Wellbeing budget should ensure benefits exceed costs

Mike Hosking has attacked the Labour Government's forthcoming "wellbeing budget" as a "looming disaster".

He argued that "putting numbers on lives, friendship and concepts is crap" and not the way the "real world" works.

Mr Hosking has effectively written a diatribe against the use of cost-benefit analysis in New Zealand. Five past United States presidents, from Reagan to Obama, have endorsed cost-benefit analysis. If all of the quantified costs of a regulation, or a tax, outweighed the benefits from its implementation, then their view was that it should not go ahead.

The Labour Government appears to be strengthening New Zealand's commitment to assessing all of the costs and benefits of government actions in its wellbeing budget. This approach would meet with a good deal of approval, at least amongst the worldwide profession of economists.

As for Mr Hosking's argument that valuing a human life is "crap", what if one person each year is being killed on a dangerous bendy stretch of highway? Then the Government faces a "real world" problem.

If the cost of straightening the highway is $50 million, should the works go ahead? What say the Government instead decides to spend these funds on building a new bridge to improve travel times somewhere else? In such a case, the cost of saving a human life by straightening the highway has been deemed not to be worth the benefit.

Pharmac, which purchases drugs for our public health system, has been using a related method for years. Its decisions are partly based on comparing the cost of a new drug to how many additional "quality-adjusted-life-years" its consumption would yield.

This goes under the name of "cost-utility" analysis, which is closely associated with the ideas being touted by Labour in its forthcoming budget. The additional quality of life, or wellbeing, that a drug bestows is a slippery concept to measure, but one which is being quantified by the use of subjective reports of a person's life satisfaction, or "happiness".

More generally, given the determination of both the National and Labour parties to spend taxpayers' money on your behalf, implementing sound cost-benefit, or cost-utility, analysis is probably the best way to go. An even better system would be to allocate a large part of the funds currently raised by taxation into personalised savings accounts for all New Zealanders.

These accounts could then be used by individuals to help pay for their own health, out-of-work and retirement needs. This policy would give people the freedom to make important decisions to enhance their own welfare, without the need for the Government to make the decisions, using the above kinds of "analyses".

Individual accounts funded out of existing tax revenues could also be used to help build significant wealth for low and middle-income New Zealanders, reducing inequality, and avoiding the need for a capital gains tax. They would help solve Mr Hosking's legitimate problem of how a government targets the "average" person rather than the individual when it spends money on your behalf.

Unfortunately, neither the Labour nor the National Party supports this kind of reform. Why? Politicians want control of your tax revenues so that they can use them to feel powerful, buy votes and increase their support base.

Although Mr Hosking is already complaining about Labour's looming budget, the National Party never committed to disciplining its own regulation and spending with the use of cost-benefit analysis. I was personally rebuffed by former Prime Minister John Key on this precise issue at the NZ Initiative.

Sadly, the National Party was too busy with "corporate welfare" subsidies being doled out under the auspices of vehicles like the Callaghan Fund and helping out with convention centres to respect any such analyses, which they deemed "academic".

Meanwhile, although Labour speaks of its desire to properly assess the full impact of spending in its forthcoming wellbeing budget, how come its own regional slush fund and the "free fees" policy for tertiary students would both almost certainly fail the very cost-benefit or cost-utility analyses they are advocating?

So is the wellbeing budget a good idea? Yes, in the sense that it should be the aim of every New Zealand government to raise wellbeing.

In a speech in 1968, Senator Bobby Kennedy said GDP can tell us "everything about America except why we are proud that we are Americans".

In the American Declaration of Independence, the founding fathers dreamed of a country which guaranteed certain rights, being "life, liberty and the pursuit of happiness". But the emphasis was on granting people freedom to pursue a path that secured their own wellbeing, not on a government acting as a benevolent dictator.

Marriage, for example, has a large positive effect on wellbeing. So should our Prime Minister be cajoled into it? Citizens must be the ultimate decision-maker.