October 6, 2016

CEO Update - October 2016

Wrong Way; Go Back

Last year I wrote about the release of Treasury’s Intergenerational Report (IGR), which focused on economic productivity (income) but completely overlooked social productivity (the effectiveness of government spending). I commented then that Treasury’s mission was focused on wellbeing:

Treasury’s mission is to improve the wellbeing of the Australian people by providing sound and timely advice to the Government . . .

In my 2015 article I noted that the mission statement could only be found on an archived web page, and that there was no data or analysis of wellbeing to be found in the IGR.

Last week Treasury abandoned the notion of wellbeing altogether in favour of “the budget, lifting productivity and securing the benefits of globalisation”. Current Treasury secretary John Fraser told the Australian “I wanted to focus on the things where we can have an influence.’’

In defence of Mr Fraser, Treasury was doing little with the concept of wellbeing and so in practice little may be lost.

That said, I think this is an egregious misstep.

Treasury’s revised corporate plan suggests it views expenditure as a bucket into which money flows; its purpose is to reduce the rate of flow. It will apparently do that with little or no understanding of what difference we’re making. There can only be losers and bigger losers in this approach.

Understanding the effectiveness of social expenditure is not a fringe issue for the socially conscious. Health, welfare and education ($273bn in 2014) is now 68% of the federal budget. Even an economic pragmatist should be able to see the fiscal benefit of improving productivity in our social spending.

Treasury might argue that it’s the function of other departments to worry about how to spend the money. I’d argue that it’s one government. Treasury is one of the few parts of our government that has a cross-portfolio focus.

Now, more than ever, we need an overarching framework for spending our way out of the complex mess we’re getting into - one that clearly incorporates the outcome as well as the cost of the investment.

The Treasury may have given up on the ideal of a wellbeing framework because understanding, defining, measuring and improving wellbeing is complex. That’s a reason to try harder, not to give up. We know from decades of learning in dozens of fields that trying to apply simple solutions in complex systems is doomed to failure.

Treasury has dropped the concept of wellbeing from its focus because it wants to have greater impact. I’m reminded of the red sign seen at the exits to some freeways: Wrong Way; Go Back.

Andrew Young

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