The "investment approach" – liabilities or assets?

In 2011 the NZ government adopted from the Accident Compensation Corporation via the Welfare Working Group a programme of actuarially estimating the cost of someone staying long-term on a benefit and using that as the basis for defining the return from "investing" in action that deflected that person from a benefit into long-term work. The Ministry of Social Development (MSD) engaged an Australian firm, Taylor Fry, to do the actuarial estimates of long-term benefit costs. It applied programmes incorporating those estimates initially to 16-17-year-olds and sole teen mothers of 16- 18 in the welfare system, groups known to have a high risk of long-term benefit-dependency. This actuarial/investment technique is known as the "forward-liability investment approach" or just the "investment approach". Including the "forward-liability" qualifier underlines that in its initial application the technique is essentially insurance against a future liability. Leaving out the "forward liability" qualifier suggests an investment approach might logically be applied to building assets in addition to avoiding liabilities and applied more widely in policy development and government decision-making. The idea of "investment" as an element in government services was not new. Education has long been assumed to be an investment: individuals get a return in higher wages through investing in higher skills; society as a whole gets a return in higher productivity and greater prosperity and, some would add, a more cohesive society from the greater potential for full civic and social engagement education can enable and encourage. More recently, there has been some debate about the level of return on educational investment and the division of returns between individuals and society as a whole. In 1997 a paper by two Department of Social Welfare analysts argued for investment against future costs, that is, against a contingent future liability. But it did so in fiscal, not economic, terms. In that sense it anticipated the forward liability investment approach. Peter Hughes, MSD chief executive from 2001, argued unsuccessfully for investment concepts to be adopted. The Minister of Finance, Bill English, has said on several occasions that he wants to apply investment thinking to some (unspecified) other social services. He has more recently boiled this down to the phrase "social investment" and talked specifically about at-risk children under 5. In the 2015 budget he acknowledged that income was a contributing factor to "child hardship" and introduced an up-to- $25-a-week increase in the benefit and income-related additions to Working For Families income tax rebates. But is forward liability the most useful and appropriate measure