Economy

What will the Wellbeing Budget change?

Policy wonks and academics descended on Wellington for an international conference on wellbeing ahead of the Government’s first Wellbeing Budget next year. Thomas Coughlan was among them.

It’s an exciting time for Edward Diener. One of the world’s foremost exports on wellbeing, he’s come to New Zealand to deliver the keynote address at a conference hosted at Victoria University.

At the beginning of his career, his ideas about the measurement and promotion of happiness were written off as economic madness — now they’re part of a body of research that will form the framework of future New Zealand Budgets, beginning with Grant Robertson’s 2019 “Wellbeing Budget”.

Diener joined hundreds of academics, civil servants, politicians and policy enthusiasts who will be discussing every facet of the measurement and promotion of wellbeing over a three-day conference ending Friday in Wellington.

“The economy is not an end in itself”

Robertson opened the conference, telling delegates that the “economy is not an end in itself” and outlining his hopes for the first Wellbeing Budget.

From now on, basic economic indicators like GDP will be set alongside other, more holistic measurements which will “report, measure and compare the tangible and the intangible”.

His remarks were cautious — this isn’t the end of GDP, but its days of monopolising public policy discussions are probably over.

It’s been a long process. Jacinda Ardern flagged work had begun on the project as the Government emerged from its first 100 days in office, but as Newsroom reported, the Treasury’s tools and indicators for delivering the Budget date back to 2011.

Throughout the year, Treasury has been excitedly hosting speakers (it co-hosted this week’s conference), prognosticating on how to measure wellbeing and what those measurements might mean for policy.

The Finance and Expenditure Committee has also been hearing from experts. As Newsroom reported last month, some of its members are known to want to push the Living Standards Framework, which underpins the Budget, even further.

On Budget day 2019, New Zealanders will get to see for themselves whether this immense overhaul of “under the hood” side of Government is likely to make any difference to their lives. We’ll get to see what happens when a government assesses how each dollar it spends impacts wellbeing.

A paradox-busting Budget?

The case for assessing the welfare implications of Budget bids rests on what is known as the Easterlin paradox.

Developed by economist Richard Easterlin in the mid-1970s, the Easterlin paradox describes the point at which rising GDP ceases to translate into greater happiness.

Examples can be found at both ends of the scale. Countries riven by war and poverty would be markedly happier if they could add to their wealth, but the world’s wealthiest country, the United States, faces an epidemic of suicide and opioid addiction — clear symptoms of rising unhappiness.

The obvious question, then, is how will a Wellbeing Budget fix these problems?

The answer isn’t as antithetical to traditional economics as the headlines may suggest. GDP will still need to rise and Budgets will still be about allocating resources in the most efficient way, which is about as traditional as economics can get.

Only now, indicators like child poverty, quality housing, and environmental sustainability will be used to broaden the Budget’s currently narrow focus.

This is more significant than it sounds — and neatly pleases both the Government’s left and right wing factions. Activists on the left wing of each party have never quite gotten over the cruelty of Ruth Richardson’s “Mother of all Budgets” that pitted the pain of benefit cuts against a plan to restore the government’s finances to surplus.

Much ink has been spilled in the three decades since showing the long-lasting and frankly expensive effects of this short-term gain.

Poor, badly-housed, and stressed people become sick people - and sick people are expensive for the taxpayer. The conference had a whole session devoted to Statistics NZ’s swift and detailed new tools for assessing the quality of housing.

This sort of thinking has worked its way in to the political mainstream. It’s the kind of thinking that fuelled Bill English’s much-vaunted social investment approach.

But the wellbeing focus for the Budget allows the Government to take it one step further.

It will make decisions like those taken in the 1990s (unlikely as they already are under a Labour government) almost impossible, and it will also put the cold language of economics a step removed from the Government’s finances — a key victory for the anti-neoliberal wings which manage to unite all three parties of the current Government.

James Shaw reminded Green activists in his speech to the party conference last month that Jeanette Fitzsimons' valedictory called on the Government to “find better ways of measuring our economic success”.

“The aim should be a better economy, not just a bigger one,” she said.

The idea that a politician of Fitzsimons’ colours would be let anywhere near the Treasury would have been unthinkable when she left Parliament in 2010 — now, at least in word, it’s moving closer to reality.

But it's the bottom line

But the Government still has some key questions to answer about wellbeing.

How, for example, will defence spending stack up? It won’t be easy to justify the $2.3 billion spent on four sub-hunting aircraft against competing demands from health, education and housing.

It’s even more difficult to see how future governments will justify spending on things like sports events. The 2011 Rugby World Cup was given $1.2 billion by the government, in spite of fears it would likely spark an outbreak in domestic violence if the All Blacks lost.

It’s equally unclear whether a Wellbeing Budget could increase wellbeing or happiness without the Government putting extra money on the table.

Reserve Bank Governor Adrian Orr said earlier this year that the Government’s inclusion of a dual inflation and employment mandate — itself a key target of the Government’s anti-neoliberal faction — would be unlikely to have much of an impact on his decisions.

And questions still hang over whether any great change can be achieved without significant extra spending.

In his keynote speech, Diener said that David Cameron’s 2010 decision to put happiness into some of his government’s policies was a watershed for wellbeing in policy.

But set against the backdrop of Cameron’s austerity economics, which dramatically pruned the size of the state from 47.8 percent of GDP to just 41.1 percent in eight years, the mention of happiness did nothing to avert outbreaks of rioting in London, a crumbling health system and an epidemic of hate crimes — hardly symptoms of a harmonious society.

New Zealand’s state spending is even lower than the UK’s, and Robertson has committed through the Budget Responsibility Rules to keep it at just 30 percent of GDP — its long-running average.

We’ll see over the next few years whether that is enough to deliver on the bold claims made in wellbeing Budgets, or whether the caps are simply used to balance trade-offs for a limited pool of government funding.

Then, of course, there’s the sneaky suspicion that the wellbeing indicators are a Trojan horse — setting targets no government could possibly meet without slowly increasing spending and the size of the state. But that would require ditching the much-bemoaned Budget Responsibility rules, which limit the Government’s ability to borrow and spend.

It would be a convenient foil for the parties of Government to have their arms twisted by officials into loosening or even abandoning the Budget Responsibility Rules next term.