This is your opportunity to hear the Secretary to the Treasury speak on recent developments to the Living Standards Framework and how it is being used within the Treasury, including in the Treasury’s first Wellbeing Report as now required every four years under the New Zealand Public Finance Act. The Wellbeing Report will be published in November 2022 and the Treasury also plans to publish a series of papers in the lead-up to the Report.
As well as updating on changes to the LSF and the LSF Dashboard, Caralee will share some of the emerging work that will be informing the Wellbeing Report. She will particularly focus on insights from a report on trends in wellbeing that will be published around the same time as the presentation.
Caralee’s presentation is the first in a wellbeing seminar series that the Treasury will be running over the rest of 2022 and early 2023. The Treasury will host a range of domestic and international speakers to bring different perspectives and insights on wellbeing that will feed into our Wellbeing Report and our ongoing work in wellbeing.
About the presenter
Dr Caralee McLiesh joined the Treasury as Chief Executive and Secretary to the Treasury in September 2019. Caralee's previous role as Managing Director at Technical and Further Education (TAFE) New South Wales (NSW), Australia, saw her lead the transformation of TAFE NSW to become a more modern, competitive and sustainable organisation. From 2008 to 2018, Caralee held several Deputy Secretary roles at the NSW Treasury.
Her involvement in the development of Australia’s first Social Impact Bond for families at risk earned her the Public Service Medal of Australia (2017) for outstanding public service to social impact investment policy and reform in NSW. Prior to this, Caralee worked at the World Bank in Washington DC, the International Red Cross and the Boston Consulting Group.
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Welcome everyone. I am Diana Cook the Deputy Chief Economic Advisor here at The Treasury. I would like to welcome you today to this speech by our Secretary to The Treasury, Caralee McLiesh, on the wellbeing mahi of The Treasury, and particularly our work in the lead up to Treasury's first Wellbeing Report. And the presentation today is also the first in a virtual wellbeing seminar series with a range of upcoming seminars from wellbeing experts. So, keep an eye out for the next presentation, which will be by Carrie Exton from the OECD on the wellbeing impact of the COVID pandemic across OECD countries.
So, that's a taste of what's coming up. What about today? In terms of the format today, Caralee's presentation will be followed by a Question & Answer session, and she'll be joined by other Treasury leaders in our wellbeing work. So, I encourage you all to submit your questions using the chat function. We have about an hour together, so we might not have time to cover all of the questions, but we'll get through as many as we can. So, without further ado, I will hand you over to the secretary of The Treasury, Caralee McLiesh.
Thank you, Diana and [speaking in te reo Māori] Tēnā koutou katoa. Ngā mihi nui kia koutou katoa.
Greetings and welcome. I'm really delighted to speak with you today to launch our approach to Te Tai Waiora: Wellbeing in Aotearoa New Zealand 2022. This is the Treasury's first regular report on the state of wellbeing in Aotearoa New Zealand. In recent years, there've been increasing calls for economists and policy makers to look beyond GDP or financial metrics, and to consider a wider set of measures on the success of public policy. I'm pleased to say that the Treasury has long had a focus on this broader wellbeing approach. We have strived for policy analysis that takes into account a range of outcomes that we all care about, such as health, the environment, social cohesion, in addition, so not instead of, but in addition to traditional measures of financial success in a strong and productive economy. My remarks today will cover a number of evolving strands of our wellbeing analysis at the Treasury, which all come together in this year's Wellbeing Report: Te Tai Waiora.
This is a collective endeavour. We recognise that Treasury is not the expert on all aspects of wellbeing. And at the outset, I want to acknowledge and just say a big thank you to the very many contributors to this work. Some of whom are shown here and it's with these and other partners, the Treasury has invested in developing its Living Standards Framework, or LSF, for more than a decade.
Today, I'll introduce you to the latest update of the LSF and the associated LSF Dashboard of wellbeing measures. I will also touch on He Ara Waiora, the Māori wellbeing framework that we apply in our work. Te Tai Waiora: Wellbeing in Aotearoa New Zealand 2022 will use these conceptual frameworks and the LSF Dashboard as a starting point for its analysis. But the Treasury is also undertaking further analytical work so that the Wellbeing Report will provide new insights, and new empirical insights also, on wellbeing in New Zealand. Some of the early insights from work towards Te Tai Waiora show that on average Kiwis are fortunate to enjoy high levels of wellbeing in many areas, but strong averages can mask some deep divisions and concerning trends.
One of the most striking that I want to highlight today is a growing gap in wellbeing between young and old. I'll also talk about how wellbeing appears to have held up surprisingly well in the COVID-19 pandemic to date, but experiences do differ greatly. And some of the long-term effects are perhaps yet to be seen. COVID-19 also reinforces the salience of building resilience to inevitable shocks like pandemics or wars, or earthquakes, and also to known challenges such as climate change and an ageing population. And I'll finish with some observations on how Te Tai Waiora might help elected officials to shape priorities and direct resources to what matters for us in Aotearoa New Zealand. Lifting living standards for our mokupuna will require a long-term intergenerational focus on wellbeing in policy and in investment decisions. So, understanding wellbeing, and also the interdependencies across the different dimensions of wellbeing is at the heart of robust economics and policy analysis.
