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Social cost-benefit analysis in Australia and New Zealand

Social cost-benefit analysis in Australia and New Zealand: The state of current practice and what needs to be done OPEN ACCESS

Leo Dobes
Joanne Leung
George Argyrous
Copyright Date: 2016
Published by: ANU Press
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  • Book Info
    Social cost-benefit analysis in Australia and New Zealand
    Book Description:

    All is not well with the evaluation of government programs and projects. Resources available to any society are limited. If governments are to increase the well-being of their citizens, they must be able to select and implement the socially most beneficial projects and policies. But many government agencies lack the expertise to carry out a cost-benefit analysis, or even to commission one. Commercial consultants, on the other hand, often have some analytical expertise, but are not immune from adopting approaches that accommodate the proclivities of their client agencies. In order to increase analytical rigour and methodological consistency, this publication urges the adoption of a ‘belts and braces’ set of protocols for use in project evaluation.

    eISBN: 978-1-76046-020-4
    Subjects: Political Science
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Table of Contents

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  1. Foreword (pp. vii-viii)
    John Wanna

    As towns and cities grow, pressure on infrastructure increases, from schools and hospitals to utilities and transport. As always, resources available to governments are limited. Prudent choices are therefore essential.

    Interviews with government officials and surveys of members of the New Zealand Government Economics Network and the Economic Society of Australia revealed some not inconsiderable disquiet about the use — and non-use — of cost-benefit analysis (CBA) in government decision-making.

    Like any analytical tool, CBA can be misused, but it remains the most rigorous method available to assist decision-makers. It is the central tenet of this monograph — supported by survey results — that...

  2. Leo Dobes, Joanne Leung and George Argyrous
  3. 1 Introduction (pp. 1-12)

    Economics is about choice. The resources available to society — from people, machines and materials to environment goods — are limited. Scarcity means that using a specific resource for one project or policy will preclude its availability for alternative uses.

    Project funding should thus be considered against the context of missed opportunities. At the most confronting level, a decision-maker may need to ask how many people will die because the government spent money to reduce bushfire hazards (e.g. Ashe et al., 2012), for example, rather than providing more diagnostic equipment in hospitals. As Gittins (2015) observes, ‘ the moral of opportunity cost...

  4. Following interviews with government agencies in the various jurisdictions over the period October to December 2014, it was apparent that there was only patchy use of cost-benefit analysis (CBA) in Australia and New Zealand.

    At one extreme, transport agencies were generally well equipped with expert analysts and modelling capability to carry out conventional CBA studies of proposed projects. Some, but not all, central agencies possessed in-house expertise in CBA but were generally engaged only in reviewing studies prepared by line agencies or their consultants as part of budgetary processes. Health and environment agencies, which generally lacked CBA expertise, tended to...

  5. Pressure for structural change in the Australian economy increased during the 1970s (e. g. Treasury, 1978; Rattigan, 1986), with significant micro-economic reform taking place over the following two decades in areas ranging from floating the exchange rate, reducing import tariffs and liberalising financial markets, as well as corporatising government business enterprises, particularly in transport and telecommunications, and exposing them to competition (Willis, 1989; Banks, 2014). Much of the policy debate was underpinned by economic analyses undertaken by the Productivity Commission and its predecessor institutions.

    Almost from its historical beginnings, economic thought has been subjected to a variety of criticisms (Pearce...

  6. It is clear from discussions with government agencies in the Australian and New Zealand jurisdictions (except the Northern Territory) that all is not well in the area of economic evaluation. A survey of members of the Economic Society of Australia and the New Zealand Government Economics Network (Chapter 2) confirmed this impression. It is equally clear (Chapter 3) that any attempt to harmonise variable or parameter values to promote consistency and credibility in cost-benefit analysis (CBA) studies would be fraught with methodological and perhaps political difficulties.

    Most academic texts implicitly also recognise that uniformity in approach is neither desirable nor...

  7. A range of agencies in the Australian and New Zealand jurisdictions occasionally publish manuals, fact sheets and guidelines to assist their staff in preparing or commissioning studies employing cost-benefit analysis (CBA). Examples include the New Zealand Treasury (2015), Department of Finance and Administration (2006) and Transport for NSW (2013). An obvious advantage of publishing manuals and guidelines is that individual agencies reinforce their advocacy of the use of CBA in evaluating project proposals.

    One, possibly unintended, consequence of publishing manuals and guidelines is that they foster a degree of harmonisation between agencies and even between jurisdictions. Most agency manuals cover...

  8. It is possible at present to obtain virtually any desired result that one might wish from a cost-benefit analysis (CBA) study. Although the methodology and concepts in CBA are well established, their practical application leaves much to be desired, at least in some Australian jurisdictions.

    To accept the current situation as merely a practical matter of little import in the real world would involve a misplaced sense of complacency. Anecdotal evidence indicates that public servants and their political masters are not averse to hiring consultants with a flexible disposition.

    For example, Craig Emerson (2015), a former Australian minister for trade...