As the government's economic, fiscal and regulatory adviser and also a central agency, Treasury's work encompasses a wide range of policy issues that impact on the living standards of New Zealanders.
Economists recognise that wealth and material comfort (the traditional definition of living standards) are important to living standards. However, there are numerous other factors that matter to New Zealanders' standards of living - for example health, education, a clean environment and freedom - many of which have value independent of their contribution to wealth and material comfort. Treasury's understanding of living standards recognises these other factors and is thus broader than the traditional definition.
This understanding of living standards is captured in Treasury's Living Standards Framework. The Framework draws on a vast theoretical literature to identify a broad range of factors that contribute to living standards. It brings these factors together in a 'capital stocks and flows' approach that includes four types of capital:
- financial and physical capital, which includes infrastructure, housing and wealth
- human capital, which includes health and skills
- social capital, which includes institutions and trust
- natural capital, which includes the stability of the climate, quality of water, as well as biodiversity
These capital assets generate a flow of goods and services (broadly conceived) which are consumed by people and enhance their living standards.