Wellbeing expert and former RBNZ Chair Arthur Grimes: The Government was right not to flag more borrowing in the Budget, but Treasury's approach towards wellbeing is too complex and difficult to measure 

Arthur Grimes - Wellbeing and Public Policy Chair at Victoria University and Motu Economic and Public Policy Senior Fellow - is critical of Treasury’s approach towards wellbeing that underpinned last Thursday’s Budget.

He maintains it requires too many indicators to be weighed up, yet doesn’t include enough specific targets.

However Grimes, who is also a former Reserve Bank Chair and Chief Economist, believes Finance Minister Grant Robertson made the right call not to flag more borrowing than he did in the Budget.

Capacity constraints 

Speaking to interest.co.nz, Grimes explained: “People have criticised this government for not borrowing more and spending it on infrastructure or whatever else.

“The fact is, in New Zealand, there isn’t a spare resource to be found. You can’t find a spare builder, you can’t find a spare construction worker, machinery’s all tied up.

“If the Government had borrowed more to invest in infrastructure, they wouldn’t have been able to do anything. We’ve already seen the problems with KiwiBuild - that you can’t get the builders to build the houses.

“Why would anybody think that they would find the resources to build infrastructure just by borrowing? That doesn’t create resources.”

Grimes maintained the Government’s target to reduce net Crown debt to 20% of GDP by 2022 was a “very good disciplining device”, but supported the target being broadened to 15%-25% of GDP after 2022.

“Widening it out for the future makes sense, because we don’t know what the economic conditions are going to be like in the future.

“If we continue in a very full employed economy, they should keep reducing their debt. If we’re going to be in a time when the world’s in a recession, then we should be increasing it in the way the last government did.”

Over-employed balance under-employed

Challenged on whether there was in fact more capacity in the economy than the low unemployment rate would suggest, Grimes said: “There are probably far more people who are over-employed than there are people who are under-employed…

“So that pretty much balances it out.”

He pointed to the struggle firms face finding labour, and the moves of those in the regions to use fruit pickers from the Pacific Islands for example, as showing a “real constraint on labour”.

Grimes didn’t buy comments Infrastructure New Zealand CEO Stephen Selwood made to interest.co.nz that while there were capacity constraints in the vertical construction sector, there was in fact room in the horizontal construction sector.  

He said if the Government suddenly wanted to build more roads and there weren’t the people to do the work, firms could inflate their bids.

“That’s wonderful for people in that industry.”

Asked about whether seemingly counterproductively, more migrants were needed to build infrastructure to cater for the influx of migrants New Zealand’s had in recent years, Grimes said he was a “fan of migration”.

“I think it’s good for the country generally speaking. So, I’m not adverse to further migration, but you have to do it over time, slowly, because you still have to house those people and we don’t have the houses for them.”

When interest.co.nz asked Robertson the same question last week, he said he didn’t see the need to try to increase net migration above current levels, but stressed the Government’s focus on matching up migrants with the skills needed in different parts of the country.

 A matter of 'less is more' 

Coming back to wellbeing, Grimes said the 60 indicators included in Treasury’s Living Standards Framework used to guide policymaking, were “59 too many”.

Robertson has in the past acknowledged the challenge for policymakers is deciding which indicators to prioritise. IE Do you prioritise the wellbeing of a motorist stuck in traffic, or a pedestrian breathing in polluted air when deciding how to improve transport infrastructure?

Grimes believed it wasn’t very useful having a swathe of indicators to formally factor in. His preference was to keep it simple and ask people how they rate their lives/their wellbeing as a whole on a scale of zero to 10.

“It’s a very sensible approach. Angus Deaton won the Nobel Prize last year for saying these sorts of approaches are really useful for economics. And they’re now used for cost-benefit analysis in a number of countries.”

Grimes pointed to the UK where someone would be asked to rate their lives before being put in social housing for example, and then again afterwards, to weigh up the success of the policy.

He said the 59 “supplementary indicators” to the overall indicator of how you rate your life are helpful in terms of interpreting your overall wellbeing, but not very useful when considered at face value.

Accountability 

As for the need for more specific targets to measure whether wellbeing goals are being met, Grimes said: “This is the classic thing with budgets. Governments always trumpet how much they’re spending in a particular area… Each of those might be very sensible, but what are we expecting to get on the other side?”

Grimes said it was “unfortunate” the Government dropped the previous government’s 10 Better Public Service Targets that measured things like reductions in crime rates and increases in exam passes.

Asked the million-dollar question - whether Budget 2019 was in fact a “wellbeing” budget, Grimes conceded certain parts of it were different to what we’ve seen in the past.

“All governments have concentrated on wellbeing since the 1890s liberal government when we introduced old-age pensions, free education for primary school and state housing and things like that,” he said.

“This focus on particular aspects of wellbeing [defined by the Government’s five budget priorities], I thought was a little bit new.

“For instance, the mental health side - where they really put some emphasis on it - I think that probably is a greater emphasis than we would’ve seen if we didn’t have that explicit wellbeing lens on it.”

For more on government debt, the infrastructure deficit and capacity constraints, see this opinion piece by Jenée Tibshraeny.