The LSF, and He Ara Waiora provide frameworks for doing this. They encourage us to use economic tools, like cost benefit analysis, in a really rigorous and thoughtful way. The LSF breaks wellbeing down into 12 domains. As you can see here, safety, health, environmental amenity, and more. It has a focus also on the stocks of resources available to New Zealand that can provide wellbeing into the future, such as our natural environment, human capability, social cohesion, and financial and physical capital. Treasury has recently produced an updated version of the LSF that delves deeper into how culture, particularly Māori and Pacific cultures, and also different life circumstances, particularly for children, affect the way that wellbeing is understood and experienced by people. I want to just highlight two key changes from the previous versions of the LSF. The first is describing our wellbeing as both individual and collective. This in part reflects a Māori concept of mana, as inherent both in individuals, he tāngata, and communities, he kāinga.
However, the concept of collective wellbeing resonates beyond Māori-dom. It's explored in economics through concepts, such as externalities, collective action problems, which provide frameworks for considering the ways in which individual choice can influence collective outcomes. It's an area that some of the finest minds in economics have dedicated their careers to, including Elinor Ostrom, Ronald Coase, Oliver Williamson, Douglass North, and many others. I think the ongoing pandemic is a perfect case of where individual wellbeing has been dependent on collective action for the benefit of all. Tackling climate change, environmental degradation are other examples.
The second change that I want to draw your attention to in our refresh framework, is the addition of the new level of institutions and governance. The role of institutions in shaping behaviour and influencing outcomes has a long history in economic thought, dating back to economists, such as John Kenneth Galbraith, Ronald Coase, to the new institutional economics of Oliver Williamson, and Douglass North. North distinguished between institutions as the formal legal rules and informal social norms that govern individual behaviour and structure social interactions. And also the formal and informal organisations that those rules and norms are embedded in. The new institutions and governance level of the LSF covers both institutions and organisations.
And it's a change that reflects that our current and our future wellbeing are contingent on the strength of New Zealand's institutions, including those like Tangata Whenua. The resilience of our institutions is at the very heart of our capability to respond to harmful shocks, as well as to take advantage of opportunities. And it also reflects that a lot of policy work is about strengthening, enhancing, or managing various institutions. The addition of the six institutional spheres also highlights that improving wellbeing is not only the role of government. Markets, whānau, civil society, organisations, other institutions are also important. And the relative role of each sphere depends on context and also is something that needs to be considered as part of any policy work.
So how is New Zealand performing on the different dimensions of wellbeing? To help answer that today I'm really pleased to launch a new version of our LSF Dashboard on the Treasury website. The dashboard assembles 103 indicators across 12 wellbeing domains, institutional spheres and four aspects of wealth. Where available it also provides international comparisons and distributional breakdowns across ethnicity, gender, and places. The updated dashboard aligns with the updated LSF, including some new indicators on the health and institutions and measures that reflect child wellbeing. We are going to continue to evolve the dashboard as measures of living standards also develop. I really do encourage everyone with an interest in wellbeing to have a look at the dashboard, provide us with some feedback on how it can evolve in the future.
Now, the updated Living Standards Framework aligns more closely with a Māori world view, but we're not attempting to fully capture te ao Māori in the LSF. Instead, we intend to use the LSF alongside He Ara Waiora as well as draw on other cultural or child-specific frameworks where relevant. And that really avoids overloading the LSF with too much complexity, but it also helps to maintain the integrity of other complimentary perspectives. He Ara Waiora is a framework that helps the Treasury to understand waiora, which is often translated as a Māori perspective on wellbeing. And while its principles are derived from mātauranga Māori, they're also relevant to lifting the intergenerational wellbeing of all New Zealanders. I'm not focusing on the application of He Ara Waiora today, but in the coming months, we will release a paper exploring wellbeing through the He Ara Waiora lens. We're also currently working with the Te Puni Kōkiri to develop indicators for the He Ara Waiora framework.
So, the LSF, the dashboard and He Ara Waiora will all underpin our upcoming Wellbeing Report Te Tai Waiora. It's a new requirement for the Treasury under the Public Finance Act to examine, at least every four years, the state of wellbeing, how that state of wellbeing has changed over time and the sustainability of, and any risk to the state of wellbeing. Te Tai Waiora is one of four stewardship documents prepared by the Treasury. You can see the others here. And together they help to orient policy and finances towards long-term intergenerational wellbeing outcomes. Our Wellbeing Report focuses on building better measures of wellbeing, deepening our understanding of the state and the drivers of it. And in that way, we aim to help inform elected officials in setting high-level policy and investment priorities, including through the budget.
The Wellbeing Report will be, it's going to be as much of a journey as a destination for the Treasury. We intend to engage on a range of research and analysis over the remainder of the year, including through the seminar series, and then to pull it all together in a final report towards the end of the year. So today we are releasing the first in a series of analytical work for the report, a background paper that examines trends in the wellbeing domains in New Zealand over the last 20 years. This paper highlights that Aotearoa New Zealand has many strengths, including high-reported life satisfaction, strong employment measures, high air quality, measures of social connection and more. But we also lag behind other countries in a number of areas. For example, we have among the lowest housing affordability and the highest teen suicides in the OECD and also lower average household incomes.
