As discussed previously, changes to the Public Finance Act 1989 require wellbeing objectives to be included in the annual fiscal strategy report and budget policy statement. The Act requires these objectives to contribute to the long-term wellbeing of Aotearoa New Zealand but is silent on the duration or timespan over which those objectives should be met. Currently there is no explicit requirement to set a long-term strategic direction, wellbeing objectives that are long term in nature, or to review government investment to track its intent against the impact or outcomes it delivers.
Although the intention has been for these objectives to be more enduring and provide medium-term direction (New Zealand Government, 2022c), there has been a tendency for these wellbeing objectives to be revised annually as part of the Budget process, and for them not to operate as intended.
By not setting explicit long-term wellbeing objectives, the public management system is limited in its ability to deal with complexity and uncertainty, and to fully understand the risk of intergenerational challenges like persistent disadvantage, or of climate change and ecological breakdown (BarBrook-Johnson et al., 2023).
Several submissions on the interim report also supported the idea of setting clear long-term wellbeing objectives, alongside developing a set of wellbeing principles to give greater direction to policymakers and ministers on what they need to take into consideration when designing and prioritising policies – particularly the need for equity. This has already been done for fiscal management and monetary policy. For example, the Public Finance Act provides direction on the management of public finances and the primacy of responsible fiscal management. Similarly, the Reserve Bank of New Zealand Act 2021 provides direction on monetary policy and financial system stability, alongside stated objectives of low inflation and maximum sustainable employment.
The principles for wellbeing could be set out in an amendment to the Public Finance Act to better support the interpretation of what wellbeing means to the public management system. Other legislation has examples of similar principles that could be examined, such as child-related and policy-related principles in the Children’s Amendment Act 2018 that operationalise the Child and Youth Wellbeing Strategy, and the health principles in the Pae Ora (Healthy Futures) Act 2022.
We consider that Part 2 of the Public Finance Act (Fiscal responsibility and wellbeing) should contain explicit definitions and principles of wellbeing to guide policymaking and funding decisions, similar to the principles of responsible fiscal management set out in section 26G of the Act.
In addition, we recommend that the Public Finance Act be amended to include provisions for the setting, planning for, and reporting on long-term wellbeing objectives. Alternatively, these requirements could be incorporated into the proposed Commissioner for Future Generations role and/or the proposed Social Inclusion Act.
International examples of setting long-term objectives
The OECD’s good practice Policy Coherence for Sustainable Development Toolkit (2015) outlines methodologies for developing long-term objectives. They start with a shared understanding of the long-term desired future state, or setting a generational goal, supported by objectives and milestone targets in priority areas.
The Swedish Government’s approach to long-term objective setting in social and environmental policy provides some lessons for Aotearoa New Zealand on the benefits and risks in their methodologies (see Box 7 for more details on this approach).
Box 7 Swedish Government approach to long-term objective setting
The Swedish Government sets enduring multi-partisan 20- to 30-year generational goals, supported by clear objectives and milestone targets, based on the sustainable development goals in the United Nations Agenda 2030. All policy decisions must take account of long-term economic, social and environmental implications. This approach includes collaboration with the private sector to integrate sustainable development principles and environmental protection into business operations (Sweden Ministry of Foreign Affairs, 2022).
Long-term objective setting is enabled by:
- visionary leadership – leaders identify and articulate a clear vision of what they want to achieve in the future;
- collaborative governance – stakeholders, including the public and business sector representatives are involved in the process;
- an evidence-based approach – data, research, and expert opinions inform decisions and ensure that the objectives are realistic, achievable, and based on the best available knowledge; and
- regular review and adjustment – governments regularly review and adjust long-term objectives in an anticipatory way, based on changing circumstances, emerging trends and new evidence.
