Centering a nation’s budget on 'well-being’

New Zealand just enacted an innovative plan that requires government spending to contribute to the well-being of its citizens in specific ways.

The Monitor's View

Is a booming economy the only measure of the quality of life in a country?

That question has been under intense discussion in recent years. Critics have found financial measurements such as gross domestic product (GDP) inadequate. Attempts have been made to find other ways of measuring the well-being of a nation’s people, such as the annual World Happiness Report and the United Nations’ Millennium Development Goals.

In late May, New Zealand became the first country to design its budget around a specific set of measures of national “well-being.” Government spending must show it contributes to at least one of five national goals: better mental health (including fewer suicides), less child poverty, help for minorities (Maoris and Pacific Islanders), moving to a low-carbon economy, or adapting successfully to the digital age.

Growth in GDP is often used to measure the well-being in a country. And growing wealth and human well-being has been found to go hand in hand in some ways.

But GDP, for example, can’t reflect the widening income inequality that is troubling the United States and other countries. Is a rising GDP representing a better life for everyone – or only a privileged few? GDP can paint an incomplete picture. 

New Zealand’s new well-being budget doesn’t ignore economic growth, notes Prime Minister Jacinda Ardern. But “growth alone does not lead to a great country,” she says. Despite its strong economy her country still faces daunting social problems, including suicide, homelessness, family violence, and child poverty.

The goal of the well-being budget, adds Finance Minister Grant Robertson, is to make New Zealand “both a great place to make a living, and a great place to make a life.”

The budget is being criticized from both left and right. For those on the left, it fails to be radical enough; specifically, it fails to hike the capital gains tax, seen as a means to address income inequality. A member of the opposition center-right National Party has dismissed the budget as nothing more than a “marketing campaign” that will divert attention from facing future economic risks.

How do you measure happiness or well-being? Views differ on what Thomas Jefferson meant when he included the phrase “the pursuit of Happiness” in the Declaration of Independence as a natural right. Was the phrase merely a euphemism for the pursuit of wealth, as some suggest? Or did he see a natural yearning for other, deeper satisfactions that government must recognize? 

Whether New Zealand has made the right choices for how to measure improvement in well-being remains to be seen. But its experiment can hold lessons for others. New Zealand may be a small, remote island nation of fewer than 5 million, but it is also a vibrant democracy that must mix a majority population that has European roots with a significant number of ethnic minorities, a challenge it shares with many other nations.

That’s why this tiny country’s big experiment with a well-being budget will likely get a close look in capitals around the world.