COMMENT:
Treasury has developed a tool called the Living Standards Framework to assess policy proposals in terms of their impact on "four capitals". These "capitals" - the bases on which the future wellbeing of New Zealanders rests - are natural capital, human capital, social capital, and financial/physical capital.
The Government's promised "Wellbeing Budget" is supposed to put the Living Standards Framework into practice. So policies that promise good financial returns but which damage the other three "capitals" – for example, mining in a national park, or reducing poor people's living standards, or sacrificing the quality of education and healthcare - should be less likely to be approved than in the past.
There is a problem with this approach. A genuine wellbeing strategy would prioritise and enhance New Zealanders' wellbeing, subject to relevant fiscal considerations. That would put fiscal policy in its place, as the means to an end – not the end in itself. But as the law now stands, it is difficult for this to happen, because of the language in the current Public Finance Act. The act focuses tightly on public finance, with little or no explicit acknowledgement of the wider impact of government policies.
A responsible fiscal strategy aimed at increasing wellbeing requires that all four areas of capital – natural, human, and social, as well as financial - be sustained and enhanced over time, with policy maintaining a balance across them. The present framing of the act prioritises narrowly-conceived financial issues, to the near-exclusion of the other capitals. The act's reporting procedures, which are its key contribution to good government, ought to be designed and operated to facilitate the fiscal strategy – not to dictate the strategy itself.