Trends over time show a mixed picture. Some of our areas of weakness appear to be improving such as river quality, safety, and incomes, as you can see here. At the same time, some of our areas of strength are also showing signs of deterioration, including self-reported health, life satisfaction and loneliness. A key theme that we're exploring in Te Tai Waiora is patterns and trends in the distribution of wellbeing outcomes. This is an area where economic thinking has evolved considerably. Back in the 1970s, Nobel Laureate Robert Lucas warned that of all of the tendencies that are harmful to sound economics are the most seductive, and in my opinion, the most poisonous is to focus on questions of distribution. In contrast today, in speaking about inclusive growth, Nobel Laureate Esther Duflo says, I think the whole notion of a trade-off is likely a fallacy. The IMF now recognises that inequality can have adverse and political and social consequences with the potential to undermine macroeconomic stability and sustainable growth.
Distribution is ultimately a question for us as a society, including through our elected representatives, to decide. At the Treasury, we aim to inform those decisions by highlighting trends in distribution, and where possible analysing their causes and consequences and surfacing the trade-offs to decision makers. As you would appreciate, assessing 20 years of wellbeing data reveals a pretty rich array of findings on distribution. It's important to keep in mind that averages can conceal quite different experiences of wellbeing. We know that on many measures, Māori and Pacific people are likely to experience lower wellbeing while gender gaps have fallen on some dimensions. On others, differences remain. Sole parents, 80% of whom are female, have much lower levels of wellbeing and people with disability report lower wellbeing in a range of areas, including finding it harder to express their identity, lower incomes, and a lower sense that life is worthwhile.
I encourage those who are interested in that rich detail on wellbeing trends to read the background paper. There's an enormous amount of material in there, but the main trend that I wanted to highlight today is a large, and in many cases, growing gap between young and old. In many countries, older people do less well on various wellbeing metrics. Aotearoa New Zealand is comparatively quite a good place to be old. Some older people of course are struggling, but most are doing well, particularly those who are partnered and who own their own home. On average, over 65s are more satisfied with life, have a higher sense of belonging, are less lonely, have more social support, experience fewer negative emotions, and are more politically engaged, volunteer more, and also have more leisure time. It's good that the older among us tend to be so well. And we also see some improvements in some areas for younger people, particularly a recent decline in child poverty. But our younger people fare less well on many other metrics.
And this is of course concerning both for the wellbeing of young people now, and for the potential long-term impacts on their wellbeing over the rest of their lives and contribution to the society. One of New Zealand's areas of strength is in the work, care, and volunteering domain. We have high employment, high job satisfaction, low unemployment, and the highest rate of volunteering in the OECD. But while we lead the OECD pack in employment, we are only around the OECD average in terms of the rates of young people not in employment, educational training, or NEETs. And our NEET rates continue to be higher among Māori and Pacific people. We see a similar intergenerational pattern emerging in knowledge and skills. The picture looks best for adult skills, particularly in adult literacy. And in problem solving. By contrast, rates of childhood skills are in the middle of the OECD pack and appear to be declining over time.
The gap between ethnicities is large and closing marginally at best and through a process of levelling down rather than levelling up. Another domain where the young are doing less well is housing. Young people are more likely to rent homes than in the past. And we know that rentals are more likely to be crowded, less healthy and less stable. New Zealand has among the least affordable housing in the OECD on many metrics with renters paying a greater proportion of their income on housing on average. Housing also matters for wellbeing due to the role that it plays as a stock of wealth. Since the early 80's, house prices in New Zealand have increased more than fivefold, a higher rise than in any other OECD country. At that time, back in the early 80's, 73% of people in their early 30s owned a home. By 2018 last census, it was down to 51%. And the result is growing wealth inequality between the young and the old.
If you can consider the slide here, the difference in wealth distribution by age in 2000 compared to 2018. And as you can see, in both cases, we have a pattern where older people have more wealth and that's to be expected. We tend to accumulate wealth as we grow old. But since the turn of this century, the gap between wealth of the over 65s and the under 65s has more than doubled. Now, given the limitations in our data, it's kind of hard to be precise, but we estimate that at least half of this gap can be attributed to the growth in house prices.
Our health is a foundation for a human capability. It's strongly associated with other aspects of our wellbeing. And people tend to rate health as among the most important aspect of their wellbeing. It's a good thing then that like in most countries, our health has steadily improved for many years and a baby born today can expect to live longer and for more years in good health than at any time in our history. We also have very high self-reported health in New Zealand, which is a huge strength for our wellbeing. But despite this, increases in life expectancy and healthy life expectancy seem to be flattening out. As you can see in the chart here, the number of years that a baby can expect to live in good health has also flattened out. And we've now fallen slightly below the OECD median for this measure.
We're also seeing increases in reported psychological distress, particularly in younger people as you can see here. Loneliness is highest amongst those age 15 to 24 and has increased substantially in recent years. Those under 25 are least likely to report a higher sense of belonging Aotearoa New Zealand, are least likely to report the life is worthwhile, are less likely to vote than young people in other OECD countries. So layering the large, and in some cases growing gap in wellbeing between young and the old on top of other major trends like climate change, biodiversity, higher public debt, infrastructure gap, ageing population, layering all that togethers raises some big questions for intergenerational equity.
For centuries now, human prosperity has grown generation by generation. And so we need to address these challenges if our next generation is to be better off than we are today. The Treasury's He Tirohanga Mokopuna 2021, which is our Long-Term Fiscal Statement and Long-Term Insights Briefing, explored how policy settings can affect intergenerational fiscal outcomes. Things like reforms to superannuation settings, health, ensuring sustainable revenue to cover public expenditure, policies to adapt to and mitigate climate change, manage shocks, strengthening public financial management. These are all fundamental to sustainable debt and future wellbeing. We're also currently advising on how fiscal targets can support intergenerational equity by providing incentives for current consumption to be paid for by current generations. And also for prudent debt targets that balance the need for prudent investment, where it will provide benefits for future generations.
