What a wellbeing budget means for government policy

“Beer up, petrol up, cigarettes up” was a common newspaper headline response to the Commonwealth’s budgets of earlier years.

These days excise rates are generally set in long-term indexation formulae, and although people are concerned about tax changes announced in budgets, mainly the government’s intentions regarding the Stage 3 tax cuts, successive governments’ main policy concern has been around fiscal outcomes. Media headlines tend to be about the fiscal deficit or surplus and the level of government debt, overlaid by a spin aligned with the particular media’s partisan bias.

Over many years the budget has become more focused on these fiscal outcomes, which have achieved high political salience, while other economic outcomes have commanded less attention. The budget has morphed from an economic document to a fiscal document.

Fiscal policies have consequences, particularly as they relate to often countervailing measures from monetary authorities, but these consequences tend to be economy-wide. Our earlier concerns with grog and gasoline were about specific consequences on our way of life, as are the government’s more micro-decisions on expenditure and taxation.

How will education expenditure be distributed among early childhood development, universities, and everything in between? Will capital expenditure be directed to transport or investment in the electricity grid? Will tax concessions favor the growth of startup companies, or will they encourage established companies to invest in a long-term energy transformation? And so on for a whole set of difficult allocative choices, all of which will shape people’s lives in the future.

These are the decisions where public policy impacts our lives. It is easy for policymakers, however, to forget that economic management is not just about impressive numbers – fiscal indicators on debt and deficits and the traditional economic trifecta of inflation, unemployment, and GDP growth.

These are gross indicators, which in terms of practical consequences can play out differently for different people. In fact, for some indicators, including GDP, impressive numbers can show up for many years without any improvement in people’s wellbeing.

Means-ends confusion and displaced objectives, are common problems in government administration. The accepted wisdom is that government policy should be concerned with outcomes rather than input indicators (typically amounts spent on programs) or outcome indicators (such as the number of people who received a government service).

When there is so much pressure in the fiscal and political environment around these indicators, it is hard to keep outcomes in mind when those outcomes may not manifest for many years in most areas of public endeavor.

This also means that demands for redistributive welfare in social-security payments and tax concessions, which have immediate consequences, can distract from programs with far more significant long-term distributive consequences. Expenditures in health, education and infrastructure are all significant examples.

A new focus on wellbeing

It has been up to bodies such as The Australian Society for Progress and Wellbeing to keep alive the idea that the purpose of public policy is people’s wellbeing. After all, what is the point of economic management if it does not contribute to human wellbeing?

In the 2022-23 Budget there is a new section in Budget Paper 1 titled “Measuring what matters”. This has been the government’s attempt to live up to its election promise to follow the lead of New Zealand and some other countries to present a wellbeing budget.

This new section is partly a discourse about the meaning of wellbeing indicators, acknowledging that there is work to be done. Such indicators become most meaningful after a few years, as time series provide indicators of progress (or retreat). For now, the authors consider how some of Australia’s outcomes measure up against the OECD Framework for measuring wellbeing and progress. The table below, copied from that section of our budget papers, shows those preliminary assessments.

Developing meaningful indicators of wellbeing is a challenging task, and it is complex territory for governments in pluralistic democracies. What are positive indicators to some can be negative indicators to others. Are rising house prices indicators of wealth or of inequality in access to shelter? Does high workforce participation result from choice or necessity? What does “trust in government” mean – does it indicate confidence in good government or a dangerous culture of docility towards possible authoritarianism?

This is not our government’s first work on measuring wellbeing: governments have always been concerned about health, income distribution and other indicators, but bringing wellbeing formally into the budget process is a significant step in economic reform, because it stresses that economic management is about human wellbeing.

That may seem like common sense, but it has been a feature of public debate, by both the “left” and the “right”, that there is some unavoidable trade-off between “the economy” and “society”, a category error that the economic philosopher Karl Polanyi warned about in 1944 when he wrote The great transformation: the political and economic origins of our time.

Until 2013, the ABS was engaged in developing Measures of Australia’s Progress. Its work is still archived on the ABS website, and its 26 indicators are all relevant to wellbeing. The ABS brought a great deal of rigour into measuring wellbeing, but there is still much work to be done, including extensive public consultation, on essential indicators of wellbeing that do not easily lend themselves to objective measurement.

Even if society agrees that a high level of economic inequality is undesirable (in itself, not a settled issue), how is inequality to be measured – in terms of income or wealth? Wealth disparities are more enduring and self-reinforcing than income disparities, as Thomas Piketty points out. Also, while assets such as cash and equities are easily valued, valuing housing is difficult because its market value may be very different from its use value, and valuation of human capital, a most important aspect of wealth, is even harder to value.

That public consultation is in train. The Department of the Treasury in the Australian Government is now calling for public involvement in developing community awareness of wellbeing, and on its Measuring what matters website, it is calling for public submissions by the end of January.

This article was written by Ian McAuley and James Guthrie, an Emeritus Professor at the Department of Accounting and Corporate Governance of Macquarie University.