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Is a life worth $4.7 million?

The wellbeing framework that puts the “value of a statistical life” at $4.7 million is coming under fire. 

Opposition finance spokesperson Amy Adams has raised questions about how Treasury’s Wellbeing Framework is being used to evaluate Budget bids ahead of this year’s Wellbeing Budget. Adams noted some of the values seemed unusual, noting "improved contact with neighbours" was valued more than "avoiding diabetes". 

Treasury has released its revised cost benefit analysis model, which it uses to evaluate budget bids. The model, called CBAx, was developed under the previous government, but revised to reflect the new measures of wellbeing. 

Alongside the living standards framework, it will be used to asses bids for spending in the 2018 Budget, which will be delivered on May 30. 

The framework around the Wellbeing Budget due to be delivered this year is linked to the OECD’s “How’s Life” work, which attempts to broaden economic measurements by using metrics other than straight GDP.

Adams used Parliament’s Finance and Expenditure select committee to accuse Finance Minister Grant Robertson and the Treasury of importing irrelevant international economic measurement into the New Zealand economy.

“How can you say this is anything other than the OECD framework transplanted here without any tangible difference?” Adams asked Robertson.

Her attack followed a question asked in the House on Tuesday to question the values accorded to various wellbeing outcomes. 

She pointed out that CBAx assesses the value of avoiding diabetes as $3900, whereas the value of having improved contact with neighbours was valued at $8500. This was itself valued at substantially more than gaining a friend, which is worth $592.

The framework also assigns values to even more ephemeral and controversial subjects. The system records the “value of a statistical life” as $4.7 million, and the value of every “quality-adjusted life year” gained as being $28,287. 

These numbers could be used when calculating spending on health, which takes into account the best drugs or treatments to fund with limited money. 

Alongside values, the CBAx tool outlines costs faced by the country. Sexual offences cost $160,159, while violent offences cost $19,784. A serious traffic offence, by contrast, costs $69,299.

Robertson cautioned against overt comparisons, accusing Adams of “selectively choosing elements from an overall framework for assessment”.

Robertson was backed up by Treasury Secretary Gabriel Makhlouf, who wrote to the committee after his appearance saying that the "impact values" used in the CBAx tool "are not necessarily directly comparable".

He used the example of a comparison between avoiding diabetes and avoiding loneliness.

"Comparing the fiscal value of savings to the Government/taxpayer for avoided diabetes ($3916) with a subjective wellbeing value to an individual from avoided loneliness ($8572) is not a valid direct comparison, because they are monetising different things," Makhlouf wrote.

"Avoiding diabetes may have a fiscal saving to government, but it will also have a value for its health outcome. For example, each year of quality of life gained would add around $28,000 to the equation. Neither would you assume the quantification of outcomes is correct without checking the investment logic."

Simple misunderstanding or politics?

During the hearing, Makhlouf offered to explain the metrics to the committee. He later wrote to the committee's chair, Labour MP Michael Wood, saying "there appeared to be some misunderstanding about Treasury's CBA/CBAx tool and how it is used to inform budget decisions". He offered to appear again before the committee to clear up the misunderstanding.

Robertson, however, said that Adams should be familiar with CBAx from her time as associate finance minister.

What is CBAx?

While CBAx is different to the Living Standards Framework, which will be used by Treasury to measure different parts of the economy beyond GDP, Wednesday's stouche on the influential Finance and Expenditure Committee is a sign of the continued battle over the 2019 Budget. 

Opposition members have repeatedly made the case for keeping GDP as the primary economic metric, while the Government has opted for the new, broader measures. 

Prime Minisiter Jacinda Ardern said in her landmark speech on the Budget that she wanted "New Zealand to be the first country to assess bids for Budget spending against new measures that determine not just how our spending will impact on GDP, but also on our natural, social, human, and possibly cultural capital too".

CBAx is a modelling tool, developed by Treasury to help assess bids for funding ahead of the Budget. It was developed by Treasury under the former National government to help asses Budget bits in a more precise fashion, enabling the government to make better trade offs between one bid and another. 

It formed an important part of the former government’s social investment approach. One of the initial cabinet papers for the social investment approach noted that CBAx needed to “deliver consistent and comparable effectiveness estimation across sectors”.

The new, revised CBAx prepared for the Wellbeing Budget includes even more measures of wellbeing than the first one in 2015, which was used in Budgets from 2016 onwards. After the change of government, the CBAx tool continued to be used, but its values were allowed to be supplemented by other, intangibles considerations.

The individual values in the tool are calculated by Treasury and the responsible ministries. The cost of road accidents, for example, is calculated by the Ministry of Transport. 

Makhlouf cautioned there was a limit to what Treasury did with the CBAx tool, saying much work was done by individual ministries. 

“There’s a limit to what the Treasury does, the agencies put forward proposals for the benefit they’re making. They use a number of different tools and measurements to come up with a benefit,” Makhlouf said. 

“That information is used to inform but not to determine decision-making,” he said. 

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