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Working Towards Higher Living Standards for New Zealanders

A better understanding of living standards

Over the last 18 months, Treasury has undertaken research and analysis to improve its understanding of living standards. This work is part of internal efforts to enhance policy advice and is also a response to external criticisms about the lack of clarity surrounding Treasury's vision (LECG, 2009).

The result of this work is the development of a 'Living Standards Framework' (the Framework). The Framework is intended to help Treasury consistently provide Ministers robust, theoretically-grounded and evidenced-based advice that aims to improve the lives of all New Zealanders.

In developing the Framework, Treasury has drawn on substantial and valuable data and analysis from other government departments, international organisations and from the wider academic literature on living standards.

The Framework is underpinned by a range of theoretical approaches, including welfare-based economic theories, capability approaches, sustainable development and subjective wellbeing. It acknowledges that while income and economic production are important in improving living standards, there are drawbacks to relying solely on proxy measures such as GDP. In doing so, the Framework puts the New Zealand Treasury alongside the latest thinking from the Organisation for Economic Cooperation and Development (OECD, 2010a-d), as well as statements from the United States Treasury (US Department of the Treasury, 2011), the International Monetary Fund (IMF, 2011a) and the Australian Treasury's Wellbeing Framework (2004).

The Framework uses the economic concept of utility, which incorporates a broad range of material and non-material factors. However, it also acknowledges the importance of individual rights, freedoms and capabilities.

While raising overall living standards in New Zealand is a key priority, Treasury recognises that the standard of living of each individual New Zealander is also important. The Framework therefore looks at both the aggregate level of living standards and their distribution across the population. This will help Treasury provide governments with empirically-based advice on achieving their distributional priorities, and will ensure policies are targeted to where they have the greatest impact on people's living standards.

The sustainability of living standards for both present and future generations is a key part of the Framework. This acknowledges Treasury's stewardship role of endowing the next generation with "whatever it takes to achieve a standard of living at least as good as our own and to look after their next generation similarly" (Solow, 1992, p.15).

Finally, the Framework draws on insights from the subjective wellbeing literature, recognising that individuals' assessments of their own living standards are an important consideration.

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