Abigail introduced a new Greens bill for a wellbeing budget that looks after us all.
The Fiscal Responsibility Amendment Bill 2022 redefines the principles of sound financial management for our State. The Fiscal Responsibility Act came into force in 2012 and has not been changed in any significant manner since. I think it is fair to say that, if you were a resident of New South Wales and curious about how the government of the day set its budget and considered its fiscal responsibilities, you would be very underwhelmed reading the Fiscal Responsibility Act.
The very first object of the Act—in fact, the only object—is "to maintain the AAA credit rating of the State of New South Wales.". Anyone who knows anything about credit ratings, or who witnessed the credit rating agencies' role in the 2008 global financial crisis, would find that to be a pretty alarming primary objective of fiscal responsibility for a State Government. As an aside, I note that "AAA credit rating" has not been defined, but it can be assumed by the capitalisation of the As that it is referring to a Standard & Poor's triple-A rating, and not to a Moody's triple-A rating, for instance. Focusing on one to the exclusion of all others is an interesting choice, but perhaps there is a historical reason for that myopia. Section 3 of the Act goes on to state:
The purpose of that object is— (a)to limit the cost of government borrowing, and (b)to enable access to the broadest possible investor base for government borrowing …
I pause there. This is pretty self-explanatory. The whole point of credit ratings is to guide the price at which an entity can borrow funds, based on their capacity to pay the costs of that financing as determined by the rating agency. There is no clue in these paragraphs as to why cheaper borrowing is the be all and end all of a government's fiscal responsibilities, but at this point the legislation is at least making some internal sense. Section 3 goes on to state the final purpose of the AAA ratings objective is:
(c) to maintain business and consumer confidence, thereby sustaining economic activity and employment in the State.
That is a more contentious assertion. I would be interested to know if there is any evidence of lower business and consumer confidence as a result of losing our S&P AAA rating in late 2020. I suspect that a myriad of other circumstances have been and continue to be far more relevant to business and consumer confidence. This is what is supposed to guide budget setting by the New South Wales Government. It is no wonder that it keeps failing to provide for people's basic needs. We clearly can do much better than this. It starts with recognising that economic indicators and unthinking adherence to mainstream economic principles are disconnected from the quality of people's lives.
I have spoken in this place before about my experiences in Europe as a banking regulation lawyer during the 2007-08 credit crunch. As people were queuing up outside branches, as once seemingly indestructible investment banks were crumbling, as governments were scrambling to protect the real economy from the fallout being caused by the collapse of the global financial system as we knew it, I was in shock. Right in the centre of it all I could see clearly that everything I had been told about our economic system, everything I had always believed to be true about the so-called laws of economics, was simply false. Not only were our economic models completely incapable of predicting, managing or explaining the financial crisis, but it was clear that none of the major players in the economy—be it bankers, lawyers, accountants, rating agencies, regulators, politicians or academics—really knew how the totality of our economic system was supposed to work.
Fixing the mess and keeping it fixed—at least for a time—would involve a series of bandaids, based on the best those in the thick of it could come up with, stuck on with a whole wad of hope. I was not the only one to come to this realisation, of course: the realisation that the whole economic system was completely beyond anyone's control, too massive to be understood and too complicated to be directed; the realisation that when the financial system is under strain it is not the players in the financial economy that will suffer most but, by reason of the unbreakable chains between the financial system and the real economy, it is society as a whole that bears the burden. Governments had no real choice but to prop up the financial system, at least in the short term, lest the impacts on everyone else became catastrophic. It was around this time in early 2008, in the midst of the global financial crisis, that an international commission was formed in response to increasing concerns about the adequacy of measures of economic performance, in particular those based on GDP figures, and to broader concerns about the relevance of those figures as measures of societal wellbeing as well as measures of economic, environmental and social sustainability.
