Joseph Stiglitz, and economist and Nobel laureate, said GDP was not a suitable device for measuring well-being, because increasing GDP may not always be followed by an increase in living standards.

As a common understanding, GDP only represents the market value of all goods and services produced by the whole economy. It does not take into account what’s good for the lives of people, such as health and education, environmental quality and leisure. Therefore, the increase in GDP does not necessarily equate to how people perceive economic conditions on a personal level.

In fact, disappointment with GDP as a measure of success has a long history. In 1968, United States senator Robert F. Kennedy said the GDP measured everything except what made people’s lives worthwhile.

To develop a better measure, in 2008, then-French president Nicolas Sarkozy initiated an International Commission on the Measurement of Economic Performance and Social Progress.

This commission consists of prominent economists, including Stiglitz, who created a report entitled Mismeasuring Our Lives: Why GDP Doesn’t Add Up. The report provides a comprehensive measurement of economic activities, including welfare, sustainability, savings and wealth and environmental conditions.

Developing macroeconomic measures that deal directly with people’s well-being does not automatically solve the real problems. The remaining challenge is to ensure that state policy and budget spending serve social welfare.

Although many policymakers have noticed the importance of well-being indicators, they have not fully seen the indicators as the primary concern of the state budget. The principal nuances of the state budget are still dominated by GDP and other broad macroeconomic indicators.

Among the policymaker who understand the importance of well-being indicators, New Zealand’s Prime Minister Jacinda Ardern has become the first to implement the new concept in the country’s fiscal policy. Her breakthrough policy in 2019, called Well-Being Budget, makes well-being programs the top priority in budget allocation. PM Ardern argues that targeting GDP growth is not enough; needed are programs directly affecting well-being.

New Zealand’s well-being approach, as described in the Budget Policy Statement, is directed toward allowing people to live lives of purpose, balance and meaning. Technically, New Zealand’s government will use the Living Standards Framework (LSF) developed by the Treasury Department to determine budgeting priorities.

LSF consists of not only poverty, inequality, education and health indicators, but also itemized broader aspects of well-being, such as leisure, safety, ecosystems, water and sanitation, air quality, and even trust and social relations. In addition to that, the LSF measures future well-being by paying more attention to the intergenerational, human, social, natural and physical aspects and financial capital.

In devising a well-being budget, the government defines budget priorities based on the LSF as evidence-based indicators. Then, the initiatives and programs from line ministries will be assessed by the Treasury Department using the LSF to make sure that the initiatives and programs are in line with the well-being priorities.

To put more pressure on her line ministers, PM Ardern gives them an ultimatum: “If you’re a minister and you want to spend money, you have to prove that you’re going to improve intergenerational well-being.”

The current New Zealand government’s priorities for the 2019 well-being budget are transitioning to a low-emissions economy, thriving in the digital age, lifting outcomes for indigenous people, reducing child poverty and supporting mental health.

Although the Well-Being Budget is still in the initial years of implementation, this game-changing policy will pave the way for a new approach in the realization of people’s well-being.

With a strong constitutional mandate to elevate public welfare, Indonesia can adopt the New Zealand Well-Being Budget approach.

Although Indonesia’s state budget has addressed many well-being issues, it still does not capture broader aspects of well-being, when compared to New Zealand’s framework.

While Indonesia is on the right track by putting at least 20 percent and 5 percent of the total budget into education and health, respectively, Indonesia’s budget should pay more attention to critical issues affecting the well-being of people, such as environmental quality, safety, jobs and earnings, human settlement, water and sanitation, culture, social connections and civic engagement. To determine the priorities of the government, Indonesia could develop comprehensive well-being frameworks or indicators, as has been done by the New Zealand government.

As for the environmental aspect, the Finance Ministry has come up with a good initiative for climate change by developing the Climate Budget Tagging (CBT) policy. The CBT is a tool for monitoring and tracking climate-related expenditure in the national budget.

The CBT also requires policymakers and budget planners to incorporate climate considerations in their initiatives and programs. This good initiative could be replicated with regard to other well-being aspects.

The implementation of a well-being approach in Indonesia should not only apply to the spending side but also to the revenue side. For example, as one of the biggest consumers of cigarettes in the world, which harm people’s health and the environment, Indonesia should increase the cigarette excise as the rate is low relative to other countries.

By adopting the well-being budget approach, Indonesia will achieve people’s well-being in a more systematic and focused way. That way, Indonesia will not be trapped in GDP fetishism, a term used by Stiglitz for a country that is fascinated with GDP as a measure of success.

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The writer is an analyst at the Fiscal Policy Agency of the Finance Ministry. The views expressed are his own.

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