New Zealand is redesigning the purpose of government spending

New values.
New values.
Image: REUTERS/Edgar Su
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New Zealand’s prime minister Jacinda Ardern said she wanted to prove that it’s possible to govern in a new way, one centered on kindness and empathy. As part of this approach the South Pacific nation has just published the world’s first ever “wellbeing budget.

The new budget, and Ardern’s administrations’s second one, uses government spending for the explicit purpose of improving certain social outcomes and intergenerational issues. But the socially progressive and environmental commitments in the budget aren’t the big change: rather, it’s the new mindset behind the budgeting process. Government ministers are now tasked with finding collaborative ways to meet five wellbeing goals. They are to support mental health, particularly among young people; reduce child poverty; increase support for Maori and Pacific Islander peoples; transform the economy for a low-carbon future; and boost productivity and digital innovation. The government will then measure progress on these outcomes and use the data to make future spending decisions.

New Zealand is arguing that spending should be about more than just trying to achieve higher levels of GDP. And the country has the ability to cast its focus elsewhere because, by traditional measures, New Zealand is doing very well: Its economy has grown for 32 consecutive quarters measured by GDP, the unemployment rate is around 4%, and the government has a budget surplus that is expected to be maintained for several years.

Grant Robertson, the finance minister who delivered the budget to Parliament today (May 30), said there are still “significant gaps” in living standards in New Zealand. The Treasury is using 61 indicators to measure social outcomes that cut across environmental capital, social capital, human capital, and financial and physical capital, and include everything from home ownership rates to measures of trust in government and the police. Overall, New Zealand’s human capital is good, with high levels of education but Maori and Pacific Islanders fall behind the rest of the population. The government said social connections were mostly strong but loneliness, homelessness, and discrimination still needed to be tackled. Reducing carbon emissions and soil erosion are other priorities, as are increasing research & development spending.

In line with the government’s new priorities, it is boosting spending in some areas. New Zealand has notably high levels of domestic violence, with as much as three-quarters of incidents not reported to the police, so in advance of today’s budget, the government announced NZD $320 million ($208 million) in spending on sexual and domestic violence. Today, the government said it would spend NZD 1.4 billion on various mental health services by 2024, including transitional housing and addiction treatment. Alongside the budget, the government is also publishing a child poverty report to demonstrate its commitment to reducing those numbers. The latest data shows 17% of children are living in low-income households, before housing costs.

To meet these new goals the government is increasing spending, even as the impact of the US-China trade war and Brexit uncertainty are already cutting away at New Zealand’s traditional growth expectations. As countries around the world grapple with how to balance the role of the state and business in creating prosperity, many governments will be watching how New Zealand’s new priorities fare as the world enters an economic slowdown.