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Wellbeing Budget: stop gifts to the rich

Next year the Government will deliver its first "Wellbeing Budget". Arthur Grimes says it needs to be thinking carefully about how to target its spending in order to really address inequality and improve the wellbeing of those most vulnerable.

In this second Wellblogging column, I examine how a wellbeing approach to public policy might help Finance Minister Grant Robertson address some issues of inequality in the 2019 Wellbeing Budget.

I draw on aspects of Motu Economic and Public Policy Research’s work on wellbeing that was in part funded through a Royal Society Te Apārangi Marsden Fund grant. That research – and other research in New Zealand – has examined what people see as being important for their own subjective wellbeing.

Globally, researchers use measures of subjective wellbeing as indicators of wellbeing across and within nations. These measures are often based on a question that reads something like: “How do you feel about your life as a whole right now?” (This was the wording in Statistics New Zealand’s 2012 General Social Survey.)

As noted in the first Wellblogging column, New Zealand ranks eighth in the world for average life satisfaction, slightly above Sweden (ninth) and Australia (10th) and well above the US and UK (15th and 18th respectively).

So what factors do New Zealanders value? Our research shows that factors associated with high subjective wellbeing include: having good health; being prosperous; and not being unemployed. As in many countries, adults who are under 30 years of age and adults over 60 years of age are more satisfied with life than middle-aged people. Women also tend to be a little happier than men. Other research shows that having good social connections (e.g. someone to rely on in an emergency) is extremely important for people’s wellbeing.

On the health front, poor mental health has a much stronger negative impact on overall wellbeing than physical health does. This finding comes through many international studies. Indeed, in his book Happiness: Lessons from a New Science, prominent UK economist Richard Layard argues that treatment of depression is the most cost-effective available public policy intervention to improve overall wellbeing.

The overriding importance of good mental health is also found to be the case when examining links between subjective wellbeing and (physical and mental) health for Māori (based on Statistics New Zealand survey data from the Te Kupenga survey of Māori wellbeing).

Thus inequalities in health – and particularly mental health – are a key aspect in need of policy attention.

Paying bonuses to rich (as opposed to poor) elderly hardly addresses issues of inequality. And it wastes money that could genuinely be used to address pressing aspects of inequality.

Prosperity is important to most people; even workers in the social services strike for more money. However, our research shows that personal income is not the best indicator of prosperity. People’s subjective wellbeing is more closely related to what they can consume rather than what they earn. For instance, older people may have low incomes, but those who have saved over their working lives may still be able to afford an affluent lifestyle.

Thus Budget policies aimed at boosting wellbeing should not necessarily be directed at low income individuals per se; rather, attention is better directed to those who cannot afford essentials. An example of expenditures that might be redirected in a Wellbeing Budget are winter bonus payments to the over-65s, which go to some people in need but also to people already living very comfortably. Paying bonuses to rich (as opposed to poor) elderly hardly addresses issues of inequality. And it wastes money that could genuinely be used to address pressing aspects of inequality.

The observation that consumption expenditures are a better indicator of wellbeing than incomes has been used to compare New Zealanders’ material wellbeing relative to that of people elsewhere. In another study, we used data from the OECD Programme for International Student Assessment survey for households’ durable goods possessions (e.g. for books, artworks, computers, dishwashers, cars and bedrooms). The households had to include a 15-year-old child; hence comparisons are for families at a similar stage of the life cycle.

New Zealand ranked as a more unequal society than most developed countries.

On this measure, New Zealand families ranked third in the world in terms of average household possessions (behind the US and Canada and just ahead of Australia). Thus while our incomes are not world-beating, on average we can afford plenty of stuff.

However, the same research showed a less rosy picture in terms of the distribution of resources across families. New Zealand ranked as a more unequal society than most developed countries. We were on a par with Canada, the US and the UK and were much more unequal than many Western European countries and Australia.

Work within the Social Policy Evaluation and Research Unit shows that certain types of household are much more deprived than others. In particular, sole parent families with children are particularly deprived. Recent work within Treasury identifies other groups that face particular hardships.

Based on this and other research, one can anticipate that a Wellbeing Budget might identify specific target groups (e.g. sole parent families) and specific target policy areas (e.g. mental health) that require the greatest attention to lift the wellbeing of the most deprived.

Ideally, a Wellbeing Budget would also free up resources to address these needs by halting poor quality areas of expenditure – such as gifting money to rich people. But perhaps that is a bridge too far politically.

Professor Arthur Grimes is Chair of Wellbeing and Public Policy in the School of Government at Victoria University of Wellington. He is also Senior Fellow at Motu Economic and Public Policy Research. He was formerly Chief Economist and Chairman of the Reserve Bank of New Zealand.

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