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4.3 Calculating the cost ratios for each scenario

The parameters needed for the long term fiscal model representing each of the scenarios likely impact on fiscal costs (as far as we could cover in our IDI data) were calculated for welfare and corrections costs separately. The parameters are cost ratios, which are the ratio of the area under the blue curve to the area under the grey curve in each of the above 8 graphs from Figures 8 and 9. Equivalently they can expressed as the ratio of mean welfare (or corrections) costs for the population (under the modified risk profile) to the mean welfare (or corrections) costs observed in the current population.

Figure 10: Cost ratios for each scenario
    Minimise Childhood
Equitable Māori
Human Capital
Corrections Ratio 0.79 0.52 0.75 0.82
Welfare Ratio 0.88 0.65 0.84 0.87

In the long term fiscal modelling we apply these ratios to current levels of spending to create new target benchmarks. We transition to these new benchmark levels in a steady linear fashion over a pre-determined span of time. Figure 11 is an illustration of the results of long term fiscal modelling of these scenarios. These later stages of the long term fiscal modelling are described in Burton et al (2016).

Figure 11: Fiscal track under the social investment scenarios
Figure 11: Fiscal track under the social investment scenarios.
Source: Burton et al (2016)
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