Weaknesses that may undermine the public’s support of the long-term objectives include:
- over-emphasis on consensus – over-emphasising consensus-building may slow down decision making;
- lack of accountability – an overreliance on quantitative data, which may not capture the full range of social, cultural, and environmental impacts of the objectives, makes it difficult to hold policymakers accountable for achieving their long-term objectives (Sundqvist & Nilsson, 2017);
- insufficient public engagement – stakeholder engagement may not be sufficiently inclusive or representative of all affected communities (Swartling & Lidskog, 2017);
- resistance to change – regular review and adjustment of long-term objectives can also lead to resistance to change; and
- inadequate resourcing and a lack of funding or implementation capacity can compromise the ability to achieve long-term objectives.
Wellbeing approaches will not achieve their full potential to address persistent disadvantage until there is direction and prioritisation within the public management system. This direction and prioritisation require long-term objectives that better drive purpose and explore co-benefits and complementarities across the public management system.
What could long-term objective setting look like?
To be most successful, long-term objectives must be enduring, sit above party politics, and run across successive governments (and even multiple generations). Government agencies will need a greater mandate and sufficient resources to plan beyond the short term, along with the shift in mindset and culture discussed above. The following approaches are used internationally to navigate the challenges of long-term thinking.
- Emphasising foresight – anticipating and preparing for future challenges and opportunities will involve placing greater emphasis on foresight activities, such as horizon scanning and scenario planning, in order to identify and understand emerging trends and potential future scenarios that may impact the country’s long-term objectives.
- Engaging diverse voices in a participatory process – future challenges and opportunities are complex and uncertain, and they require input from Tiriti partners and diverse stakeholders with different perspectives and knowledge, including marginalised groups, youth, and experts from different fields.
- Prioritising resilience – building resilience to future shocks and stresses (such as climate change, economic disruptions, and pandemics) means setting long-term objectives that promote adaptive capacity. Building such capacity includes investing in sustainable infrastructure, promoting social cohesion, and enhancing disaster preparedness.
- Encouraging innovation and experimentation in response to uncertainty – adapting to emerging challenges, risks and opportunities. This means fostering a culture of experimentation and innovation, such as through pilot projects, sandboxes and open innovation platforms.
Drawing on the international approaches to setting long-term objectives, the following would be central aspects of any process for Aotearoa New Zealand.
- A participatory process – working and engaging with the public, iwi/Māori, and stakeholders to define and set long-term wellbeing objectives that extend beyond the current budget cycle and are aligned with the country’s overall vision for the future.
- A long-term planning cycle for wellbeing – requiring central government agencies to develop long-term plans as part of a long-term planning cycle, which would involve setting long-term objectives, assessing progress toward those objectives (including via the four-yearly Wellbeing report) and making adjustments as necessary.
- Reporting on progress toward long-term wellbeing objectives – requiring Treasury (and relevant agencies) to report regularly on progress toward achieving long-term objectives, including any changes to those objectives or the strategies being used to achieve them.
- A long-term wellbeing investment framework – requiring Treasury (and relevant agencies) to develop a long-term investment framework, which would guide the allocation of resources toward achieving long-term wellbeing objectives.
- Review the wellbeing objectives at least every fve years. These reviews could provide an opportunity to assess progress against existing objectives, identify emerging issues, and set new long-term objectives that reflect changing priorities and circumstances.
In setting long-term objectives, it would be prudent to draw on Treasury’s four-yearly Wellbeing Report and learning system insights (discussed in Chapter 6) to set long-term objectives.
Track all government spending and its impact on long-term wellbeing objectives
The establishment of long-term wellbeing objectives requires setting milestones and reporting progress on achieving the objectives in the public management system – moving beyond Wellbeing Budgets to understand impact.
One focus for this progress reporting will be to track the effectiveness of all government expenditure in achieving long-term wellbeing objectives. Currently, annual budgets focus on how “new expenditure” will be allocated, and they provide an opportunity for ministers to focus on current public priorities, with limited attention to the impact achieved via baseline spending. The new spending in the Government’s annual Budget is a small fraction of its total expenditure, and all spending needs to be reviewed, not just spending on the margins.