In 2010 the Commission on the Measurement of Economic Performance and Social Progress, headed up by leading experts Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, published its report entitled Mismeasuring Our Lives: Why GDP Doesn't Add Up. It is not hard to see why GDP does not add up. Just from a cursory look, you would surmise it to be a deeply flawed measure of the health of the economy. Over-reliance on GDP—a rough measure of productivity invented during war time—produces some absurd results. GDP and gross state domestic product [GSDP] measure only the monetary value of goods and services. They do not measure domestic and unpaid work or other non-market transactions. For example, GDP and GSDP are positively impacted by sales of formula milk, but not by an infant being breastfed. GDP is positively impacted when you pay someone to clean your house, but not when you clean your house yourself. It is the same with payments made to someone to look after your child, whereas the work of looking after your own child is overlooked by GDP. If crime goes up and we spend more on policing, that positively impacts GDP, as does the expense of cleaning up an oil spill.
Consider that the sale of wood from a felled tree will be captured within GDP, but not the social and ecological value of a tree left unfelled. Quite simply, GDP not only cannot properly measure broader indicators of economic prosperity like individual wellbeing, but it is not even a good measure of economic productivity. Yet it is traditional economic indicators like GDP that are relied on by governments, mainstream economists and rating agencies alike. Then president of the Republic of France, Nicolas Sarkozy, wrote an excellent foreword to the 2010 report, Mismeasuring Our Lives: Why GDP Doesn't Add Up. He wrote:
Our statistics and accounts reflect our aspirations, the values that we assign things. They are inseparable from our visitation of the world and the economy, of society, and our conception of human being and our inter-relations. Treating these as objective data, as if they are external to us, beyond question or dispute, is undoubtedly reassuring and comfortable, but it's dangerous. It is dangerous because we get to the point where we stop asking ourselves about the purpose of what we are doing, what we are actually measuring, and what lessons we need to draw.
That is how we begin to create a gulf of incomprehension between the expert certain in his knowledge and the citizen whose experience of life is completely out of synch with the story told by the data. This gulf is dangerous because the citizens end up believing that they are being deceived. Nothing is more destructive of democracy.
For years, people whose lives were becoming more and more difficult were told that their living standards were rising. How could they not feel deceived?
The problem stems from the fact that our world, our society, and our economy have changed, and the measures have not kept pace.
The kind of civilisation we build depends on the way we do our accounts quite simply because it changes the value we put on things.
Despite this excellent report and all that went before and followed after it, which demonstrated clearly that our economic status quo is not fit for purpose, we have not progressed far on moving away from these outdated ways of measuring our economic success. As Sarkozy noted in his foreword, the global financial crisis not only gave us "the freedom to imagine other models, another future, and another world—it compels us to do so".
The work on finding alternatives to GDP, and on moving towards a framework that encompasses far more meaningful measures of progress and societal wellbeing, was not isolated. Various countries have been working on weaving wellbeing indicators into the way they measure economic prosperity and, accordingly, the way they view their fiscal responsibilities. Since 2007 the European Union has been working on its Beyond GDP initiative. In 2011 the New Zealand treasury developed its Living Standards Framework. Under the framework, measures of wellbeing include life satisfaction, finances, health, housing, human rights and relationships. Data is published showing how wellbeing varies across different groups over time. Many other countries have introduced similar frameworks, based on international research into alternatives to GDP. For example, the human development index [HDI] is a combined statistic of education, life expectancy and per capita income, developed by Pakistani economist Mahbub ul Haq in 1990. The genuine progress indicator is a measurement intended to assess the prosperity of a country by joining ecological and social variables, which are not estimated by GDP.
The thriving places index was developed in the United Kingdom and includes a wide variety of factors, including mental and physical health, education and learning, work and local economy, and green infrastructure, to measure economic health—and there are many more. Some have said that introducing alternative measures to GDP has stalled because it has proved difficult to get international agreement on a single alternative. But that is missing the point. The point is not what the indicators are, but what we use them for. The point is to select indicators for a jurisdiction that can aid governments in ensuring that their actions actually increase the wellbeing of residents, regardless of the traditional economic data. We are more than capable of identifying and recording key wellbeing indicators for the people of New South Wales. Comparisons with other countries can come later. There have been a number of attempts to require governments to consider broader environmental, social, economic and cultural wellbeing objectives in their decision-making and to report back on progress.
