Budget 2019: Why the government is handling our wellbeing the wrong wayby Tim Hazledine
The Wellbeing Budget takes an ambulance at the bottom of the cliff approach.
Both her Labour predecessors – Helen Clark and David Lange – were bored by economics. Clark, presiding in the ‘lucky noughties’, got away with it; Lange didn’t, and we suffered the wretched excesses of ‘Rogernomics’ in consequence.
Actually, it’s understandable that leaders on the left might not personally prioritise expertise in economics. There hasn’t been an interesting new ‘progressive’ idea in economics for more than half a century, since the Keynesian mixed economy model took charge. The Right have made the running in recent times, with their monetarist, globalisation, privatisation agendas.
But could this change? Did it start to change yesterday, with Labour’s ‘Wellbeing Budget’? To an economist, wellbeing is what everything’s all about: basically, the pursuit of happiness. But that doesn’t necessarily mean that wellbeing is a fit and proper goal for the measures introduced in a government Budget. At its simplest, a Budget is a list of things that for various reasons (which could include meeting contractual or treaty obligations) the government of the day wants or is required to spend money on, matched with a plan for raising the money to spend.
Actually, Finance Minister Grant Robertson paid virtually no attention to the matter of paying for the budget, beyond one short sentence: ‘The Government’s books are in good shape’. This concerns me, not because, or not just because it would seem prudent to allow for unforeseen shortfalls in tax revenue, but because – assuming the books do stay in good shape – it implies that the Government has given absolutely no thought to the alternative: give the extra money back in the form of tax cuts. Perhaps this is too radical an idea to expect any Government to take seriously, but I don’t know why.
So, sitting on a pile of several billions of putatively free money, the Minister and his colleagues set themselves the agreeable task of finding things to spend it on. And this is where the wellbeing notion starts to get some bite. Notably, very little – mainly just some railway investments – was allocated to spurring private sector economic growth, or GDP.
And this is a great relief. Governments are hopeless at spending money to raise economic growth rates. To be more precise: government does have a key role in setting the institutional framework for business, by providing honest and competent civil servants, judges, police and, indeed, politicians, and by not over-burdening business with too many rules and regulations. Our recent governments have been very good at this, and New Zealand is always high – sometimes top – in international rankings for ease of doing business; transparency; lack of corruption and so on. But that is where things should stop. Micro-economic meddling to spur investment in some sector, or subsidise one firm’s Research & Development, or provide ‘seed money’ for IT start-ups is notoriously ineffective or worse – encouraging lose/lose rent-seeking activities. As the Canadian economist Sylvia Ostry once said: “Governments aren’t very good at picking winners. But losers sure are very good at picking governments.”
So if they are not going to give the money back to the taxpayer, and they aren’t going to throw it away at business – then, what to do with it? Enter, wellbeing – more specifically, lack of wellbeing – call it ill-being – amongst the mentally disturbed; the addicted; children in poverty; children, women (and, we now learn, pets) subject to domestic violence; and repeat offending by and incarceration of, in particular, Māori. There’s a lot of money to be spent here – notably $1.9 billion over four years to increase access to mental health and addiction services – that is, presumably, more professionals in clinics or on the road giving unhappy people good advice.
This is where I start to be fundamentally disappointed with the Wellbeing Budget. Before it was rolled out, I had made some notes. I wrote that I would really like to hear a Labour-led government state upfront the proposition that, basically, wellbeing is something people like to create for themselves and their families. That is, it is not something that they want to have done for them, and not by social service agencies. If so, then this could totally switch our policy perspective: from fixing up people who are sad or sick, to asking why they suffered in the first place, and doing something about that. And I would say that this perspective leads empirically to a very strong proposition: wellbeing is best achieved within emotionally stable families when these families are able to earn a living sufficient to provide comfortably for their reasonable material needs.
So I was thrilled when I read, in just the eighth paragraph of Mr Robertson’s speech, the following:
For me, wellbeing is when people are able to lead fulfilling lives which have purpose and meaning to them. A government does not determine a person’s wellbeing but we can certainly play a part.
But then the rest of the Budget Speech is about government’s part, and not about identifying and supporting the generators of fulfilment in life. To put the distinction possibly too bluntly: the Budget is about more ambulances at the bottom of the cliff; not about finding out why people jump off cliffs and doing something with that. Instead of rooting out the causes of ill-being, and being able to close mental health, etc, clinics as a result, they are going to throw alarmingly large sums of money at more ex-post palliative care. Where is the business case for this?
We need to question our entire ‘welfare system’, which has grown spectacularly over the past thirty years. Cash transfers by central government – that is, collecting tax from one citizen and giving the money to another – now sum to about 10 percent of total GDP – one dollar in every ten earned in the economy. And the giving-back is often to the same people – the top 20 percent of income earners in NZ purloin about 15 percent of the transfers! Overall, if we simply abolished all benefits and other personal transfers (including national superannuation), there would be enough money to give every adult citizen in good standing a tax-free, untargeted ‘social dividend’ (as some call it) of around $10,000/year, or $200/week for their entire life.
Government, in the cause of family-centered wellbeing, needs to take serious action on wages and the cost of living – on good jobs able to pay for a decent standard of life. If you like, this is the post-war “wage earners’ welfare state” doctrine that was the work of a great Labour Prime Minister who was not bored by economics, Peter Fraser.
There’s nothing at all on these lines in the Budget, nor on various elephants lurking in the shadows of our lives, such as the explosion of top-pay, massive tax avoidance by the top 10 percent income cohort, and monopolistic pricing, such that the franchiser of my local supermarket is able to squirrel away enough money from this asset alone to appear in the National Business Review Rich List with a fortune assessed at $50 million.
Action on these fundamental matters would take a lot of political courage – perhaps especially from a Labour-led government. Only a leader of great vision, conviction and mana could carry it off. And that is why I see our present Prime Minister, leading the way as she already is on climate change, which as an existential threat is perhaps even more important than wellbeing, as the only one amongst us with the personal resources – the political capital – to get the job done.
Tim Hazledine is a professor of economics at The University of Auckland
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