Innovative new method puts a price on public spending

How do you measure the value of a new hospital? Or quantify the value of a longer school day? A new UNSW Sydney report released today has developed the method of Social Return Accounting, an innovative new framework that uses rigorous, modern social scientific techniques to measure the value of government projects ranging from physical infrastructure to social insurance schemes.  

The new method was developed by UNSW Professor of Economics Richard Holden and UNSW Professor of Law Rosalind Dixon, co-leads for the UNSW Grand Challenge on Inequality, in partnership with Georgetown-trained economics consultant Alex Rosenberg. The trio will present the report at tonight’s UNSW Grand Challenge on Inequality event. Former Opposition Leader Dr John Hewson, AM, will officially launch the report. 

Social Return Accounting expands on existing methods used to measure a social return on investment (SROI) as it takes physical infrastructure into consideration, as well as intangible human and social capital. Professor Dixon notes that in the UK, social returns are part of the debate by law as leaders are required to interrogate the social value of any large project before public services are contracted. In Australia, businesses, non-profits and government bodies are increasingly concerned with measuring the social return on investments. 

Governments make expenditure decisions on items ranging from roads and rail lines to hospitals and schools to welfare benefits and social insurance schemes. Yet there is no common “language” for evaluating the social return of these different expenditures. The lack of such a language makes it impossible to prioritise these expenditures in a principled manner. Furthermore, physical infrastructure, which is more amenable to traditional financial analysis, is often favoured over social infrastructure.

Social Return Accounting provides that common language taking market-based principles of return on investment and applies them to the unique circumstances of public investments to determine their social value.

“Any business justifying a big investment would estimate the project’s future cash flow over time and compare that to the cost, aiming for a threshold rate of return,” Professor Richard Holden says. “What Social Return Accounting does is give policymakers – and taxpayers – real calculations for the shared returns on public investments. It provides an empirical, principled way to compare different policy options and set our priorities.”

In case studies, the report’s authors apply Social Return Accounting to real-world policy choices for Australia, including the National Broadband Network (NBN) and the and the National Disability Insurance Scheme (NDIS).

There has been significant debate about which of the two competing approaches to the NBN—Fibre-To-The-Premises (FTTP) or Fibre-To-The-Node (FTTN)—is preferable. By calculating the NBN’s shared benefits – in wages, internet computer technology (ICT) skills, telemedical help, patient transfers, social connections and mental health – Social Return Accounting determines that delivering broadband to the premises, even at greater cost, has a better rate of return (21%) than the cheaper ‘fibre-to-the-node’ option (15.1%).

The NDIS illustrates another dimension of Social Return Accounting. The report shows that the economic value of the life-saving benefits of carer stress are significant and go some way to offsetting the additional cost of the NDIS over existing schemes. The remaining difference between costs and benefits can be quantified, putting a dollar figure on the value of ex ante insurance against disability, and ex post dignity for those living with disability. That figure amounts to less than 1.1% of income for the average working Australian.

“Social Return Accounting doesn’t take away important political choices, but it means we can make more informed decisions about how taxpayers’ money is spent, and get real value for Australia,” said Dr Hewson.

The UNSW Grand Challenges program aims to discuss and address the biggest issues facing humanity. The Grand Challenge on Inequality has previously developed policy reports on the link between inequality and financial distress and recommended new approaches to this problem through a model of Social Emergency Lending and Social Emergency Saving.

Read the full report, Social Return Accounting: Using social science to calculate rates of return for government expenditures.

Explore more about UNSW’s Grand Challenges.