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1 Introduction

Treasury's vision is to be "a world class Treasury working for higher living standards for New Zealanders" (Treasury, 2010a, p.i). This vision, chosen about a decade ago, reflects Treasury's aim to provide advice that improves the lives of New Zealanders through means that are amenable to public policy.

Treasury has not always explained clearly what it means by "living standards". However, Treasury's role as the government's advisor on economic, fiscal and regulatory issues has meant that its advice has primarily focused on how better economic performance can improve the lives of New Zealanders. In developing its advice, Treasury has drawn from the vast literature on what contributes to economic performance, and how this increases material standards of living. This focus aligns well with the Oxford Dictionary (2011) definition of living standards - "the degree of wealth and material comfort available to a person or community".

However, Treasury's role as a central agency with oversight over all significant policy issues across the state sector has also led it to acknowledge that living standards are broader than income alone, and are determined by a wide range of material and non-material factors. For example, in the past Treasury has noted that living standards:

  • are "undoubtedly much more than income" (Treasury, 1999, p.1)
  • include "people's participation in social networks, community life, political choices and civil society" (Treasury, 2001a, p.13).

In addition, Treasury's roles require consideration of how policy decisions affect the distribution of living standards across the population. Treasury uses an empirically-based approach to advise Ministers how a policy change will affect individuals and groups, and how to best achieve the government's distributional objectives. To maintain an apolitical position, Treasury avoids making value judgments on what represents a 'fair' distribution of living standards.

Over the last 18 months, Treasury has undertaken research and analysis to better understand living standards. This exercise was part of internal efforts to continually enhance the quality and consistency of Treasury's policy advice. It was also a response to external criticisms of a lack of clarity around Treasury's vision, including that Treasury pays insufficient attention to "whether higher incomes are the ultimate objective or only useful in so far as they increase some other measures of happiness or wellbeing" (LECG, 2009, p.9).

The result of this work is the development of a 'Living Standards Framework' (the Framework). The Framework describes a broad range of factors - including income and wealth - that theory and evidence suggest are important to living standards. It also sets out points to consider when developing policy advice: the level and distribution of factors that underpin living standards, and the interactions, trade-offs and synergies among them.

In developing the Framework, Treasury has drawn extensively on the expertise and publications of many other departments, including Statistics New Zealand's report Measuring New Zealand's Progress Using a Sustainable Development Approach 2008 and the General Social Survey 2008; the Ministry for the Environment's report Environment New Zealand 2007; and the Ministry of Social Development's Social Report 2010 and Household Incomes in New Zealand 1982-2009. Treasury acknowledges and values the useful contribution of this data and analysis.

Treasury's work on the Framework puts it alongside other economic agencies that are emphasising goals and measures beyond economic growth. For example, the Australian Treasury recognises that "analyses of economic development or progress that only take income into account neglect other important determinants of wellbeing" (2004, p.3) and the then Chief Economist of the United States Treasury, Alan Krueger (2009), noted that "GDP... does not tell us whether resources are being used wisely to maximise the well-being of society". Similarly, the OECD (2010a) has recently identified measuring wellbeing and progress of societies as a key priority, and in 2008 France's President Sarkozy commissioned economists Amartya Sen, Joseph Stiglitz and Jean-Paul Fitoussi to investigate alternative measures of economic and social progress. In addition, the IMF (2011a) has emphasised the importance of considering how income and wealth are distributed, noting that sustainable growth requires the benefits of growth to be broadly shared.

By identifying a broad range of factors that matter for living standards, the Framework will improve Treasury's ability to provide Ministers with robust, theoretically-grounded and empirically-based advice on economic, fiscal and regulatory issues, and on significant policy issues from across the wider State sector. In doing so, Treasury considers that the Framework will help to achieve its vision of higher living standards for New Zealanders.

This paper proceeds as follows: section two provides a brief overview of some relevant economic and philosophical theories, concepts and evidence; section three draws on these to develop Treasury's Living Standards Framework; and section four describes how the Framework can be applied to help develop policy advice.

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