Thursday 28 February 2019

A defence of Treasury

It pains me when organisations in need of critique are hit for the things it is trying to get right. 

Thomas Coughlin's piece at Newsroom last week complained about Treasury's use of value of statistical life measures.

My column this week reminds us that those measures are hardly new, and highly necessary.

I then go on to some of the other stuff Treasury's trying to add to its CBA mix under the living standards / wellbeing agenda.
Imagine being the poor Treasury official tasked with telling the Minister that his preferred policy does not stack up under any reasonable cost-benefit assessment. You lay out all the facts and figures, showing that the policy is a colossal waste of limited funds, and that the money could be put to far better use elsewhere – only to have your analysis overturned when a Ministry official points out that the policy would improve social capital, or help neighbours make friends with each other, and that the value of those uncounted benefits should tip the scales.

It can then be understandable why Treasury would want to have standardised figures – and hope that there’s at least some rigour in estimating the effects of policy on such nebulous things as friend-making.

But we might also worry that, where Government is not always all that committed to rigour in cost-benefit assessment, even having these sorts of numbers invites creative accounting.

It is not hard to imagine the Provincial Growth Unit explaining to Minister Jones that he could justify giving $100,000 to his favourite small-town lawn bowls club if it encouraged even as few as two hundred new friendships. Increasing club membership from 35 to 41 could be enough to do it, under certain assumptions. It could then far too easily encourage a sham version of the living standards framework, rationalising political decisions rather than ensuring that every dollar of fiscal or regulatory cost does as much good as possible.

And that is where the opposition really must hold government to account. The problem is less whether having an additional friend is worth one seventeenth as much as having additional contact with your neighbours in Treasury’s CBAx assessment. The problem rather is whether the government bothers putting its bigger ticket items through the framework at all.

It would be interesting to know just how the Government manages to justify the Provincial Growth Fund, tax breaks for pretty race horses, or the Taranaki oil ban within any kind of rigorous assessment in the wellbeing framework.

Running those numbers might cost Treasury some friends – but I bet the CBAx tool would show it’s worth that cost.

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