In 2014 Greens MP Jan Barham introduced the Wellbeing Indicators Bill 2014, which proposed establishing a commissioner for wellbeing and a parliamentary joint committee, to develop an understanding of what factors and measures should be reflected as wellbeing indicators. In 2019 a very similar structure, called the Wellbeing of Future Generations Bill, was proposed in the House of Lords. There are countless other examples in various jurisdictions. In 2019 New Zealand introduced its first wellbeing budget. It recognises that what should matter to the Government should go beyond the raw data and beyond the individual figures that the likes of S&P collate, in order to determine the State's credit rating. What should matter to a government is the actual tangible impact of its budgeting decisions on the wellbeing of its residents. It is true that the cost of servicing government debt will be a relevant factor in a government's longer-term decision-making processes, but the weight it receives in this State is wildly out of proportion to its actual impact on the quality of people's lives.
The Greens Fiscal Responsibility Amendment Bill 2022 begins the process of redirecting the Government towards taking proper responsibility for the wellbeing of the people of New South Wales. Schedule 1  and  extends the objects of the Fiscal Responsibility Act beyond a simple goal of maintaining a triple-A rating and adds two new objects. The first object establishes the principles for sound financial management in the conduct of fiscal policy and the second object establishes reporting requirements to the extent to which the Government's fiscal policy is consistent with those principles. Schedule 1  and  explains that the purposes of the objects as amended in addition to the existing purposes are: firstly, to maintain essential public assets and services under public ownership and control, thereby providing the State with the ability to meet the needs of current and future generations without reliance on the private sector; and, secondly, to increase the long-term economic, social, environmental and cultural wellbeing of the State.
Schedule 1  amends section 7 of the Act entitled "Principles of sound financial management" in relation to how we go about achieving intergenerational equity. Rather than the bill simply being about the financial costs on future generations, it requires consideration of the cost of repairing the social, environmental and cultural damage caused by the current and previous generations. Schedule 1  adds a requirement for the Treasurer to include in the budget papers a report on the measures taken and the effectiveness of those measures to ensure the long-term economic, social, environmental and cultural wellbeing of the State, including the cost of living; housing affordability; access to essential transport; health and education services, particularly in regional and rural communities; biodiversity and habitat loss or gain, including changes in the number of extinct or threatened species; access to participation in cultural events; the differences in levels of wealth and income among the State's residents, including comparisons between lowest and highest percentile ranges, and by age, location and level of education; the average life expectancy; changes in population numbers across the State; rates of educational attainment; and other matters prescribed by the regulations.
It is true that we do not have a global consensus on what alternatives we might use to the standard economic indicators used for decades, whether it be GDP or other measures of capacity to service debt. But we do have an emerging consensus on the need to replace, or at least supplement, those indicators with something far more meaningful. That means striving to ensure that, to the extent possible, budgets presented by the Government and the laws we pass in this place improve people's lives, because at the moment we have a massive disconnect. Coalition Government members can tell individuals in New South Wales until they are blue in the face that New South Wales is doing well economically, whether we have a triple-A rating from S&P or not, and regardless of how much of it is fact and how much pure spin. But it is the lived reality of the people of New South Wales that actually matters. The truth is that people across the State have been doing it really tough. The quality of their lives is not improving and we have a responsibility to fix that.
This bill takes the first step towards acknowledging the need to bridge the gap between economic headlines and what people are experiencing in their lives. It is just the beginning; there is so much more to do. It would be amazing to agree on an index to replace GDP, for instance. But let us not let the enormity of that task get in the way of taking the step to acknowledge that a government's primary role should be to improve the material wellbeing of the residents of the jurisdiction it governs. I look forward to debating the issues raised by the bill. I commend the bill to the House.
For the full transcript, see Hansard here.