

▪ policies to mitigate key risks.

Option 7 – Publish a consolidated statement of the main fiscal risks, and how the fiscal strategy manages

them.

Assess magnitude and likelihood of critical risks

The IMF Fiscal Transparency Handbook advises:

…disclosing the likelihood of risks materializing, in addition to quantifying the

government’s gross exposure. This practice provides a more realistic picture of

how risks might impact on the budget and a better estimate of the policy changes

that might be required during the budget year to keep to the government’s

announced fiscal target… In cases where estimates of the probability of realization

are too difficult, risks may be classified into categories (e.g., probable, non-remote,

and remote) based on judgements about their likelihood (pages 106 and 107).

Macroeconomic risks generally have greater potential to disrupt the fiscal outlook than other risks.

They can affect revenue streams over multiple forecast years, and may require increased expenditure

to support the economy.

Recent Victorian budgets have started to present analyses of important macroeconomic risks, but

have not systematically outlined which risks are the most significant. Figure 10 shows how recent

budgets have assessed macroeconomic risk scenarios.



Figure 10 – Macroeconomic risks discussion

Budget Risk scenarios Description

2011-12 to

2012-13

None

2013-14 to

2016-17

2006-07 – economic

growth exceeding

expectations

Past deviation from forecasts – higher-than-expected economic

growth and revenue outcomes in 2006-07 (pre-GFC boom)

2008-09 – global

financial crisis

Past deviation from forecasts – lower-than-expected economic growth

and revenue outcomes in 2008-09 (GFC recession)

2017-18 A global trade shock Negative trade shock to the world’s major trading economies – the

United States, China and the European Union

Labour supply

scenarios

Positive shocks to population growth and labour force participation

rate

2018-19 Downturn in household

consumption and

dwelling investment

Negative shock to the household sector through weakening in national

household consumption and dwelling investment

Sustained high labour

force participation

Labour force participation rate is higher than the central forecast

2019-20 Downturn in Victorian

population growth

Negative shock to national net overseas migration by 75,000 persons

relative to the base case

A lower trend rate of

unemployment

The non-accelerating inflation rate of unemployment (NAIRU) is 0.5

percentage points lower than the base case assumption.

2020-21 A deep and enduring

coronavirus (COVID-

19) pandemic

throughout all of 2021

Lower global growth reduces demand for Victoria’s exports and leads

to an extension to international border restrictions and a delayed

recovery in net overseas migration.

2021-22 A protracted global

recovery

Delay to the global vaccine rollouts leads to further outbreaks, slowing

the global recovery with shocks to trade, migration, education,

tourism, business investment and dwelling investment.

Notes: The Victorian budget considers macroeconomic risks in Appendix A of the Strategy and Outlook paper.


Presenting specific examples of macroeconomic risks provides useful information on the level of

certainty around the budget forecasts. However, it does not help readers to:

▪ assess Victoria’s aggregate exposure to macroeconomic risk

▪ identify systematic relationships and interactions among risks.

The budget also provides a sensitivity analysis for net operating balance and net debt to economic

indicators, such as GSP and employment. However, this is not linked to specific risks.

Option 8 – Provide a summary of the most significant risks to the fiscal outlook, including:

▪ magnitude of risks, modelling the impacts of the most significant risks

▪ likelihood of risks, either quantified or estimated by graded categories.



Provide probabilistic forecasts

Publishing a single central forecast for key fiscal variables can create an impression that the state’s

fiscal outlook is more predictable than it really is, and that forecast models are more reliable than they

really are.

The IMF advises that:

The most sophisticated forms of macro-fiscal risk analysis present probabilistic

fiscal forecasts that provide a set of confidence intervals around the government’s

central fiscal forecast. These probabilistic forecasts typically take the form of ‘fan

charts’ to illustrate the degree of uncertainty inherent in the forecasting process as

well as the distribution of risks above and below the government’s central

prediction (page 103).

Probabilistic fiscal forecasts can assist readers to understand the level of certainty around a central

fiscal forecast by:

▪ demonstrating the inherent uncertainty around the central fiscal projections

▪ presenting a range of different outcomes that have varying degrees of probability.

The Australian Government Budget Paper No.1: Budget Strategy and Outlook provides probabilistic

forecasts for selected variables in the budget year and the first year of forward estimates.

Appendix F provides an example of the UK Office of Budget Responsibility fiscal forecasts, which

provide probabilistic forecasts over the full forward estimates.

Probabilistic forecasts can factor in the outlook for fiscal risks, although they generally do not predict

rare, high impact events such as the global financial crisis or the COVID–19 pandemic.

