Monday, October 24, 2016

Treasury ditches wellbeing as the rest of the world catches on

The head of the Treasury moves quickly.

John Fraser told a Senate hearing this week he wrote the department's new corporate plan "between 6 and 8.30 one night as I was waiting to go out to dinner".

In it, he tossed aside the "wellbeing framework" that for a decade has been supposed to guide the treasury in its assessment of what government decisions are good and bad.

All that really mattered was jobs and growth. "We are talking about living standards," he said. "And if living standards are not about wellbeing, then I do not know what is."

But there is much, much more to a good life than jobs and growth, and the head of the treasury ought to know it.

Who gets that growth is the start. The framework used by his predecessors (which Fraser says he has never seen) had as the second of its five points "the distribution of those opportunities". Under that criteria a decision that further concentrated wealth (such as tax cuts for the already wealthy) would clearly have been recognised as worse than one that spread it more broadly and the government would have been told so.

The third point was sustainability. If economic growth was built on sinking sands – such as burning brown coal and using up Australia's allocation of carbon emissions quickly – it would arguably have been regarded as worse than one than one that cut back on emissions earlier and more gradually. In fairness to Fraser, there's no reason to think he doesn't get this. His idea of targeting "living standards" easily incorporates making sure living standards are sustainable.

But it incorporates points four and five not at all. These days, when for most of us material wealth isn't too bad, they might be the most important of all.

Increasingly, what really matters to us is stress. It weakens us, regardless of our wealth, and it is often brought on by government decisions that force us to go through needless hoops.

Points four and five were "the overall level and allocation of risk borne by individuals and the community" and "the complexity of the choices".

Simplifying life was this week recognised in Britain the United Kingdom as an explicit policy goal, particularly when designing programs for people who are already highly stressed.

While our government tried to get through the Senate rules that would further stigmatise and inconvenience Australians applying for unemployment benefits, the British Behavioural Insights Team Behavioural Economics Unit nominated reducing "cognitive load" as one of the most important things governments could do.

"We all have limited mental processing capacity to reason, to focus, to learn new ideas," it said. "The worries involved in making ends meet already deplete bandwidth, so government services aiming to tackle disadvantage – such as savings schemes, employment advice and parenting programmes – should be required to pass a cognitive load test to ensure these services do not make it harder for people on low incomes to make good decisions."

If only we'd cottoned on first.


The Treasury's now-ditched wellbeing framework

In undertaking its mission Treasury takes a broad view of wellbeing as primarily reflecting a person's substantive freedom to lead a life they have reason to value.

This view encompasses more than is directly captured by commonly used measures of economic activity. It gives prominence to respecting the informed preferences of individuals, while allowing scope for broader social actions and choices. It is open to both subjective and objective notions of wellbeing, and to concerns for outcomes and consequences as well as for rights and liberties.

Treasury brings a whole-of-economy approach to providing advice to government based on an objective and thorough analysis of options. To facilitate that analysis, we have identified five dimensions that directly or indirectly have important implications for wellbeing and are particularly relevant to Treasury. These dimensions are:

  • The set of opportunities available to people. This includes not only the level of goods and services that can be consumed, but good health and environmental amenity, leisure and intangibles such as personal and social activities, community participation and political rights and freedoms.
  • The distribution of those opportunities across the Australian people. In particular, that all Australians have the opportunity to lead a fulfilling life and participate meaningfully in society.
  • The sustainability of those opportunities available over time. In particular, consideration of whether the productive base needed to generate opportunities (the total stock of capital, including human, physical, social and natural assets) is maintained or enhanced for current and future generations.
  • The overall level and allocation of risk borne by individuals and the community. This includes a concern for the ability, and inability, of individuals to manage the level and nature of the risks they face.
  • The complexity of the choices facing individuals and the community. Our concerns include the costs of dealing with unwanted complexity, the transparency of government and the ability of individuals and the community to make choices and trade-offs that better match their preferences.

These dimensions reinforce our conviction that trade-offs matter deeply, both between and within dimensions. The dimensions do not provide a simple checklist: rather their consideration provides the broad context for the use of the best available economic and other analytical frameworks, evidence and measures.

In The Age and Sydney Morning Herald