Wellbeing economics more than just money
THE big background story from Grant Robertson on his budgeting is a determined commitment to ‘‘wellbeing economics’’.
In his press conference on the halfyearly economic and fiscal update and Budget policy statement yesterday, Mr Robertson grumped that he hoped someone would at last report him on this line he has been running in recent speeches.
Actually, the Otago Daily
has made space for this Treasury development of its living standards framework in my columns for two and ahalf years, well before Mr Robertson and Jacinda Ardern took much interest, and recently noting their growing commitment to it.
‘‘Wellbeing economics’’ gauges economic success or failure not just by gross domestic product flows, which are in any case an incomplete measure of activity, but by whether stocks of four ‘‘capitals’’ — financial/physical, natural, social and human — are rising or falling.
These ‘‘capitals’’ are assumed to roughly represent the population’s ‘‘wellbeing’’. The Treasury aims to have a first stab at quantifying them in its investment statement in March.
The ‘‘wellbeing’’ approach is, Mr Robertson said at his press conference, ‘‘worldleading’’. There are ‘‘no international models’’. Sceptics doubt there are ways of accurately or even approximately measuring the ‘‘capitals’’. But Mr Robertson insisted the Treasury is up to the challenge.
He said it amounts to a ‘‘different way of thinking about how we present our Budget’’. It ties in with Ms Ardern’s preelection promise to amend the Public Finance Act to include a child poverty reduction target.
Mr Robertson also cast it as consistent with the Government’s ‘‘families package’’, the centrepiece of its 100day plan and of the budget policy statement. This package swaps the previous government’s intended tax cuts for expanded assistance for the lesswelloff, one year’s free tertiary education and a winter energy bonus for pensioners.
Reversing the tax cuts gives Mr Robertson $8.4 billion more revenue over the next five years, enough to pay for the $5.5 billion families package and the
$2.6 billion tertiary education package.
So he was able to present the operating balance in the fiscal update as very close to fiscally neutral compared with the preelection fiscal update — to the extent the Treasury can be confident about its numbers, done under considerable pressure since October 19.
To that Mr Robertson is adding $4.9 billion for more capital outlays, including an early resumption of payments to the Superannuation Fund and the Kiwibuild house building programme.
That delays until 202122 the decline of government net debt to under 20% of GDP which is what Mr Robertson promised before the election.
This is necessary to reassure business and investors who might otherwise retrench and cause the economy to slow.
More reassurance is in the Treasury’s forecasts which show a slight rise in the overall GDP growth through to 202122 compared with the preelection update though slightly weaker in the short term.
But in part this is helped by fiscal drag — incomes rising through tax thresholds and thus increasing the share of income that goes to tax. The last actual tax cuts were seven years ago. The Treasury projects fiscal drag to add nearly 0.5% of GDP to tax revenue by 202122.
There are other fuzzy points. Kiwibuild is expected to partpay for itself from 202021 through resale of houses. Mr Robertson said ministers ‘‘are still uncovering the scale of [cost] pressures’’ resulting from past ‘‘underfunding’’ of some services.
The comforting economic numbers could be undone by some of the imbalances in the world economy. As Mr Robertson pointed out, New Zealand is highly vulnerable to an external shock — not least because of record household debt here.
Also, some assertions read more like rhetoric than deliverables. An example: ‘‘New discretionary expenditure will focus on programmes that will reduce future costs.’’
That underlines that this is a first cut. The real test will come in the 2018 budget. By then the Treasury should have been able to get a clearer assessment of what this government will cost.