Option 9 – Publish probabilistic forecasts for projections of key fiscal variables.

Provide longer-term fiscal projections

The Victorian budget papers publish 4 financial years of fiscal projections – the budget year and

forward estimates.

Under ‘Pillar III: Fiscal Risk Analysis and Management,’ the IMF recommends longer-term projections.

Even at the ‘basic’ compliance level, it requires that:

…countries should produce projections of the fiscal balance and public debt

obligations over a decade into the future. These projections can take the form of a

relatively simple debt sustainability analysis, where realistic assumptions about the

primary fiscal balance, GDP growth rates, and interest rates are used to project

how public debt will evolve. This analysis can be used to identify whether public

debt is on a sustainable or increasing path and, by incorporating some sensitivity

analysis, can also provide guidance on how public debt will evolve under less

favourable conditions (page 108).

The current fiscal environment presents a strong reason for the Victorian budget to present longer-run

projections. Currently, the Victorian budget forecasts net debt to rise to 24.9% of GSP by June 2024,

then keep rising to 26.8% of GSP by 30 June 2025. Longer-run projections are necessary to show

when, and at what level, the government expects Victoria’s net debt to peak or stabilise as the

economy reacts to and recovers from COVID-19.



Longer-run projections are also necessary to assess the long-term fiscal implications of current policy

and infrastructure decisions. For example, the current practice of 4-year forecasts is not sufficient to

assess the fiscal contest for future expenditure on the Suburban Rail Loop, which the government

expects will cost between $30.0 and $34.5 billion over coming decades to deliver the east section –

between Cheltenham and Box Hill.

The IMF also recommends extending projections 30–50 years into the future under multiple scenarios.

In Australia, this approach has been adopted in the:

▪ NSW Intergenerational Report, as outlined under the Fiscal Responsibility Act 2012 (NSW)

▪ Australian Intergenerational Report, as outlined under the Charter of Budget Honesty Act 1998

(Commonwealth).

Ideally, the Australian Government would work with state governments to produce an intergenerational

report that covers both levels of government. In the absence of such arrangements, the best approach

is for Victoria to develop a state-level intergenerational report, similar to NSW.

Option 10 – To meet good practice fiscal transparency standards, publish:

▪ longer-term (10-year) projections in the budget papers

▪ an intergenerational report periodically projecting long-term demographic, workforce and other trends.



Appendix A — Data sources

▪ Charter of Budget Honesty Act 1998 (Cth)

▪ Department of Treasury and Finance. Victorian Government. 2011. 2011-12 Victorian Budget.

[ONLINE] Available at: https://www.dtf.vic.gov.au/previous-budgets/2011-12-state-budget.

[Accessed 6 May 2020]










▪ Department of Treasury and Finance. Victorian Government. 2015. Victorian Budget 15/16.












▪ Department of Treasury and Finance, Victorian Government. 2019. Victorian Budget 19/20.

[ONLINE] Available at: https://www.dtf.vic.gov.au/state-budget/2019-20-state-budget. [Accessed

11 December 2020]

▪ Department of Treasury and Finance. Victorian Government. 2020. Victorian Budget 19/20:

2019-20 Financial Report. [ONLINE] Available at:

https://www.dtf.vic.gov.au/sites/default/files/document/2019-20%20Financial%20Report_0.pdf.

[Accessed 11 December 2020]


[ONLINE] Available at: https://www.budget.vic.gov.au/. [Accessed 11 December 2020]


[ONLINE] Available at: https://www.budget.vic.gov.au/. [Accessed 11 December 2020]

▪ Financial Accountability Act 2009 (Qld)

▪ Financial Management Act 1994 (Vic)

▪ Fiscal Responsibility Act 2012 (NSW)

▪ Government Financial Responsibility Act 2000 (WA)

▪ International Monetary Fund. 2019. Fiscal Transparency Code. [ONLINE] Available at:

https://www.imf.org/external/np/fad/trans/Code2019.pdf [Accessed 22 March 2021]

https://www.dtf.vic.gov.au/previous-budgets/2011-12-state-budget








https://www.dtf.vic.gov.au/state-budget/2019-20-state-budget

https://www.dtf.vic.gov.au/sites/default/files/document/2019-20%20Financial%20Report_0.pdf

https://www.budget.vic.gov.au/

https://www.budget.vic.gov.au/

https://www.imf.org/external/np/fad/trans/Code2019.pdf



▪ International Monetary Fund. 2018. Fiscal Transparency Handbook. [ONLINE] Available at:

https://www.elibrary.imf.org/view/IMF069/24788-9781484331859/24788-9781484331859/ch04.xml

