This morning, the Office for National Statistics (ONS) released the latest set of GDP figures. It is a familiar exercise common to most countries: a day when the broad state of an economy is judged according to small changes in a single indicator.

Yet last week, New Zealand broke new ground by eschewing GDP in favour of wellbeing as a guiding indicator when setting budgets and assessing government policy. Bids to the Treasury for money from now on will not only need a cost-benefit analysis, but an assessment of their wellbeing impact. Decisions about spending will be made on the basis of a project’s contribution to the wellbeing of the population, measured through four dimensions: human capital; social capital; natural capital; and financial and physical capital. It follows the Welsh government’s innovative Well-being of Future Generations Act, which places a legal requirement on public bodies in Wales to think about the long-term social, cultural, environmental and economic wellbeing impact of their decisions.

These are radical steps in the right direction that the UK should learn from by adopting a broader range of indicators when deciding how to spend money. Government departments should have a legal duty to routinely assess new policy for its impact on a broader range of criteria, including wellbeing. If improving quality of life is not the point of government policy, then what is?

The focus on GDP masks what’s really going on. The economy described by the growth figures released this morning does not reflect the reality for most people, who do not feel the effect of rising GDP fluctuations on their daily lives. GDP fell today but it can continue to grow while wages stagnate, housing remains unaffordable, life expectancy stalls and the planet heats up. Growth in GDP isn’t spread evenly: the UK is right at the top of the league table of regional inequality, with a huge proportion of the country’s economic activity concentrated in London and the south-east.

In the past, an undue focus on GDP has allowed governments to claim economic victory while ignoring what is going on under the hood. George Osborne famously used rising GDP to claim the “sun was shining on Britain”, while at the same time most of the population saw their living standards stagnate or fall, and austerity measures picked up pace. An economy with wellbeing at its heart would make it much harder to make such claims, and harder to enforce a policy such as austerity again.

GDP measures what is produced and sold, but says nothing about whether this is desirable or not. It counts the fossil fuel and tobacco markets alongside farming and manufacturing. It also undervalues much of what underpins the rest of the economy – from unpaid childcare to volunteering. Using different indicators to assess policy does not stop us from keeping growth in our toolbox. Instead, it treats growth as one of a number of potential means to achieve the goals we want from our economy – whether a healthy population or a clean environment. Growth should be seen as a tool that can take us in multiple different directions depending on what society chooses to value.

It is true that changing indicators alone won’t be enough to change the rules of our economy. We have to think also about how power works and why the current system is set up as it is. Systemic economic change is unlikely to be delivered in the top-down, technocratic way that a discussion of indicators suggests. But how we measure things does matter. GDP statistics will be used to judge the current government, their record on the economy and their suite of policies – from Brexit to austerity. This shackles policymakers to chasing growth, often at the expense of what actually matters to people’s lives. This way of thinking drives poor environmental decisions, like more tax breaks for fossil fuel companies, by prioritising short-term growth over long-term sustainability.

Government departments do, obviously, have their own goals outside of economic output, but GDP growth remains the primary objective across government. Many of the problems of our age are complex and multifaceted and will not be solved in the silos of single government departments. To take one example, we know that widening health inequalities are determined by a whole range of factors beyond just access to healthcare – from income, to housing, to the quality of the environment in which you live. Yet responsibility rests with the Department for Health and Social Care alone. Changing indicators will help make complicated issues such as health inequalities everyone’s business.

This is not a new argument. My colleagues at the New Economics Foundation and many others have argued for years that we need more nuanced indicators of economic success, and the ONS has been collecting and releasing official wellbeing statistics for a while now. Yet wellbeing evidence is not widely used.

New Zealand’s new approach remains one of the first examples of an attempt to lift alternative indicators such as wellbeing to a similar level to GDP. It remains to be seen how far this will this affect actual decisions. But freeing policymakers from constantly chasing economic growth alone is certainly a step in the right direction.

• Dan Button is a senior researcher at the New Economics Foundation