A wellbeing budget won’t help a sickly economy

There’s a concerted effort to shift the focus of economics away from financial data towards social. Specifically, it’s argued that economic welfare would be better measured by our individual and collective ‘wellbeing’ than by the GDP (the value of goods and services produced in the economy).

Would-be Treasurer under a Labor government, Jim Chalmers, has thrown his support behind this idea, praising New Zealand’s ‘wellbeing budget’. He promises a two-pronged assault: first, to supplant GDP’s primacy with a more holistic measure of wellbeing; second, to weigh up budget decisions in terms of social objectives — rather than economic merits.

Chalmers argues that alternatives to GDP would instead “measure what matters” and “redefine what success means in terms of economic outcomes.”

To better measure a country’s progress, the Kiwis now monitor levels of (among others) loneliness, belonging, mental resilience, and digital inclusiveness — all supposedly more important than money. The marker of success for NZ, then, is moving the needle on these indicators, irrespective of the economics — implying that a happier society is better off than a more prosperous one.

Where this comes from is a pessimistic view that, despite nearly 30 years of economic growth, Australia supposedly hasn’t enjoyed social progress —we’re apparently all living miserably.

It’s important to understand this isn’t supported by the economic data or social indicators. First, as the Productivity Commission argued, income inequality has not significantly worsened in Australia.

Second, according to the OECD’s Better Life Index, Australia scores the second highest of any country in the world. And we are sixth on the UN’s Human Development Index — which includes both economic and other factors — and on an upward trend.

Not to forget that economic factors are themselves important indicators of the health of a society.

Indeed, focussing on social indicators rather than economic growth leads to policymakers treating the symptoms rather than the cause of social problems — many of which stem from, or are exacerbated by, adverse economic outcomes.

In short, healthy economies breed healthy societies — and the progressives are wrong about the direction of this causation.

Social progress and cohesion are important policy goals, but prioritising these over broader economic goals would be counterproductive. It also distorts fiscal policy decisions by evaluating spending proposals on the basis of their direct social impact; not financial prudence, or in context of the macroeconomic stability lever that has been the convention.

We can’t afford for economic priorities and progress to be derailed by progressive social policy — especially with the vulnerabilities of today’s economy.