The existing budget process is inherently incremental, with the Treasury and Ministers reviewing budget bids and choosing among them based on static, marginal cost-benefit or similar analysis. The Government needs to implement a strategic investment approach that is Government-led and based on risk-opportunity analysis that, in particular, focuses on the most vulnerable. (Rewiring Aotearoa, sub. DR128, p. 7)
Similarly, there is no clear system in place to evaluate whether government spending decisions made previously were effective in achieving their intended goals, nor recognition that present-day decisions can have long-term consequences (Boston et al., 2019, 2020). To support the implementation and achievement of wellbeing objectives, there needs to be a system to undertake retrospective analysis of budget and baseline spending impacts on wellbeing priorities and objectives.
The current wellbeing approach should be extended from just considering new Budget expenditure to a constructive review of existing public expenditure as well as decisions made by central and local government authorities. Devolving funding to entities closer to affected communities will deliver greater outcomes suited to local needs. Adding a wellbeing analysis to Treasury’s Regulatory Impact Assessments and Crown Entities annual reports would be an easy and practical change. Within public management we need more tools to complement existing initiatives such as Treasury’s CBAx tool such as multi-criteria analysis and risk and opportunity assessment.” (Wellbeing Economy Alliance Aotearoa, sub. DR151, p. 4)
The McGuinness Institute submission recommended the use of year-end reporting (like in the United Kingdom), informed by public participation (such as processes employed in Korea), and development of pre-execution budget profiles and projections (as undertaken in Ireland) as potential mechanisms to address concerns around reporting of impacts on wellbeing outcomes (sub. DR154).
Building on research by Murray Petrie (2021, 2022) around improving fiscal responsibility for environmental outcomes, and the recommendations of the OECD good-practice approach to performance-informed budgeting (OECD, 2019b), spending reviews may be another possible way to improve the link between fiscal policy decisions and wellbeing outcomes. Such reviews can vary in scope (that is, targeted or comprehensive reviews), focus (that is, baseline reviews or strategic funding reviews), and timeframes. Such reviews have been considered as a tool for “austerity”, but that is not the purpose of this proposal. Instead, the purpose is to enable investment decisions that best support long-term wellbeing objectives, and their design should reflect this.
There is an opportunity to leverage off the Wellbeing Report (which has a four-year timeframe) and the Statement of Long-term Fiscal Position produced by Treasury. A spending review function in the cycle of these two processes could improve the setting of priorities and strategic long-term objectives.
Clear objectives are required before tracking can occur
As the Office of the Auditor-General stated in its submission on the interim report, it is often not clear to Parliament or the public what outcomes are being sought by government, how that translates into spending, and ultimately what is being achieved with public money (sub. DR114, p. 2).
The Parliamentary Commissioner for the Environment (2022) found that the ability to meaningfully track budget spending to environmental objectives is lacking – due in part to a lack of clarity around what those objectives are. In addition, they noted that, given the current structure of budget appropriations, tracking expenditure may require agencies to identify suitable measures within appropriations – for example, through tagging key initiatives by particular outcomes (Parliamentary Commissioner for the Environment, 2022, p. 82).
SSPA would like to see the final report reflect a strong recommendation around how the public finance system can be strengthened to be more transparent, enable equitable outcomes [for] tāngata whenua consistent with Te Tiriti o Waitangi, drive investment over the long-term to address persistent disadvantage, and prevent siloed vote appropriations from being a barrier to mauri ora. (Social Service Providers Aotearoa, sub. DR129, p. 10)
Internationally, there are examples of tracking expenditure against all-of-government national objectives, such as the French “Green Budget” described in Box 8.
Box 8 French “Green Budget”
In 2021, the French Government published its first “Green Budget” as an annex to the 2021 Finance Bill. This was an attempt to integrate “green” tools into the budget process.
The Green Budget provided an assessment of the “green” impact of all state budget and tax expenditure. It reflected concerns relating to climate change, biodiversity and pollution objectives, and commented on expenditure that had a positive and negative impact on these objectives. It provided not only vertical integration, but also horizontal integration across issues. It identified priorities and improved transparency on environmental programmes and spending for the public.
Although the Green Budget was environmentally focused, once long-term wellbeing objectives have been set, a similar approach could be applied to wellbeing and social policy expenditure in Aotearoa New Zealand – improving disclosure, transparency and accountability, in order to better address persistent disadvantage and enhance wellbeing.