Now, our background paper has looked at some of the long-term patterns in wellbeing rather than more recent impacts of the pandemic. The events of the last two years have, we believe, only reinforced the importance of taking a living standards approach to policy. The pandemic reminded us how interrelated health and the economy are. Controlling the virus helped protect jobs and incomes. At the same time, it's clear that wellbeing is actually about much more than just not getting the virus. The response of New Zealanders to the pandemic highlighted the importance of social capital with whānau, friends, Iwi community pulling together and supporting each other. Back in July 2020, the Treasury published a rapid review of wellbeing on the backs of the pandemic. And we're updating that now for Te Tai Waiora, our Wellbeing Report. And I want to share just some initial reflections but noting that this is preliminary and ongoing work.
COVID continues to cause real personal hardship as we adjust to its ongoing presence. Nevertheless, compared to many countries, New Zealand’s come out relatively well from the pandemic to date. Our COVID-19 mortality rates been low. Life satisfaction has stayed high across all ethnicities. The economy's been resilient over all with GDP above pre-pandemic levels and unemployment at record lows, household income and wealth rising. And also we've seen that business balance sheets and household balance sheets have been strengthening. Of course, pandemic is not over yet. And we face some new economic headwinds including inflation, rising interest rates, and some very tight supply constraints. And the positive headlines mask some underlying portions that we are examining more closely through this work. First, the distribution and activity across our economy, and also to some potential longer-term wellbeing impacts.
On distribution, the experience of the pandemic has not been the same for all of us. And some of us need more support than others. Since the start of the pandemic, the Treasury's been asked frequently about the effects on income and wealth distribution. And often the assumption is, the expectation is that inequality will have risen in such a big shock. Interestingly, however, the early evidence is that neither wealth nor income equality has increased in the pandemic today. And in fact, when we moved to June 2021, income equality actually fell as you can see here. Relative wage gaps between low and high skilled workers have also fallen. Government’s support through the pandemic as well as broader welfare and wage reforms have played a role in this for, for somewhat a counterintuitive result. And on the wealth side, while rising house prices have increased wealth and equality between those who own, and those who don't own housing, it did not increase overall wealth inequality. And that's because house price growth benefits people in the middle income, middle wealth brackets the most, as the most wealthy and the least wealthy of us tend to have a lower share of wealth in housing.
Despite this, deep inequities remain, and COVID-19 has driven some big shifts in activity that have disproportionately hit some very specific groups. Disruption to work and income from sickness and isolation requirements have particularly affected Pacific peoples who account for 8% of COVID cases, but 15%, sorry, 8% of the population, but 15% of COVID cases. We also know many CBD services, hospitality events, tourism, educational businesses have been severely affected. And while in some cases, a bounce back is likely as conditions normalize, in other cases the shifts may be more permanent and they're going to require businesses, workers, and households to adapt.
In addition to distributional concerns, we're also investigating the possible long-term wellbeing impacts. Some effects of the pandemic have yet to show for in the data perhaps, or they may come with a lag. At this point, these risks are not certainties. Many metrics on education have shown resilience. So compared to most OECD countries, New Zealand has had fewer days of school closures in the first year of the pandemic, as you can see here. Also, a higher-than-average number of students with online learning access at home. Participation in secondary and tertiary education increased over the last two years and learning progress hasn't fallen for most student groups. We haven't seen any significant changes in equity of learning, although existing inequities have not gone away. Of more concern though, our Ministry of Education colleagues are seeing some reductions in school attendance and early childhood participation as more learners are absent to the illness or learning at home because of self-isolation.
There are also risks to the health dimension of our human capability. Healthcare services have been disrupted in the pandemic. Patterns of inequality and access to health may have been deepened with immunisation of young children falling for all children, and especially for Māori and Pacific, as you can see here. New Zealand health survey shows a general increase in the share of the population reporting psychological distress, particularly for Pacific people, Asian people, women, and as I mentioned earlier, the young.
Another important source of wealth in the LSF is social cohesion and the high trust of New Zealanders in each other, in our institutions. The spirit of reciprocity had a big role in the success of our COVID-19 response to date. Nonetheless, as the pandemic has stretched out, we've seen a slight decline in trust levels after a peak in June 2020, as you can see here.
The strong fiscal and monetary response that supported the economy in the pandemic has played an important role in the surprisingly strong, at least on average, wellbeing outcomes to date. As fiscal and monetary policy normalise, some of the longer-term impacts of COVID may become more apparent. It won't be fiscally sustainable to continue with the extraordinary levels of fiscal support provided to date. Moreover, there's risk that high levels of support could exacerbate inflationary pressures or reduce productivity by discouraging businesses and people to adapt to long-term changes. In a COVID resilient economy, we expect that businesses, communities, individuals are better able to adapt to living with COVID-19 and better able to plan for and to self-manage disruptions.
