Turning Spending into Investment

By James, Colin | New Zealand Management, May 2007 | Go to article overview

Turning Spending into Investment


James, Colin, New Zealand Management


When is spending an investment? When it builds up capital stock and generates a return. Can the Government think that way? It can in the narrow sense of how the super fund is managed and to a small extent in financing infrastructure. But what about the "social" services which eat up the great bulk of its budget?

Steve Maharey, when social "development" minister, talked about "investment" in social services and got the Treasury partway down that route.

His Ministry of Social Development (MSD) also banged that drum and now argues that over the past decade the social policy "paradigm" has changed. In early April MSD's biennial conference on social policy research and evaluation--a large affair, featuring numerous foreign gurus--took as its theme "investing in social success".

This elicited a passing endorsement from Prime Minister Helen Clark in her opening speech. Clark had briefly talked of the 2006 Budget as the "investment Budget" but then, curiously, stopped saying the "i" word.

Why? If the Government were able to convince taxpayers they get a return on their spending, wouldn't that make raising taxes easier?

The problem is rights. Social policy hitherto has been rights-based.

From the 1870s onwards we accorded ourselves rights to education (now up to university), a pension in old age, health care at modest cost, a reasonable rent if you have a modest income and a right to sustenance if you fall on hard times or are not able to fend for yourself.

Sometimes those rights have carried an obligation. To get the pension when it was introduced in the 1890s you needed to have lived an upright life. In the 1990s governments tried to attach an obligation to work to receipt of welfare benefits.

But generally the rights side of the deal has heavily outweighed the obligation side. In its multi-volume 2002 briefing to the incoming minister, MSD spent only half a page on beneficiaries' obligations--and that in the context of obligations from the Government to the beneficiaries as well.

Small wonder that when we think of government social services spending we think of it mainly as cost--a palliative.

An investment-based social policy would turn this thinking on its head.

Investment implies a return on the outlay. …

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