We recommend Treasury (and relevant agencies) develop a framework to enable tracking of all government expenditure, and its impact on wellbeing objectives and reducing persistent disadvantage. Further, we propose evolving performance management tools, such as the Performance Improvement Framework and spending reviews, to enable agencies and groups of agencies to better understand their effectiveness in reducing persistent disadvantage.
This effort would support our recommendation to strengthen the implementation of wellbeing and the learning and accountability systems (see Chapters 5 and 6).
Again, we do not propose using these changes as tools for “austerity” or measures to reduce government spending, but as an effective way to better enable strategic budgeting – to better realise long-term wellbeing objectives and provide a mechanism for long-term risk reduction.
Governments will soon be forced to look critically into ways to prioritise expenditure and facilitate reallocation of fiscal resources. If applied correctly, spending reviews can be an important and useful tool in improving fiscal outcomes in the coming years. (Tryggvadóttir, 2021, p. 14)
As a step towards deeper embedding of wellbeing in decision making, we make the following recommendations.
Pursue cross-party agreement on generational strategic objectives
The Government should pursue cross-party agreement to develop and implement generational (20- to 30-year) strategic objectives for the nation to help support long-term policy pathways to address intergenerational issues, such as persistent disadvantage.
Embed and action wellbeing objectives in the public management system
The Treasury (in collaboration with the Social Wellbeing Agency, population agencies and others) should advise on changes to the Public Finance Act 1989 and other required legislation for the following purposes.
• Set long-term wellbeing objectives and all of-government priorities consistent with
improving the wellbeing of current and future generations.
• Set out an explicit interpretation or principles of wellbeing in Part 2 of the Public Finance Act 1989 to guide policymaking and funding decisions, in the same way that section 26G already sets out principles for fiscal responsibility.
• Ensure that the definition of fiscal responsibility is consistent with the broader principles
of wellbeing (as reflected in, for example, He Ara Waiora).
• Strengthen the link between the wellbeing objectives and long-term policymaking by adding a requirement that the Government of the day sets out a statement of long-term priorities, which should include explicit details of long-term wellbeing goals and how they will be achieved.
• Require the Government to report progress annually towards wellbeing objectives and priorities, and to address issues identified in the Wellbeing Reports required by the Act.
• Track expenditure related to reducing persistent disadvantage and/or enhancing wellbeing in all agencies (consistent with the suggestion for environmental spending by the Parliamentary Commissioner for the Environment) and require an all-of-government report on agencies’ contributions to addressing persistent disadvantage against agreed outcome targets as part of annual reporting.
• Develop and implement a spending review function, informed by OECD good practice, which has the objective of assisting agencies and groups of agencies to better understand their effectiveness in reducing persistent disadvantage and improving the wellbeing of current and future generations.
Connect central and local government to ensure wellbeing objectives flow into all levels of the system
We received several submissions from district councils, local government professional bodies and other organisations regarding the importance of involving local government organisations in national planning to address persistent disadvantage in communities, and vice versa, so that planning is more connected. For example, the Ōpōtiki District Council mentioned the need for central government agencies to respect the “legitimate roles and plans of whānau, hāpū, iwi and local government”.
Tangata whenua and local communities have aspirations, plans and long-term strategies designed with and for their communities. They have multiple accountabilities. Local government in particular has to follow stringent processes laid down by central government to engage community in long term and annual planning, and to regularly report on progress. Sadly, there is no corresponding requirement on central government to engage with, plan and report to communities in this way. (sub. DR123, p. 2)
The Manawatū District Council made similar statements in its submission.
Local government’s knowledge of, and connection to, local communities, and our role in promoting community wellbeing, means that we are uniquely placed to act as an advocate on behalf of the community, or to design and deliver local services. (sub. DR 12, p. 1)
Taituarā, the member organisation for local government professionals, recommended adopting a mechanism for central and local government to undertake joint planning for intergenerational community wellbeing that also involves Māori and NGOs from across the community. They see the need for a single framework across national and local levels for thinking about and acting to promote wellbeing.