So that takes me to the question of how to build resilience so that wellbeing is sustainable, and risks can be managed. And we'll explore this also in Te Tai Waiora. One avenue of study will be the resilience of institutions. The more uncertain or unknown a risk is, the more important it is to have flexible and adaptable institutions and good decision-making processes. COVID-19 provides a good example. And there's one really interesting study using the Global Health Security Index, which found that it was countries that did well on measures of institutional resilience that had relatively good health outcomes through the pandemic, rather than those who had high levels of preparedness in the health system. New Zealand's decision-making structures that enabled a ‘go hard, go early’ response, partnerships between central and local government and providing supports, and the ways in which Iwi and Māori organisations move quickly to shield and to support vulnerable whānau in their communities. These are all examples of how institutions supported the pandemic response.
Flexible regulatory systems that enable fast adoption of new technologies and practices have also been shown to be important. Resilience is also strongly influenced by the stock of our wealth across its four aspects. So physical and financial capital, the natural environment, human capability, and social cohesion. For example, the pandemic showed the importance of a strong crown financial balance sheet as a buffer for fiscal support. Strong social cohesion and collective response was also important. We envisage a future where comprehensive wealth reporting is built more consistently into policy and budgeting. Measuring wealth is not a short-term endeavour, and inevitably it's going to be imperfect. It's not possible to quantify all aspects of our human, social and natural assets, but better information about the stocks of the full aspects of our wealth and their trends will strengthen how we evaluate living standards. Without it, we risk overstating the significance of what we currently measure, which is traditional financial assets and liabilities, and underplaying how our actions may degrade or build other wealth.
As economist Sir Partha Dasgupta has argued, an economy could record a high rate of growth in GDP by depreciating its other assets. That no one would know that from national statistics. In recent decades, eroding natural capital has been precisely the means the world economy has deployed for enjoying what is routinely celebrated as economic growth. Te Tai Waiora will assess the sustainability of and risks to wellbeing over time with a particular focus on the natural environment and ecosystem services.
Now, the range of views about the ways in which nature, or te taiao, and humanity are connected, this is really an opportunity for us to broaden our understanding of the natural environment, why it matters to people, and what different measures can tell us about the stock of our wealth in the natural environment. Te Tai Waiora will also present values of our human capability, updating previous estimates, examining trends over recent decades, comparing to other countries and exploring ethnic breakdowns. And while measures of social cohesion or social capital are less well established, we will explore and present different approaches, building on our analysis of wellbeing trends and also drawing on some methods that are being considered internationally.
Now, before I close, I wanted to signal briefly some of the other analytical work underway for the Wellbeing Report, which we will release in background papers. And I also plan to present some of this in future seminars in this series. We are undertaking a joint project with the New Zealand Productivity Commission to understand what data is telling us about trends in income and wealth distribution and inequality, social mobility. We're also exploring population segmentation techniques. This is actually some really fascinating analysis, which is about better understanding what factors are correlated with New Zealanders’ life satisfaction and how those factors interact for different population groups. We're also commencing some work to better understand the distribution effects of taxes and government expenditure, and also how government’s spending maps against wellbeing outcomes - fiscal incidence analysis.
So, I'd like to end just by emphasising our aspirations for how the Wellbeing Report fits into our broader efforts to living standards. This is not just a standalone report. Instead, we see this very much integrated into all of our work. And addressing 21st century challenges means a greater focus on long-term intergenerational wellbeing outcomes. We're just not in a world where pulling central macroeconomic and fiscal levers alone will lift living standards. In our public finance system this will require us to shift towards managing to wellbeing outcomes and not just dollars. Looking at multi-year funding arrangements, not just annual budgets, encouraging cross-agency collaboration on wellbeing outcomes and not just looking at narrow agency appropriations. And also focusing on base activity, not just the incremental activity that comes through annually in a budget process. The Wellbeing Report will help inform government policy and investment priorities by building better measures of wellbeing and deepening our understanding of what matters for wellbeing.
We hope that it sets a frame for more robust analysis of wellbeing outcomes through individual policy and individual budget decisions. The Treasury is working to embed our Living Standards Framework and He Ara Waiora into our policy and budget advice. While it's still early days, the frameworks are used across the budget process and increasingly so. We are requiring agencies to consider wellbeing impacts in their budget initiatives. And this is something that the ministers actively consider in some of their decisions. And we can talk a little bit more about this in the panel discussion, if people are interested in how it's being applied.
We've also been working to incorporate an increasing range of wellbeing valuations into Treasury's cost benefit analysis tool, CBAx. For example, we've got a new guidance on environmental values. We've got a shadow price for carbon emissions. We are supporting also new multi-year funding arrangements in health and climate change to encourage that medium-term planning. And we've also been working with other agencies to pilot two clusters of agencies in natural resources and in the justice sectors in this budget, budget 2022. Those groups are focused on interagency collaboration, medium-term planning, making sure we've really got value for money in outcomes. And it includes reviews of baseline spending.
So, that takes me to the end of my remarks. I hope that I've given you just a bit of a flavour of our work to build our collective understanding of wellbeing in New Zealand and to embed that in our work. Also want to reiterate just sincere thanks to the range of individuals and agencies who are supporting us in this work. We do recognise that we are not the experts in all of the areas of wellbeing, and we rely on the knowledge, skills and engagement of others. If you do like what you've seen here today, if it resonates, and if you have any research underway that links to this work, or you'd otherwise just like to connect on the work, please do reach out to us. We've included the email address here, and we really look forward to engaging with you in conversation now, but also in the seminar series going forward. And we'll welcome other engagement along the way. So, thank you very much and kia ora!
