10th April 2018

The New Zealand Treasury has begun preparing a non-financially-focused ‘Wellbeing Budget’ for the country, according to a news release that has had some readers double-checking to make sure the information wasn’t released on April Fool’s Day, and that the primary source wasn’t The Onion or a similar satirical site. The news is indeed real, however – and moreover, it may be a welcome development for the country, depending on the implementation.

“Life is about more than money,” wrote the New Zealand Treasury in its recent annual Investment Statement. In fact, as far back as 2011, Treasury drafted an economic policy paper that blended the natural world, human living quality and the health of the society as a whole into a more holistic document. The framework has been developed further in recent years, with financial matters still being included in relation to these other variables.

It is certainly true that such efforts represent an innovation by the historically conservative Treasury, but they are not entirely unique in the world. In 1972, the king of Bhutan declared that “Gross National Happiness is more important than Gross Domestic Product,” introducing an index to measure progress. The country was able to achieve significant results towards this end, by formalising a system to weigh these non-economic attributes when deciding on policy aims.

Bhutan, however, continues to suffer from widespread poverty, and it is unlikely New Zealand will find that tradeoff appealing. Still, it is similarly hard to argue for a system that seeks economic growth at all costs, including through the sacrifice of the environment, human welfare and the social system. The New Zealand Treasury has set itself the task of finding the right balance between these often competing interests. And there is no way of finding the right balance, it says, if it does not include these other measurements in its policy deliberations.

Natural capital and human capital, as Treasury refers to them, are fairly easy to quantify. Plenty of natural and environmental statistics are already produced by independent bodies, and factoring them into policy analysis is simply a matter of proper weighting. Education, general knowledge and professional skills have also traditionally been given much attention by other institutions; Treasury’s move simply integrates them into financial analysis and prescription.

Social capital is less straightforward as a wellbeing variable, as its Treasury definition – social cohesion, trust in institutions, and cultural capital – seems more difficult to accurately measure. Still, there are surveys, crime statistics and other data sources that can point to general trends within this domain.

There is a case to be made that Treasury’s readjustment of focus is well within its proper function. It is fair to say that monetary decisions should be made with the tradeoffs in plain view. There is, indeed, more to life than GDP. Furthermore, Treasury’s strength and experience are in interpreting trends and statistics through a maze of data, which will be the very skill-set called into action here.

Still, some are unconvinced that Treasury’s new formula will find the right balance. The new analysis will measure four different sectors, and therefore must incorporate a much greater data set in which mistakes may be more commonly made. Nevertheless, it is an interesting experiment – and much of the world will be watching to see how it turns out.