12 Aug 2018

Treasury are people too: the living standards framework explained

From The House , 7:30 am on 12 August 2018

The words economic, fiscal, and treasury may conjure images of a calculating, unfeeling... well, calculator.

But enter in ‘wellbeing’ and the calculator's human form is revealed; it has a face and feelings, as well as financial advice for the Government.

Treasury Chief Economic Advisor Tim Ng.

One of the actual humans at Treasury, Chief economic advisor Tim Ng. Photo: VNP / Phil Smith

Treasury is the Government’s lead economic and financial advisor and while it might have a reputation as focused on numbers, the whole number, and nothing but the numbers, it has been working on a new way to look at things: the Living Standards Framework.

“Living standards are how people, families, whanau, communities experience life and how they can live lives to the full as they would see it,” says chief economic advisor Tim Ng.

“[It's] when you think about living standards in terms of the different dimensions of life, life right now that people enjoy, whether it’s incomes, enjoying the environment, good housing, education, health and so on.”

But isn’t talk of enjoying a nature walk and having a nice home a bit namby-pamby when it comes to the serious topic of government spending?

“From those who are used to more traditional economics thinking it implies that Treasury is, in some sense, going soft, [that] we’re no longer going to care about the financial aspects of the Government, that’s just not true,” deputy chief economic advisor Tony Burton says.

Treasury Deputy Chief Economic Advisor Tony Burton

Deputy chief economic Advisor Tony Burton.  Photo: VNP / Phil Smith

“From our perspective, this is about better economics and about doing the job we’ve always done but being more clear and complete in what we’re doing.”

It’s Treasury’s job to give governments the best possible advice he said.  

“It’s not just the amounts, it's what it is spent on and how well it is spent,” says Burton.

“We hope this will draw out what the money is being spent on, and why it’s being spent in the way it’s being spent.”

It can be difficult to see a link between better living for everybody and Treasury whispering suggestions in the Government’s ear.

Turns out it depends on what Treasury is whispering. Lifting living standards means balancing investment in the resources that create better lives or what Treasury calls, the four capitals.

“The term capital is borrowing an economists term which is about the basis of production and in this case what we’re doing is we’re saying well being or living standards arise from the use of different things that New Zealand has that enable citizens to flourish,” says Ng.

Capital #1: Natural

This one isn’t too tricky. It’s the natural environment like clean water, breathable air, or fish and also includes oil and gas.

Capital #2: Social

“This is about how we relate to each other as citizens,” says Ng. “The trust we have in the institutions of the state like the police, the courts.”

It also includes things like trust in each other. For example, the faith in each other that a contract will be honoured by all people involved, like employment contracts for example.

Capital #3: Financial and physical

The hard money stuff. Individual things (like homes and cars) and also community things (like roads and hospitals) or any financial assets that could buy these things.

Capital #4: Human

Not as threatening as it sounds. It’s about the skills and qualifications people have but also includes level of health, education and systems used to use those people (and their skills) to create value.

“Those characteristics that we have in ourselves that enable us to be productive citizens and citizens that can contribute and enjoy being part of society,” Ng says.

Cool capitals bro, what do you do with them?

Parliament and Beehive

Apparently the four capitals have nothing to with capital cities (I asked) but here's a picture of New Zealand's Parliament in the capital city Wellington.  Photo: RNZ

Treasury will use this information to help the government decide what its priorities are for the budget.

“These measures of the different aspects of wellbeing and the state of the different capitals will help inform that decision making by the government,” says Ng.

“You can also think of the use of these measures to colour analysis and research about policy development in the future. What things might lift our living standards in the future? Which policies in education or in health, the environment or in housing will contribute to these things which we think are important in life?”

Burton says any worries that the framework won’t relate to New Zealand because they’re basing it on what the OECD has done can be put to rest.

“The major part of our work this year is precisely to make sure that it works for New Zealand that it recognises that uniqueness and represents that,” he says.

It’s also not just about spending says Ng.

"Governments do a whole lot of things other than just spend money on capital equipment, or benefits, or the education system, they also do a lot of regulation so part of the appreciation is to recognise the capitals are the capitals of the nation not just of the government, the government has a relatively small amount of capital.”

Treasury’s trying to answer the question of what the government can do best so that people, whether they’re citizens, firms or businesses, can save or invest in a way that also promotes well being he says.

“So a lot of that will be about governments, for example, making rules around employment relations, [or] trading rules in consumer markets.”

Treasury has been working on the Living Standards Framework for the past seven years. There will be information released on Maori and Pasifika wellbeing in the coming weeks with the framework’s full dashboard pegged for release at the end of the year. But Budget 2019 is likely where people will notice its use the most.