Thanks Caralee. We now have around 20 minutes for questions. So, I've seen a lot of questions already coming up in the chat, but please do add any further ones you have. At this stage, I'd like to introduce you to our panel, who Caralee may also ask to provide additional insights on your questions, too. Or I might direct your question to them. The panel are Dominick Stephens. Dominick is the Treasury's Chief Economic Adviser and leads on our LSF development and implementation. We also have Stacey Wymer with us today. Stacy's a Treasury director and she's got extensive experience in leading the LSF in the Treasury and currently leads implementation of the LSF in the budget. And we also have Tim Hughes, Principal Advisor, who leads the development of the 2021 version of the LSF.
So, we've already got a lot of really great questions in the chat. And as I said, please do pop more in there. Let me go to the first question which was around whether there'd been any local applications of the framework and what scope is there for Treasury to work with city-based evaluation of the wellbeing of places. So, we have someone ideal to answer that question here today, who's done a lot of this work, so I'll give that question to Stacey. Great to you, Stacy.
Great. Thanks, Diana. And thanks for that question. As I think Conal noted in the meeting chat, most local governments are developing their own wellbeing frameworks. A couple that we've been quite involved in. One is the Waikato Wellbeing Project. That was probably a couple of years ago, but we continue to provide assistance to them. The other one where Treasury led the development of a business case was for the Porirua housing regeneration. That was a partnership between Treasury, Ngāti Toa, and the local council there. And what that entailed was a comprehensive business case prepared using the LSF as a framework for that business case. It involved looking at the current state across all of the wellbeing domains, what we were seeking to achieve from that housing regeneration, what the evidence showed would work or wouldn't work. And then monetising to the extent that we could, the benefits of that business case.
And I think the key thing that I drew out of that was, just looking at it through a pure cost framing would have led you to a path of saying, ‘actually do not invest in the regeneration of the public housing in that area’, whereas looking across all of the domains, what does that mean for health impacts, what does that mean for social connectedness, led to quite a different outcome. The other point I'd like to make there is that having really good data and evidence to support your assumptions is really, really key. The other thing that you might like to look at, which does have some restricted access, but again, that we can talk to you about is around stats and the IDI and how that information and data can assist with any local application as well. So, feel free to get in touch.
Great. Thanks Stacey. So, we've got another question about the New Zealand suicide rate and why is that high and how that relates to our strength. Tim, is that a question that you'd be happy to answer?
Yeah. In a way, I guess, I'd say with the trends piece overall, as Caralee mentioned, we're not really experts in any of the domains. So that's part of the reason we've put this paper out first. We've had a look at the numbers. We've identified a number of areas where we think close retention is warranted. And we’re keen now to hear from experts who understand these areas a lot better than we do so we can get their insight into presumption and options to address in the Wellbeing Report itself. But as to why it's happening, we're not in the position to say that right now.
Thanks Tim. The next question is about the new institutional framework or adding new institutional layer into the LSF. So that's a good step, but how is Treasury applying that framework to institutional reforms proposed under current policies like the health reform and the Three Waters Reforms. Is that one that you want to take Caralee?
Yep. That's great. Thanks Diana. I think that's a terrific question, because it does reinforce the point that I made that actually so much of our work in public policy is about the quality and the strengths of institutions, laws, regulations, organisations, understanding the interaction, and social norms. These are all things that we need to consider in good quality policy advice. And we've just included the institutions as a new level within the framework. And still, we are still at the early stages of more formally applying the framework to some of the big policy work that we are engaged in. So, we haven't really formally applied this new level in the reforms in health, Three Waters and you know, RM reforms, and in the range of different, different, very large reforms that are relevant to this question. But nonetheless, I think the underlying principles are something that we try to take into account in our work every day.
So really making sure we have a good understanding of what types of institutions are needed for the success of the reform. Making sure we've got a good understanding of the legal basis, a regulatory framework, organisations and how those organisations interact as well. A key question around the health reforms is the relative balance of local versus central organisations. In Three Waters, similar type of questions. And having real clarity on the governance arrangements has also been critical. But also there's that more fundamental question, which I mentioned in my remarks on now, what is the role of government and where do we see the role of government as an institution as opposed to community organisations or family and civil society. And those are things that we have at front and centre in our mind in our Treasury advice on these major reforms. Thanks.
Thanks, Caralee. So, the next question’s around what's the right balance between a bespoke New Zealand LSF and something that's easily internationally comparable, recognising that in 2018 we had quite a more internationally focused framework and now the 2021 LSF has evolved that quite a bit. I thought I might abuse my position as a chair now and have a go at answering this one. I think it's a great question. And to be honest, it's something we've been grappling with inside the Treasury. So, as you say Nikitin, the 28th version was very much influenced by the OECD and had that emphasis on the international comparability. We had a lot of feedback at the time we released the framework in the 2018 dashboard that people really wanted to see a framework that was more recognising some of the things that were important to New Zealanders’ wellbeing, and particularly recognise different cultural perspectives in New Zealand, including Māori and Pacifica perspectives. So, the approach we've taken to that is that we have evolved the LSF. We haven't revolutionised it. It still has some changes to make it more bespoke New Zealand framework, but it's still very strongly internationally comparable and linked to the OECD framework. And we have many indicators in the LSF Dashboard with international comparisons. But what we have done is continued to invest in developing He Ara Waiora and aim to use that alongside, and other frameworks from other cultural perspectives to help bring that stronger New Zealand perspective. So, rather than try and fully incorporate different indigenous perspectives in the LSF, we want to use different frameworks alongside each other to bring these different perspectives into our work. Is there anything Caralee that you'd like to add to that, or Tim, before we move on?
