Government’s wellbeing framework could create a more sustainable Australian economy

Undervaluing and overusing some of Australia’s most precious resources could spell disaster for future generations, and a number of economists argue that adopting a wellbeing approach to how governments budget may be the best bet for us yet.

Treasurer Jim Chalmers’ first Budget, set to be tabled tonight, will feature a statement about wellbeing in Budget paper four. It will set the stage to advance the conversation on adopting a more holistic approach to future federal Budgets, and tell the story of how the framework has advanced the way other comparable nations choose to allocate government money.

According to the University of Melbourne’s Warwick Smith, who is also the wellbeing lead at the Centre for Policy Development (CPD), Treasury officials have been reviewing a number of CPD papers on the topic to inform the statement.

One of those reports, Redefining Progress, published in August, recommended four steps to guide a similar approach in Australia and called for the government to “measure what matters” (a catchphrase Chalmers has repeatedly used), guide decisions with data, embed wellbeing across institutions, and build accountability for progress.

“In terms of good economic management, fiscal sustainability, and all those kinds of things, a wellbeing approach is an efficient and effective way to run a Budget because you’re thinking more about synergies and working across boundaries,” Smith said.

“It is a holistic approach to government decision-making, which means you’ve got to come up with systems for breaking down silos in departments.

“There has to be coordination across levels of government too, which is another interesting and challenging ask in Australia, obviously,” he said.

KPMG senior economist Sarah Hunter has co-authored a report that explains why failing to better utilise one facet of a Wellbeing Budget – natural capital – poses huge risks to society. The general premise is that resources we all rely on, such as the ocean, are not properly valued and therefore over-used.

A Wellbeing Budget would attempt to address this overuse by fully recognising the value of nature-based services. The hope is that by adopting this broader approach to the economy the government can act to hit the brakes on nature’s impact on climate change.

Hunter told The Mandarin that from the perspective of natural capital, everything from the pollination services provided to bees to the natural protection coastal mangroves offers should be literally defined as economically valuable.

“We know that the services that are provided for free, we tend to overuse them. So we might clear the mangroves, because we see value in doing that, and because we haven’t recognised the true value of the protective services they provide,” she said.

KMPG’s consulting clients should be thinking about natural capital in the same way they think about machinery and assets in a factory, Hunter added: with a view to thinking about what assets were likely to depreciate over time and how to replace them.

“As a company, we’re looking at developing [this framework] further and helping clients look at what natural capital they actually use in production, then what they might need to do in terms of protecting that resource,” she said.

On the nature front, various levels of government, along with the for-purpose sector and private enterprise, have taken steps towards something similar to a wellbeing framework. Hunter said the work of bureaucrats in NSW and their commitment to the Taskforce on Nature-related Financial Disclosures (TNFD) was impressive.

“That particular government department is valuing the natural environment and natural assets that New South Wales has, specifically and therefore thinking about protecting them and the use of those services and how that could be best optimised,” Hunter said.

Overseas, she pointed to New Zealand’s Wellbeing Budget (which was actually inspired by a framework developed in Australia in 2004 that failed to gain traction). The Kiwis’ wellbeing framework measures outcomes for natural environment, climate change and climate transition to show a holistic view of how its domestic economy is performing beyond the traditional economic metric of gross domestic product (GDP) and growth.

“The New Zealand framework, for instance, considers child poverty, it looks at health outcomes and health inequality, education outcomes, it’s got a very sizable section dedicated to gender but also other facets of inclusion and diversity and ensuring that racial groups and other minorities are not left behind,” she said.

The consultant firm partner said the concept of using a holistic framework as a catalyst in a Wellbeing Budget would capture the complexity of improved social outcomes people often think about when they imagine what a thriving society and economy would look like.

“It’s really interesting that GDP is generally held up as sort of the top metric, and there isn’t a suggestion that it won’t be an important metric going forward. But it is interesting that it was developed in response to the lead-up to WWII to understand how much the British economy could produce, and if it had to move to total war economy, what might that look like, and what was possible. GDP is a pretty narrow lens that was used to try to answer a very specific question,” Hunter said.

“GDP is something that we anchor to, and it is important how much the economy can produce — that determines a lot of what is possible in terms of government policy and government spending, expenditure decisions and that sort of thing — but it’s obviously not the only outcome that might matter,” she said.

ANU’s Professor Sharon Bessell, whose expertise includes economic development policy, social policy and public policy, said the task for government to introduce this shift in mindset would be a long road. But the criticisms of more traditional ways of measuring the health of an economy showed there were dividends for everyone to be enjoyed if outcomes such as planetary health and social justice given more credence in the way governments allocated their spending.

“At the moment, of course, [Australia has] fairly scarce and inadequate resources. So we look at what the pathway used to achieve is ensuring that everyone has a decent standard of living,” Bessell said.

“One of the criticisms of the traditional way of budgeting has been that we confused the means and the end — we begin to think that economic growth is the end in itself, as opposed to one of the pathways that could lead us to the outcome that we want.”

Bessell also sees a wellbeing approach to the budget as an opportunity to open up public discourse about what kind of country Australia wants to be, and move debates about deficit and bottom lines to mean something to more than policy boffins and economic wonks in Canberra.

“Some spending shouldn’t be seen as spending, it should be seen as investment — spending on education, particularly on education in a way that is equitable, spending on good quality healthcare that produces good health outcomes. Both of those things are investments, and yet often, we talk about them in a very sense,” Bessell said.

“This is an opportunity to open up that political and public conversation about what it is that we want.”


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