[Accessed 22 March 2021]

▪ International Monetary Fund. 2018. How to Calibrate Fiscal Rules. A Primer. [ONLINE] Available

at: https://www.imf.org/en/Publications/Fiscal-Affairs-Department-How-To-

Notes/Issues/2018/03/15/How-to-Calibrate-Fiscal-Rules-A-Primer-45551 [Accessed 22 March

2021]

▪ International Monetary Fund. 2018. How to Select Fiscal Rules. [ONLINE] Available at:

https://www.imf.org/en/Publications/SPROLLs/How-To-Notes [Accessed 22 March 2021]

▪ International Monetary Fund. 2018. Second-Generation Fiscal Rules: Balancing Simplicity,

Flexibility, and Enforceability [ONLINE] Available at: https://www.imf.org/en/Publications/Staff-

Discussion-Notes/Issues/2018/04/12/Second-Generation-Fiscal-Rules-Balancing-Simplicity-

Flexibility-and-Enforceability-45131 [Accessed 22 March 2021]

▪ International Monetary Fund. 2020. Fiscal Rules, Escape Clauses, and Large Shocks. [ONLINE]

Available at: https://www.imf.org/en/Publications/SPROLLs/covid19-special-notes [Accessed 13

July 2021]

▪ New South Wales Treasury. 2018. Statutory Review of the Fiscal Responsibility Act 2012

[ONLINE] Available at:

https://www.parliament.nsw.gov.au/tp/files/74958/Review%20of%20Fiscal%20Responsibility%20A

ct%202012.pdf [Accessed 22 March 2021]

▪ Organisation for Economic Cooperation and Development. 2020. Prudent Debt Targets and Fiscal

Frameworks [ONLINE] Available at: https://doi.org/10.1787/5jrxtjmmt9f7-en [Accessed 13 July

2020]

▪ Organisation for Economic Cooperation and Development. 2020. OECD Best Practices for

Managing Fiscal Risks. [ONLINE] Available at:

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=GOV/PGC/SBO(2020)6&

docLanguage=En. [Accessed 13 July 2020]

▪ Public Accounts and Estimates Committee. 2016. Report on the 2016-17 Budget Estimates.

[ONLINE] Available at: https://www.parliament.vic.gov.au/paec/publications [Accessed 10

September 2021]



September 2021]



September 2021]



September 2021]

▪ Victorian Government. 2017. Government Responses to the Recommendations of Public

Accounts and Estimates Committee’s Report on the 2016-17 Budget Estimates. [ONLINE]

Available at: https://www.parliament.vic.gov.au/paec/publications [Accessed 10 September 2021]







https://www.elibrary.imf.org/view/IMF069/24788-9781484331859/24788-9781484331859/ch04.xml

https://www.imf.org/en/Publications/Fiscal-Affairs-Department-How-To-Notes/Issues/2018/03/15/How-to-Calibrate-Fiscal-Rules-A-Primer-45551

https://www.imf.org/en/Publications/Fiscal-Affairs-Department-How-To-Notes/Issues/2018/03/15/How-to-Calibrate-Fiscal-Rules-A-Primer-45551

https://www.imf.org/en/Publications/SPROLLs/How-To-Notes

https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2018/04/12/Second-Generation-Fiscal-Rules-Balancing-Simplicity-Flexibility-and-Enforceability-45131



https://www.imf.org/en/Publications/SPROLLs/covid19-special-notes

https://www.parliament.nsw.gov.au/tp/files/74958/Review%20of%20Fiscal%20Responsibility%20Act%202012.pdf

https://www.parliament.nsw.gov.au/tp/files/74958/Review%20of%20Fiscal%20Responsibility%20Act%202012.pdf

https://doi.org/10.1787/5jrxtjmmt9f7-en

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=GOV/PGC/SBO(2020)6&docLanguage=En

http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=GOV/PGC/SBO(2020)6&docLanguage=En

https://www.parliament.vic.gov.au/paec/publications









Appendix B — Recent PAEC recommendations

PAEC has made 6 recommendations in recent budget estimates reports that are directly relevant to

options identified in this advice. The government:

▪ did not support 3 of these recommendations

▪ stated that 2 were under review, but did not implement them

▪ is yet to respond to the report on the 2021-22 budget estimates.

Figure 11 – Recent recommendations in PAEC budget estimates reports

Budget

estimates

No. Recommendation Government

response

2015-16 3 The Department of Treasury and Finance consider including ‘fan charts’ in

the budgets, showing the likelihood of different outcomes for key budget

estimates based on past variances between forecasts and actual results.

