All happy on Budget day. But what if the economy heads south? Photo / Mark Mitchell.
All happy on Budget day. But what if the economy heads south? Photo / Mark Mitchell.
COMMENT:
The term "wellbeing budget" is tautology, a bit like saying "healthy medicine". It is also faintly insulting to previous budgets, implying they were not seeking the country's maximum wellbeing.
Anyone with a passing acquaintance with economics will have met the phrase "national welfare" which means the same thing. Theultimate test of all economic policy has always been whether it is likely to generate maximum value for the nation it serves.
"Wellbeing economics" is just the latest name for a very old idea – that money is not the measure of all that matters, and a nation's wealth is not adequately measured by the total monetary value of its activities, dear old gross domestic product, GDP.
Nobody seriously contends that money is all that matters (though that is easier to avow if you have enough of it). Likewise, no economist argues GDP measures everything of value. All they know is that it works.
When an economy's GDP is growing, shops tend to be open and busy, people are finding jobs, new business is starting, established ones are expanding, investors have confidence.
When GDP is contracting, industries lay off staff, shops are boarded up, business hunkers down, investors take no risks, school leavers look in vain for a job and legions of young people languish on a benefit.
It has been nearly a decade since New Zealand's GDP last contracted and we have short memories. The good times have been rolling for so long we are taking continual GDP growth for granted. Now we have a government urging us to pay less attention to it and adopt multiple measures of wellbeing.
It is running a risk of blurring its focus on the state of the economy that generates the revenue it needs to meet all its chosen measures of success.
Its first "wellbeing budget" enshrines child poverty reduction as a goal no less important than GDP growth and for child poverty Parliament has set no fewer than ten measurements.
They include measures of household income before and after housing costs, at two different proportions of the national median, and a survey of material possessions. The Budget declares it "important that these measures are considered together". Future budgets will need to report on all of them to satisfy statutory requirements.
In years of strong GDP growth the measures of relative poverty will look worse, for as the Budget's child poverty report explains:
"When a country is experiencing broadly favourable economic conditions and wage growth, the general pattern is for incomes in the middle of the income distribution to increase at a slightly faster rate than incomes at the bottom."
That's what happens. Economic growth does not raise all incomes equally. Those left behind always need help and it's good that benefit rates are to be indexed to wages from here on.
A wellbeing budget is supposed to monitor levels of social equality, environmental standards, carbon emissions and much else. But none of these projects are likely to get very far without GDP growth.
Jobs are plentiful while the economy is strong. Photo / supplied.
The subject of climate change, for example, went almost completely silent during the recession that followed the global financial crisis. The world had more immediate concerns. It took seven years for the cause to be revived at and international conference in Paris.
It is only in times of economic growth that we can afford the luxury of worrying about plastic bags.
The economy is still growing at a solid rate of 2.6 percent a year, higher than comparable western countries albeit down on the 4 percent we reached before the change of government.
Jobs are plentiful, unemployment is projected to remain low and wage levels are expected to rise by an average 3.4 percent a year over the next five years, well ahead of inflation.
The wellbeing spend-up has lowered the budget surplus from $5.5 billion two years ago to just $1.3 billion for the year ahead. More important, the Treasury still reckons the net Core Crown debt will drop below 20 percent of GDP by 2022.
Grant Robertson has just adopted a wider target for debt reduction beyond 2022, aiming to keep within 15-25 percent of GDP. But he has made it clear the debt would not be on the high side of the range unless we are in recession.
All going well, the debt could continue to decline towards 15 percent. Robertson sounds as frugal by nature as Michael Cullen whose legacy enabled National to borrow heavily when needed after the global crisis and Christchurch earthquakes.
But while the Government worries about multiple "wellbeing" targets it is deluding itself if it thinks all are of equal importance. A year from now it could be presenting a budget in the red amid a contracting economy.
Would it then be saying, "GDP isn't everything, look at our social wellbeing"? It could try.