I'd probably just add, I mean, the LSF is primarily a policy tool for the Treasury. We want to make it as useful as possible for New Zealand and recognise New Zealand's unique characteristics within it. And I mean, as Diana says, international comparability is important for measures within, or measures of wellbeing, some of which are within the Living Standards Framework, so we can get an objective assessment of how we're going. But I think it is important for the wider framework to be as applicable as possible to New Zealand policy applications, requires a recognition of New Zealand's unique characteristics.
Thanks, Dom. We have our next question about how does Treasury think about trade-offs between wellbeing domains. "A standard CBA would just put numbers on all things in a CBAx and get an answer about net benefits. So how do you do that in the LSF context without established weights across the domains? And does that give a lot of flexibility to set weights arbitrarily on a case-by-case basis?" I see there's been lots of interesting discussion about this in the chat already. And Tim Ng has joined in as part of that, but Tim, did you want to add anything to that?
Yeah, I think Tim Ng’s done a much better job than I could. I think, yeah, he's made the critical point that the point is that all weights are normative. It's a value judgement to use any schedule of weights at all. So, I think the key issue is transparency. And the thing we always encourage agencies to do, is to spell it out as clearly as possible exactly what the impacts of any particular investment or policy change would be on particular populations. So, we have over time amended our CBAx guidance. That's a really important mechanism that we always encourage agencies to use to help them tell that story. But also ultimately, as Caralee outlined, it's a normative political decision as to how to actually evaluate what the best course of affairs to take. It’s not for the Treasury to adjudicate on behalf of society. We're not philosopher kings. I'm certainly not, anyway.
Yeah. Thanks, Tim. I might just add that one too. That was a great answer. And as Tim, well, both Tims have sort of pointed out, our role is to really surface some of those trade-offs for decision makers. I guess I'd also just made the point that I don't really see a dichotomy between the LSF as a policy assessment tool. And there's more traditional tools like cost benefit analysis. I think that cost benefit analysis done well really is seeking to look across all costs and all benefits. And the LSF provides a prompt for us to ensure that we're looking at all the various dimensions, quantifying where possible. But also where we can't quantify and where we do see trade-offs a really good quality cost benefit analysis will note that for the decision makers. I think some of the frontiers that we see in CBA non-market valuations, that's what we talk about in some of the LSF measures that have been traditionally measured, risk building and scenarios, distributional analysis. They're also all things to expect in a quality CBA. So, certainly we're seeking to quantify everything and have one number. We would have divergence between using an LSF framework for policy analysis versus a traditional CBA. But again, I think that if both are done effectively, then there isn't a dichotomy between the two. They're really complimentary lenses. But the same question, which is, how do we ensure that there's real value for money in government spending or, you know, that government decisions on other institutions achieve policy outcomes with wellbeing, with living standards.
And perhaps if I can just add to that in the context of how that actually plays out in the budget process is that we are very transparent about which domains are particularly impacted by certain initiatives, how those align to the government's objectives, and also in relation to the practical delivery of those particular initiatives as well. So that's how it plays out from a budget perspective.
Cool. Thank you everyone. The next question is around natural capital from Conal. A key issue with the LSF identified early on and recently reiterated by the PCE was the large gaps existing on the level and condition of natural capital. And so Conal is interested to know what's being done in the Treasury to build the, probably not just in the Treasury, but what is being done to build the underlying data required to understand trends in environmental outcomes, given that such a big gap. Dominick, is that something you want to give an answer to?
Yeah, as Caralee emphasised, the Wellbeing Report is sort of as much a journey as a destination for the Treasury. So, understanding natural capital better and improving our measurement and analysis of it is sort of something that is ongoing. For the current Wellbeing Report, what we are doing is commissioning work that will further our 2018 work. 2018 was sort of conceptual work looking at, how do you think about things like existence values, use values, non-use values for various aspects of natural capital. We're commissioning further work on that now, which will form part of the extended work Caralee talked about for the Wellbeing Report on, okay, well, how do we go about actually producing those types of measures? Of course, Conal, you'll be familiar with StatsNZ’s long-term goal to increase its suite of measures of the natural environment and ecosystem services in New Zealand as well, and Treasury is sort of engaged in that work.
Great. Thank you, Dom. Next question's around ‘how does Aotearoa stakeholders inclusively collaborate to form integrated wellbeing goals and plans so that budgets and policies can align and then be reported on in the Wellbeing Report’. Caralee, is that one that you wanted to answer?