Under review

2015-16 7 The government expand its financial management targets to provide

specific targets for all four of its long-term objectives.

Not support

2015-16 12 Future budget papers quantify the impact of the main risks to the Victorian

economy identified in the discussion in Budget Paper No.2 by including all

of the identified risks in the sensitivity analysis. For any risk where this is

not appropriate, the budget papers should state the reasons why this risk

has not been included in the sensitivity analysis.

Under review

2016-17 1 When defining a target such as ‘a sustainable level of net debt’ with a

reference to a time period, future budget papers identify the time period as

specific years rather than using relative terms.

Not support

2017-18 1 The Department of Treasury and Finance undertake intergenerational

reporting every five years, to complement departmental long-term planning.

Not support

2020-21 1 The government include in state budgets numerical components to

measures and targets that are measurable and specific.

Yet to respond

Source: Public Accounts and Estimates Committee.



Appendix C — Financial Management Act 1994

Figure 12 provides the sections from the Financial Management Act 1994 that relate to the framework

for fiscal objectives and targets.

Figure 12 – Financial Management Act 1994 requirements for fiscal objectives and targets

Section Requirement

23G Content of

Statement

A financial policy statement must—

(a) specify the Government’s long-term financial objectives within which financial policy for

the financial year to which the budget or budget update relates and the following 3 years

will be framed

(d) specify, for the financial year to which the budget or budget update relates and the

following 3 financial years

(i) the Government’s short-term financial objectives

(ii) the targets for each specific key financial measure

Source: Financial Management Act 1994.

Figure 13 provides the sections from the Financial Management Act 1994 relating to fiscal risk.

Figure 13 – Financial Management Act 1994 requirements for discussing risks

Section Requirement

23D Principles

of sound

financial

management

(1) The principles of sound financial management are that the Government must—

(a) manage financial risks faced by the State prudently, having regard to economic

circumstances

(2) The financial risks referred to in subsection (1)(a) include—

(a) risks arising from the level of the State's general government sector debt

(b) commercial risks arising from ownership of public non-financial corporations and public

financial corporations

(c) risks arising from changes in the structure of the Victorian tax base

(d) risks arising from management of assets and liabilities of the State.

23K

Accompanying

statement

(1) The Minister must prepare an accompanying statement in association with each set of

estimated financial statements.

(2) An accompanying statement comprises—

(d) a statement of the risks, quantified where feasible, that may have a material effect on

the estimated financial statements, including

(i) contingent liabilities

(ii) publicly announced Government commitments that are not yet included in the

estimated financial statements.

Source: Financial Management Act 1994.



Appendix D — Fiscal Transparency Code

This section provides the IMF Fiscal Transparency Code principles and practices for:

▪ fiscal objectives and targets, and reporting performance

▪ reporting on macroeconomic and specific fiscal risks.


Figure 14 shows Fiscal Transparency Code principles and practices for fiscal objectives and targets,

and reporting performance.

Figure 14 – Fiscal objectives and targets: principles and practices

Dimension Principle Basic practice Good practice Advanced practice

Fiscal policy

objectives

The government

states and

reports on clear

and measurable

objectives for

the public

finances

The government states

and regularly reports on

a numerical objective

for the main fiscal

aggregates which is

either precise or time-

bound

The government

states and regularly

reports on a

numerical objective

for the main fiscal

aggregates which is

both precise and

time bound.

The government states

and regularly reports on

a numerical objective for

the main fiscal

aggregates which is both

precise and time-bound

and has been in place for

3 or more years.

Source: International Monetary Fund.

Fiscal risks

Figure 15 shows IMF Fiscal Transparency Code principles and practices for reporting on risks.

Figure 15 – Fiscal risks: principles and practices


Macroeconomic

Risks

The government

reports on how fiscal

outcomes might

differ from baseline

forecasts as a result

of different

macroeconomic

assumptions.

Budget

documentation

includes discussion

of the sensitivity of

fiscal forecast to

major

macroeconomic risk

assumptions.

Budget

documentation

includes both

sensitivity analysis

and alternative

macroeconomic and

fiscal forecast

scenarios.

Budget

documentation

includes both

sensitivity analysis,

alternative

scenarios, and

probabilistic

forecasts of fiscal

outcomes.

Specific fiscal

risks

The government

provides a regular

summary report on

the main specific

risks to its fiscal

forecasts.

The main specific

risks to the fiscal

forecasts are

disclosed in a

summary report and

discussed in

qualitative terms.

