In 2019, New Zealand launched its landmark 'Well-being Budget', shifting the treasury's focus away from pure GDP growth toward wider indicators of social capital, human health, and environmental quality. Proponents argue that conventional growth models fail to account for escalating societal costs, such as housing unaffordability, river pollution from intensive dairy farming, and mental health challenges. They champion the Genuine Progress Indicator (GPI), which starts with personal consumption expenditures but adjusts downwards for environmental degradation, inequality, and defensive expenditures (such as costs of crime and pollution cleanup), while adding value for unpaid volunteering and domestic work. Fig. 3.1 highlights how New Zealand's economic growth has increasingly decoupled from actual human and ecological welfare over recent decades.
Fig. 3.1 GDP and GPI per capita in New Zealand, 1990–2025
| Year | Real GDP per capita ($ NZD at 2020 prices) | GPI per capita ($ NZD at 2020 prices) |
|---|---|---|
| 1990 | 38,000 | 35,500 |
| 1995 | 42,500 | 37,000 |
| 2000 | 48,000 | 38,500 |
| 2005 | 54,000 | 39,000 |
| 2010 | 57,500 | 37,500 |
| 2015 | 63,000 | 36,000 |
| 2020 | 66,500 | 36,500 |
| 2025 | 71,000 | 35,000 |
Critics of the well-being paradigm, however, warn that abandoning economic growth as a core policy objective poses severe macroeconomic risks. A modern economy is built on the expectation of growth; without it, businesses face declining investment incentives, which can lead to rising structural unemployment. Furthermore, fiscal stability depends on a growing tax base to fund healthcare and education for an aging population. Shifting policy exclusively toward social and ecological targets without a clear strategy for debt and fiscal sustainability could trigger capital flight and lower sovereign credit ratings, raising borrowing costs for the government.
Evaluate, using the information in Extract 3, the impact of abandoning real GDP growth as a primary macroeconomic objective for New Zealand.