I'm happy to have a go, and Stacey, if there's anything you can add in terms of the budget process, that would be really helpful. I mean, I do think that having that engagement is incredibly important. What we're doing with the Wellbeing Report, with Te Tai Waiora, is to present our analysis, but really what we hope to do is spark the conversations, spark some debate about what really matters for New Zealanders. So the engagement that we're having, including through these seminars, is really important to help inform the decisions of ministers on what priorities need to be for government, for government investment and government policy, and so on. We see the Wellbeing Report as being quite as integrated with a broader public finance system. It shouldn't be something that's just a standalone document and to make that work really effectively, it means a somewhat different role for Treasury. We need to make sure that we're engaging with our colleagues across other agencies who have the expertise, but also engaging with communities to understand of these trends. What are the ones that really resonate, that really matter the most? It's not always going to be the case that those wellbeing dimensions where New Zealand performs relatively poorly, that they're always the ones that matter the most for lifting wellbeing. And so, to understand that we can do some analytical work, which we are doing through a public population segmentation analysis, but it is also really important to have that engagement and collaboration as well. I guess I don't completely agree with the underlying premise of the question about the need for that sort of engagement and collaboration. You know, this is a step towards that in this, in this wellbeing seminar series. And we'd like to do much more of that as we proceed. But, I think there's still some more to do, to articulate, to outline how exactly we can make that happen most effectively. But Stacey, is there anything that you added in terms of collaborations with the budget process?
Yeah, I think there's two things. I mean, one is actually, this is why we are trying to bring in He Ara Waiora, and one of the key concepts under that is about, you know, how we design, develop, and deliver initiatives in partnership with Iwi and other affected groups. So I think we are just at the start of that journey and as Caralee noted, we've still got work to do about how do we give effect to that? The other part that there has been quite a large drive on is collaboration across the public sector. So, the issues that we deal with are not in the same silos as agencies are. And so how do we drive greater collaboration on those issues as well?
Thank you, Caralee and Stacy. Just to acknowledge a comment coming all the way from Canada, it's good to have international people tuning in today, recognising the wellbeing work in New Zealand. And we'd also like to acknowledge the excellent work that's happening in Canada, including around improving data and understanding of wellbeing for indigenous peoples. We are really pleased that we get to work with Canada to share experiences and learning through the Wellbeing Economy Government network. So, thank you for that comment. In terms of the next question, just delving into the chat around CBAx. There is a question around discount rates, one of our favourite topics. The question is, "Are there a bunch of normative questions, but also ones of physics? The climate doesn't care what our values are. What weighting must be given to the natural and social disasters following from climate change and their probabilities? What about the current discount rates? When do we get to ‘Look up’?" Which is a reference to a popular Netflix movie.
It's an analogy for climate change, but also it's quite well for the pandemic.
Not quite up to speed on that [crosstalk] to me, I might start with that. I welcome with anybody else's. I mean, discount rates is a topic of much discussion within the Treasury, and outside economists can get very animated in debating different approaches to discount rates. And that was highlighted by the Parliamentary Commissioner for the Environment in a report earlier this year. The discount rates can have implications for how projects that have longer-term cash flows and timeframes, how they are evaluated. I guess the lens that I would bring to that is probably just more of a practical one. We can have long debates about the methodologies and whether or not to use lower or higher discount rates or to use cap-in or social rate of time preference methodologies. But at the end of the day, I think it's the most important that we actually do start getting much more robust analysis of cost, benefits, risks, distributional consequences. And I would just query whether the choice of discount rate is actually the binding constraint around understanding what policies or what investments is likely to lift living standards and what is not. Within the Treasury, we have guidance around the use of discount rates. And one of the points we make is that, if there is an argument for a project-specific discount rate, it's possible to make that argument and to use a different discount rate to the one that we recommend. And we also encourage sensitivity analysis with discount rates. Interestingly, that's rarely the factor that makes a difference in whether a project appears to add value or not. I think it tends to be more at the margin, but our rules are flexible enough to accommodate different approaches there.
Great. Thank you, Caralee. I think we've probably only got time for one more question. Apologies. I know we, haven't got to all the questions in the chat. This is quite a nice one to end on, about the Treasury's intention to build the LSF, and the regulatory impact assessment process, analysis process. Caralee, did want to talk to that one?
Yes, that is something that we are looking at right now. And we've now for several years, been looking to embed the Living Standards Framework into our budget processes. We're still at the earlier stages of that, and we're at the even earlier stages again on aligning the LSF with our regulatory impact assessment. But the underlying principles are the same. It's to make sure that we've really got a comprehensive and broad view about how changes, whether that's a financial investment or whether that's a regulatory change, how those government decisions are going to lift living standards. So again, we're at the early stage, but it's part of having a much broader view of what success means and making sure that we're taking into account, not just those traditional, financial, and economic measures, but also what matters for social cohesion, what matters for the environment, and what matters for human capability.
Thank you, Caralee and the panel. Unfortunately, we've run out of time. I know we could talk about these issues forever, but we do need to bring today's events to a close. Just like to thank you all for joining us today and for the wonderful conversations in the chat and questions. If you do want to be kept in the loop about upcoming seminars at the Treasury, you can join our Treasury Guest Lecture Series mailing list on our website. I'd just like to finish with the karakia, which acknowledges the importance of discussion and learning to the wellbeing of the people.
[speaking in te reo Māori] Mā te korero, ka mōhio. Mā te mōhio, ka mārama. Mā te mārama, ka mātau. Mā te mātau, ka ora te iwi. Haumi e, hui e, tāiki e!
Thank you to everyone for attending.
[speaking in te reo Māori] E noho rā.
Wellbeing Report seminar series
At Te Tai Ōhanga – The Treasury, we are developing the first Wellbeing Report – Te Tai Waiora that will be published in November 2022.
This online seminar is part of a Wellbeing Report programme of Guest lectures running in 2022 and 2023.