The main specific

risks to the fiscal

forecasts are

disclosed in a

summary report,

along with estimates

of their magnitude.

The main specific

risks to the fiscal

forecasts are

disclosed in a

summary report,

along with estimates

of their magnitude,

and, where

practicable, their

likelihood.




Long-term

fiscal

sustainability

analysis

The government

regularly publishes

projections of the

evolution of the

public finances over

the long-term.

The government

regularly publishes

projections of the

sustainability of the

main fiscal

aggregates and any

health and social

security funds over

at least the next 10

years.

The government

regularly publishes

multiple scenarios

for the sustainability

of the main fiscal

aggregates and any

health and social

security funds over


years using a range

of macroeconomic

assumptions.

The government

regularly publishes

multiple scenarios

for the sustainability

of the main fiscal

aggregates and any

health and social

security funds over


years using a range

of macroeconomic,

demographic,

natural resource, or

other assumptions.

Source: International Monetary Fund.

The IMF Fiscal Transparency Handbook provides detailed guidance on the implementation of the

principles and practices in the Fiscal Transparency Code.



Appendix E — Legislated objectives by jurisdiction

Figure 16 – Legislation of fiscal objectives and targets for major Australian jurisdictions

State Legislation Objectives and targets

Australian

Government

Charter of

Budget Honesty

Act 1998

The Act requires that the fiscal strategy:

▪ specifies the Government’s long-term fiscal objectives within which

short-term fiscal policy will be framed

▪ specifies, for the budget year and the following 3 financial years:

– the Government’s fiscal objectives and targets; and

– the expected outcomes for the specified key fiscal measures.

▪ explains how the fiscal objectives and strategic priorities relate to the

principles of sound fiscal management

▪ specifies fiscal policy actions taken or to be taken that are temporary in

nature, adopted for the purpose of moderating cyclical fluctuations in

economic activity, and indicate the process for their reversal.

Victoria Financial

Management

Act 1994

The Act requires that the fiscal strategy:

▪ specifies the long-term financial objectives which will frame financial

policy for the budget year and the following 3 years

▪ specifies for the budget year and the following 3 financial years:

– short-term financial objectives

– targets for each specific key financial measure

▪ explains how the financial objectives relate to the principles of sound

financial management

▪ specifies any financial policy actions taken or to be taken by the

Government that are temporary in nature, states the reasons for taking

them and indicates the process for their revision

▪ states the reasons for any changes from the previous financial policy

objectives and strategies statement.

NSW Fiscal

Responsibility

Act 2012

The object of the Act is to maintain the AAA credit rating.

The Act contains 2 fiscal targets:

▪ keep annual expenditure growth below long-run average revenue growth

▪ elimination of the unfunded superannuation liability by 2030.

The Act requires that the budget papers provide:

▪ a statement of the fiscal strategy having regard to the object of the Act

and the fiscal targets and principles

▪ a report on the Government’s performance against that object and those

targets and principles

▪ reasons for any departure from that object and those targets and

principles, and action planned to achieve that object and those targets

and principles.

Queensland Financial

Accountability

Act 2009

The Act requires the government to publish a Charter of Fiscal Responsibility

which outlines fiscal principles and objectives.

The Treasurer must report on the outcomes the government has achieved

against the objectives stated in the charter.



State Legislation Objectives and targets

Western

Australia

Government

Financial

Responsibility

Act 2000

The Act requires the fiscal strategy:

▪ sets medium-term targets in relation to the financial element or elements

relevant to each target

▪ explains how the targets are to be achieved

▪ indicates how the targets are related to the financial management

principles

▪ indicates the time frames proposed for achieving the targets

▪ explains the implications of the financial projections for meeting the

financial targets set out in the last strategy statement

▪ explains differences between the financial result and the Government’s

medium-term targets applying at the beginning of the budget year.




Appendix F – Probabilistic forecasts

The United Kingdom Office of Budget Responsibility produces probabilistic forecasts – known as fan

charts – of important macroeconomic and fiscal aggregates.

These fan charts show the probability distribution of possible future paths based on the standard

deviation of previous forecast errors.

Figure 17 shows the latest Office of Budget Responsibility forecast for public sector net borrowing.

Figure 17 – Probabilistic forecast for public sector net borrowing

Source: UK Office of Budget Responsibility.

The darkest line shows the median forecast. Each shaded area represents 10 per cent probability

bands. Taken together, the 4 pairs of shaded bands show the central 80 per cent of the probability

distribution, leaving a 20 per cent chance the outcome will lie outside the range of the fan chart.

fiscal objectives, targets and risks

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