In 2018, the Labour-led Government proudly released its first wellbeing budget. It would be great if Labour uses its second term to truly focus on wellbeing.
By calling it a “wellbeing” budget, the Government believed it was taking a new step. In reality, wellbeing is always at the core of any competently assessed public spending. In other words, every budget is a wellbeing budget.
Heading into the next term, some wellbeing priorities are of immediate concern.
For instance, welfare dependency and unemployment are both rising. Responding to the implications and consequences of Covid-19 will be tricky. The Reserve Bank is creating credit as if money is not a scarce resource and inflaming the housing affordability problem.
Government largesse with borrowed money has fuelled unrealistic expectations for this recovery. Interest groups daily ask the Government to give them bigger slices of the national income pie. Many Kiwis aspire to higher living standards than they can achieve through their own efforts. There are reasons for this.
Low national income per capita makes everything less affordable – health care, education, a cleaner environment, better housing, food on the table. Who really thinks New Zealanders want to be less able to afford these things than, say, the Australians?
Low income growth reduces future wellbeing. US research published last month estimates that the growing pile of industry regulations in the US since 1980 cut economic growth by 0.8% each year, compounding. As a result, its national income per capita in 2012 was nearly 25% lower.
Tyler Cowen, economics professor at Virginia-based George Mason University, made the general case for focusing on longer-term outcomes in his 2018 book Stubborn Attachments. The power of compounding mathematics means lifting per capita income growth over time by even small increments is more beneficial for future generations than almost any other policy tweak.
So how is New Zealand faring?
On the International Monetary Fund’s latest estimates and forecasts, “only” 17 of the 39 “advanced economies” had more income per capita than New Zealand in 1980. By 2019, this had risen to 24. It expects by 2025 this will leap to 32.
To put this into perspective, New Zealand’s forecast income gap with Australia will be 26% by then. The gap was much closer (13%) in 1980.
A Government that takes wellbeing seriously must take income growth seriously. Let’s see it.