Budget

Robertson signals even more wellbeing budgeting

Future budgets will see the existing spending, as well as new spending, subjected to a wellbeing analysis, Robertson says at OECD report launch

Finance Minister Grant Robertson has indicated that future Budgets will have a much larger wellbeing component.

In the 2019 Wellbeing Budget, new bids for spending were put through a wellbeing analysis before being approved, but existing baseline spending was left untouched. This meant the vast bulk of the more than $80 billion the Government spends each year has not been looked at through the wellbeing lens.

But that could be set to change. Speaking at the launch of the OECD’s report on the New Zealand Economy, Robertson indicated the wellbeing analysis would likely make its way to other spending too 

Robertson had already signalled the change, however yesterday he signalled that an announcement on what form it would take will be made at the Public Finance Act’s 30th anniversary conference next month.

The Public Finance Act is a cornerstone of the way the Government conducts its finances. The Government has said it will amend the Act to embed the wellbeing accounting principles seen in the 2019 Budget. It now looks like this amendment will allow future Governments to shake-up baseline spending using a wellbeing approach. 

“A wellbeing approach cannot just be about the budget. A budget tends to focus on marginal new expenditure rather than the baseline expenditure on agencies,” Robertson said. 

“If we don’t do that then it won’t be fully embedded,” he said. 

“The next step in our wellbeing project is to address that issue,” Robertson said, noting that he would outline the next steps of the wellbeing approach at the Public Finance Act conference.

The OECD gave New Zealand a mostly positive report card, with some dark clouds. New Zealanders enjoyed healthy lives, good social support, and high air quality and expressed general life satisfaction.

However, the report said wages were still lower than the OECD average, income inequality was high, reflected by taxes that did little to redistribute wealth. Education, health and access housing varied immensely across social groups and Māori and Pasifika people tended to fare worst in many metrics.

An area singled out for particular attention was housing. It noted that house prices growth has been more than double the OECD average since 2000, and even exceeded the growth seen in Canada and Australia. 

It offered cautious support to KiwiBuild but said the policy should be refocused towards “enabling the supply of land” which would encourage the Government to relieve bottlenecks in the development of housing. It also suggested the Government could subsidise the construction of affordable rental properties.

The OECD also cautioned the Government on its Fair Pay Agreements policy. These are sector-wide agreements that set standards for work including pay rates and conditions.

It said that while FPAs would reduce wage inequality, the could also harm productivity growth, “if significant freedom to determine terms and conditions at the enterprise level is not retained”.

Productivity measures workers’ output per hour worked. Increasing productivity is associated with paying workers more, as their output becomes more valuable. Increasing wages without increasing productivity can lead to layoffs. 

The OECD also cautioned against the Government’s proposed increases to the minimum wage. It says experiences from other OECD countries suggests this could lead to women, young people, and those without skills losing their jobs. 

Robertson said that while he “respected” this view, the Government remained committed to its policy of lifting the minimum hourly wage to $20 by 2021.

“We believe that does represent a significant contribution to reducing inequality and lifting the wages of the lowest paid, we keep in mind the impacts that lifting the minimum wage has on our business community but over time we have seen job growth continue as minimum wages rise and I’m confident that will happen again,” he said. 

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