New Zealand Budget

Analysis

Budget 2018: Public Sector

Recalibrating the Budget for wellbeing

By David Lovatt

Budget 2018 is the last of its kind. The Minister of Finance has said 2019 will see the first “wellbeing Budget”, perhaps a world first for New Zealand, and definitely a significant departure from current Budget orthodoxy.

It isn’t clear at this stage exactly how a wellbeing Budget would be different from all the ones that have gone before, but it will have to be really different otherwise we won’t have moved far from the starting line. At this stage, the Government has signalled in Budget 2018 that Budget 2019 will broaden the focus beyond economic and fiscal policy by using the Treasury’s Living Standards Framework to inform the Government’s investment priorities and funding decisions. Details of the wellbeing Budget will be announced later in the year.

We’re starting from a position where the received wisdom – that creating economic wealth makes everyone better off by creating bigger and better businesses, higher employment, more savings and spending, an increased tax take, and a greater ability for government to support those who are vulnerable or in poverty, ill health or deprivation – is no longer seen as a guaranteed ticket to a better place. Far from being the means to an inclusive set of social outcomes, economic growth has become the end, and a measure by which the race between nations is decided.

With the announcement of next year’s wellbeing Budget, the Government has signalled its commitment to a more holistic approach – recalibrating the Budget process to encompass a broader definition of success.

In the meantime, the work by Treasury and Statistics New Zealand progressing the Living Standards Framework and measures of wellbeing signals an increasing role for the “other” capitals – social, natural and human – to balance out the traditional dominance of the financial/physical capital. That’s easy to say but hard to do – how exactly does a Budget need to change to pay appropriate respect to all four capitals? How do policy, regulation and legislation need to adapt in a world where growth is not measured purely in terms of gross domestic product (GDP), but rather by enhancing wellbeing? And how should government agencies make decisions on the programmes and services they offer, or investments they should make, if economic and commercial results don’t now rule the roost, but need to be balanced with social, natural and human outcomes instead?

Government faces some challenges in getting traction on these changes. Social and economic systems can be resistant to change, and you can’t just go reallocating substantial quantities of public dollars without causing a lot of disruption to people, organisations and businesses that operate in the affected sectors.

Imagine, for example, that the Government decides to boost natural capital in our fisheries, and social capital through recreational fishing, by reducing financial capital in the form of commercial fishing quotas. This is the kind of trade-off that could result from applying a wellbeing, four-capital perspective in the new Fisheries New Zealand business unit of the Ministry for Primary Industries. If the change were substantial, it might boost our overall measure of wellbeing, but could also cause disruption to participants in the commercial fishing value chain. That may sound far-fetched, but it isn’t too far removed from the decisions that led to the suspension of new offshore block exploration permits for oil and gas – think of that as a trade-off involving natural, social, human and financial capital and you’ll see what we mean.

Of course there need to be checks and balances on the Government’s ability to make these changes. That’s part of the process agencies go through when drafting new policy, regulation or legislation, or developing new programmes, where business cases are written and impact assessments made. These processes exist today but most agencies don’t have experience making the complex trade-offs between the four capitals, or handling substantial reallocations of resources in the short-term across their portfolios, programmes or services. Complicated decisions like these that may affect many stakeholders will require extensive engagement and consultation at an unprecedented level, while at the same time, Government is making substantial change in sectors like education and setting out its initial marker-posts for the journey to a low-emissions economy.

Most, if not all, New Zealanders would support a more prosperous New Zealand with wellbeing in abundance. But the road there remains uncharted while Government lacks the vehicle to take us there. The Living Standards Framework and wellbeing measures provide a compass to guide us, but the real work lies in the future when government decisions reallocate between New Zealand’s four capitals of wellbeing.

 

 

 

 

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