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MSD “Investment Approach” is not an investment approach

Council of Trade Unions Media release

The Ministry of Social Development’s “Investment Approach” is not an investment approach

Today the Minister of Finance, Bill English gave the first in a series of lectures at Treasury on the Government’s “Social Investment” approach. A flagship part of this is the so-called “Investment Approach” used by the Ministry of Social Development (MSD). It uses techniques from the insurance industry to calculate long term costs to the government of welfare benefits.

The CTU is today publishing a paper on the MSD’s “Investment Approach”, showing that it fails the test of being an investment approach. A true investment approach should take a long term view of both the costs and the benefits of public services in order to reduce costs while maintaining or improving effective services and benefits. It is the idea of spending now to reduce future costs.

Instead, the MSD’s “Investment Approach” is narrow and flawed. Far from being an investment approach to social welfare, it focuses on costs to the government, fails to incorporate either benefits or full costs, and makes invalid assumptions about outcomes for beneficiaries which are central to its logic. In its current form it is a recipe for reducing government expenditure. This narrow, uni-dimensional approach has implications for MSD clients and the impact of its services on wider society but it also has much wider significance because of plans to expand its use.

The Productivity Commission in its report on social services released on Tuesday, also finds that the Investment Approach looks only at costs and benefits to the government and not at the benefits to individuals and the community. It recommended (R9.1) that the Investment Approach “should be further refined to better reflect the wider costs and benefits of interventions” and called for independent evaluations (R9.3). It noted that “slavish application of an investment approach based purely on costs and benefits to government might lead to perverse outcomes. For example, some studies suggest that obesity might reduce future health costs as obese people die more quickly. A health system that sought only a reduction in future health costs might therefore do little, if anything, to discourage obesity.” (p.231)

The paper, The “Investment Approach” is not an investment approach, by CTU Policy Director/Economist is available here or http://union.org.nz/sites/union.org.nz/files/Investment%20Approach%20is%20not%20an%20investment%20approach%20-%20Rosenberg_0.pdf

ENDS


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