It concerns us that there are a multiplicity of competing frameworks in the policy space – the Commission’s, the Treasury’s Living Standards Framework, and the four wellbeings of the Local Government Act. We also concur with the conclusions of the McGuiness Institute that these are fragmented and overall hinder progress. (sub. DR121, p. 4)
A similar approach has been adopted as part of the Well-being of Future Generations (Wales) Act 2015, which established public service boards to “…improve the economic, social and environmental and culture wellbeing in their area by working together to achieve the well-being goals” (Welsh Government, 2015a).
We have not had the capacity to explore these ideas in depth as part of this inquiry, beyond setting out the need for shifting decision making and funding (in Chapter 5) to enable and sustain more locally led, whānau-centred initiatives. We note that the role of local government in delivering community wellbeing outcomes is also canvassed extensively in the current report of the Review into the Future for Local Government (2022). Joint wellbeing planning should be explored further, as the final recommendations from that report and the recommendations we make in this inquiry are considered, particularly Recommendation 4 on the proposed Wellbeing for Future Generations Act and Recommendation 14 on enabling and sustaining more locally led, whānau-centred initiatives.
Align wellbeing roles and responsibilities of local and central government
The Government should consider how to align the respective roles and responsibilities of local and central government in planning and delivering wellbeing outcomes, taking into account the final recommendations from the Review into the Future for Local Government and our recommendations on supporting more locally led, whānau-centred and centrally enabled initiatives.
Embed and steward wellbeing outcomes across the public management system
The recommended reforms above will take time to implement. In the meantime, complementary changes are needed to address our finding that wellbeing approaches will not achieve their full potential to address persistent disadvantage until they are embedded throughout every aspect of the public management system (NZPC, 2022a).
The current wellbeing approach employed in Aotearoa New Zealand needs to be better operationalised to meaningfully guide policymaking, government investment decisions and how the public management system operates now and in the future.
Successive governments have progressed elements of a wellbeing approach. However, to date, operationalisation has been unsystematic and patchy, with inadequate tools (Babian et al., 2021), and unclear agency roles and responsibilities. There is still no straightforward path from measuring wellbeing to integrating it into policy analysis and selection, nor to learn whether investments have worked (see sub. DR121, 124, 134, 138, 141, 153 and 154). For example, the Wellbeing Economy Alliance Aotearoa stated:
We absolutely support a continued and strengthened need to anchor a wellbeing approach at the core of public services and policy making. While Wellbeing Budgets, the Treasury’s Living Standards Framework and Long-term Insights Briefings have all been positive developments, more is needed to fully address the complexity and interconnection of factors that create and embed inequities in people’s lives.…The current wellbeing approach should be extended from just considering new Budget expenditure to a constructive review of existing public expenditure as well as decisions made by central and local government authorities. (sub. DR151, p. 4)
To address this, we recommend that central agencies – in association with the Social Wellbeing Agency and other Social Wellbeing Board agencies – develop a Wellbeing Policy Implementation
- sets out a plan with milestones for implementing the system changes recommended by this inquiry, including who will be accountable for their delivery;
- builds on the findings of this inquiry by undertaking a stocktake of local and international evidence for wellbeing approaches and wellbeing economics, including kaupapa Māori approaches;
- mandates Treasury and the Department of the Prime Minister and Cabinet to build the public service’s capability to undertake wellbeing-related policy and investment advice, including by strengthening the adoption of the Living Standards Framework and He Ara Waiora to guide policy and investment advice, Budget bids and evaluation plans across the public sector, and report on agency progress; and
- develops an enhanced set of wellbeing policy analysis tools.
The Wellbeing Policy Implementation Plan should also clarify the central agencies’ respective roles with regard to enabling a fully embedded wellbeing approach.
Develop and resource a Wellbeing Policy Implementation Plan
Central agencies should develop and resource a Wellbeing Policy Implementation Plan, aimed at implementing the system changes recommended by this inquiry and clarifying agency roles and responsibilities.