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OECD says NZ's living standards framework positive but has gaps

Tuesday 25th June 2019

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Treasury’s living standards framework reflects good practice internationally but has some data gaps, including in areas where New Zealand fares poorly, the Organisation for Economic Cooperation and Development says. 

"The concepts and indicators included in the dashboard are generally well-aligned with those measured in other countries, but there are gaps, including in some aspects of natural capital where New Zealand has experienced some downward trends or fares poorly," the OECD said in its latest survey for the country. 

The OECD's focus on well-being and the Treasury's framework and associated dashboard come on the heels of the government presenting its first Budget incorporating a new well-being focus for policymaking based on the methodology. 

According to the OECD, evidence-informed policy is core practice in developed countries.

"The challenge now faced by governments is how to embed well-being evidence more systematically throughout policy decision-making, including in budgets, cabinet committees and other routine processes, such as policy evaluation.

"Recent applications of the living standards framework, including through a 'Well-being Budget' in 2019, are important steps in this direction," it said. 

The living standards framework had its genesis under former Secretary John Whitehead who wanted to formalise the department's more qualitative policy assessments. It was further developed by his successor Gabriel Makhlouf, establishing the regime where financial and physical capital, natural capital, social capital and human capital are seen as the four components essential to current and future living standards.

It was one of the first well-being policy frameworks to be developed among OECD countries and Treasury released the first living standards framework dashboard, with 55 indicators, in December. 

Regarding the four components, at least half of the indicators monitored by the OECD in each category rank among the top third of OECD countries, the report said. 

Social capital is a clear strength in New Zealand, with high levels of trust and civic engagement and low perceptions of corruption. High skill levels contribute to human capital, although high and rising obesity rates threaten future health, it said. 

Financial and physical capital suffers, however, from low investment in R&D. Household wealth, while high on average, is skewed towards the wealthy, and household debt has risen alongside rapid increases in house prices.

The OECD underscored that New Zealand's natural capital is under threat. “Increasing diffuse sources of pollution have reduced water quality in many areas, in particular due to the expansion of dairy farming,” it said.

Regarding the living standards framework, the report said overlaps with other national well-being dashboards suggest that New Zealand's dashboard broadly reflects international consensus and follows good practice by providing a detailed assessment of the distribution of well-being, for example by gender, age, ethnicity and household structure. 

"Nevertheless, conceptual and data gaps, as well as the need for a concise indicator set, mean several themes and indicators that consistently appear in other countries’ approaches are absent," it said.

For example, in terms of natural capital, OECD data indicate that New Zealand performs poorly compared to other countries in terms of greenhouse gas emissions and soil nutrient balance. Stats NZ data indicate worsening nitrogen pollution in rivers, yet these aspects are currently absent from the dashboard.

Likewise, the dashboard includes no information on the state of New Zealand’s protected areas, and low investment in R&D is not represented. 

Identifying whether these indicators should be included, better integrating Te Ao Maori, Asian and Pasifika perspectives, and ensuring greater consensus on the framework adopted across the public sector should be priorities when the framework and dashboard are reviewed and updated in 2021, it said. 

There is also more work to do to integrate well-being approaches into policy tool kits and approaches.

The OECD report notes that while agencies were required to use the framework's concepts in budget funding requests, a number of agencies also used their own.

“While this can tailor analysis to their own needs and sometimes provide greater depth, the lack of one consistent framework, or one definitive account of New Zealanders’ well-being, risks creating confusion among stakeholders and researchers tasked with generating the evidence base," it said. 

Chief executives across the public service should consider adopting a common conceptual framing of well-being – such as the living standards framework - as a base from which agency frameworks can be nested, it said. 

This would mean that all indicator sets would be articulated in relation to one central framework, and stakeholders could easily understand how they interrelate.


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