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The Wellbeing Budget

Was the “Wellbeing Budget” much different from any other Budget? Was it better? It is of course the first one, so we need to allow the Government some room to develop its ideas and processes. 

Quick answer: Yes it was a Wellbeing Budget in that it was built around the idea of focusing on many of the things in life that improve wellbeing, and that is praiseworthy. But it was greatly underfunded to achieve what we know is needed. 

While there can be lots of debate over whether the way the Government has defined “wellbeing” and put it to work is the right one, in practical terms there are at least two ways to answer to these questions. One is the way it was put together, which the Government says should give us more confidence in the standard of decision-making. The other is by looking at results. 

But before assessing these, we can’t overlook the elephant in the room. We can have the best decision making in the world, and the best intentions to produce good results but if there is not enough money to pay for them then vital priorities will go unaddressed. We will always live in an environment where we have limited resources. But the Government is trying to do more with essentially the same level of funding as the previous Government which we know has created huge gaps in health, education, housing, welfare (and poverty), conservation, attracting and retaining good staff, and the list goes on. It was sensible to cancel National’s tax cuts, but unfortunately the $2 billion that it saved is far from enough to address the scale of needs the Government faces. 

The Government’s Budget Responsibility Rules are inconsistent with meeting these needs. They put a particular view of fiscal prudence ahead of other needs that must be put in the balance if wellbeing is to mean anything practical. One of the advantages of taking a wellbeing approach is that it makes clear that worthy objectives like managing your finances with care needs to be weighed up against other worthy objectives like being intolerant of decades of poverty or of people going untreated for illness for years or of people being forced to live in health destroying housing. 

So how was the Budget put together? Well, if I think about how I would do it, it would be something similar to what they have come up with. Set some priorities to focus your resources. Make the people bidding for those resources address those priorities, but also think about what they are trying to achieve rather than what they are trying to spend, judge that in terms of what it does for New Zealanders’ wellbeing using the best evidence available. Tell us how it will be implemented and how much it will cost. The Government has added a requirement that bids must be made jointly by several departments if they don’t want to be sent to the bottom of the ranking. That breaks down the artificial silos. So as long as the process doesn’t become a barrier to doing anything – like the previous Government’s Social Investment Approach seemed to be – I think we are into a much better process of decision making, and one that forces people to think about the longer term and about the many dimensions of wellbeing rather than one or two. 

So I do think this has the basis for calling itself a Wellbeing Budget. The Government and officials will learn and refine and get better as they go along. We should have some patient support for this. 

The next question is what do the results look like? Of course, at this stage we can only look at what was announced, not whether it will work to improve wellbeing, and they are now published, including in our Budget Report. 

I would highlight the mental health funding, which begins the process of treating this long neglected part of our health system, the indexation to wages of welfare benefits which at least stops the creation of yet more poverty even if it does not yet do anything to get the recipients out of it, the serious resources put into addressing domestic violence, funding for public housing, money to keep the Just Transition and Future of Work developments moving, more money for rail, and the settlements for pay equity and wages and staffing of our public services. 

The trouble is the ‘buts’ around some of these. I’m most familiar with the Health Vote so let me give you one example. We did our pre-Budget analysis of Health as we have done since 2010. We figure that the overall Health vote is close to funding rising costs, including the pay settlements of the last year and the effects of population increases and aging population. We are worried though that the already stressed DHBs are underfunded by $300 million. We have not yet done our post-Budget analysis but a question will be how much of the additional funding in the rest of the Budget is used to create additional services rather than boost existing ones. Because if it is just meeting costs, the new services will be at the expense of the existing ones. This question is raised by the mental health funding. The funding for primary mental health funding is great, and it is sensible to focus on services that help people before they get to a critical stage that ends in hospital or, worse, suicide. But we must still treat the serious cases. 

From what we can work out, the existing so-called ring-fenced funding which is allocated to DHBs to cover services for people with the most severe needs has increased from $1,478 million in 2018/19 to $1,531 million. This is just a 3.6 percent increase which amounts in real terms to being at best a nil increase, depending on the demand for those services and how rising costs affect them. Yet we know they are not servicing all the needs of those people – the Mental Health inquiry estimated they were providing services to 3.7% of the population. A 2006 Ministry study indicated about 4.7 percent of the population has severe needs and that could well have increased since. Will DHBs cope? Admittedly part of the problem is insufficient staff with the skills to expand these services, and ramping up has to be gradual, but stressing DHBs further in the meantime is not going to help. 

A second example of the ‘buts’ is that raising benefits in line with wages does stop the creation of yet more poverty, which is good – but it doesn’t do anything to get the recipients out of poverty to even a minimally acceptable standard of living. That requires much more funding – $5 billion per year according to the Welfare Expert Advisory Group. 

So the worthy enterprise is wracked by underfunding. 

Let me finish with a bigger picture. We have reached a little over 4 percent unemployment, which is good. Treasury’s forecasts have it sitting around there for the next 4 years. But at 4 percent unemployment there will still be 110,000 people unemployed, plus another 200,000 people wanting work or working part-time and wanting full time employment. For the sake of their wellbeing, why are we not stimulating the economy to provide the jobs, and helping them to do what is necessary to get those jobs? Employment growth is forecast to taper off, another reason to stimulate. 

There is room in the economic and fiscal position for further stimulation of the economy. According to Treasury’s own analysis, Budget surpluses are structural and the fiscal position is depressing on the economy from. 2021 onwards, a reason for the government to be more active in its infrastructure and housing development and provision of services. Debt is cheap and we could do good things with it. 

To an extent, within its own Budget Responsibility Rules, the Government has moved in this direction. Its $3.8 billion operating allowance was a significant move, the highest since Labour was last in power. It is reducing debt more slowly than in the December forecasts, though it will still be in an exceptionally safe position even if it misses the forecasts a little, and its spending as a proportion of GDP is forecast to be up a little. But these are still a long way from meeting the needs of the population’s wellbeing. 

Was the “Wellbeing Budget” much different from any other Budget? Yes, it has some important differences in the way it was constructed that could lead to better decisions and choices. It will develop with time. Was it better? There are many good initiatives announced which will make a difference to people’s lives – but funding in many cases is still far from adequate. That in the end is the Budget’s silent but greatest weakness. We need to replace the Government’s Budget Responsibility Rules with principles that are consistent with wellbeing. We need to face up to the need for more revenue. 

Download the full bulletin: CTU Economic Bulletin 210 – May 2019