What is the true value of a policy project? For governments tasked with improving citizens’ lives while spending taxpayers’ money responsibly, this is no mere academic question. It lies at the heart of good governance.

Public policy should create social, economic and environmental value. But determining that value in advance is difficult. Policies often have long-term, cross-sector effects that are hard to quantify.

This challenge is compounded by the reality of limited public resources. Whether the decision concerns investment in health, education, transport or climate resilience, funding one initiative often means deferring another.

Prioritisation, then, becomes a moral, economic and political task – with real consequences for how society progresses, and who benefits.

To make better decisions, policymakers need tools that allow structured, transparent and evidence-based comparisons of costs and benefits. The “social cost-benefit analysis” (sometimes abbreviated to SCBA) has long served that purpose.

Cost-benefit analyses are not new. They gained prominence in the United States in the 1930s to guide investment in water infrastructure, and soon became standard in regulatory and environmental policy making worldwide.

The central idea is simple: compare the costs of a policy or project with its expected benefits. Proceed if the benefits outweigh the costs.

In practice, however, it is rarely simple. Identifying all relevant costs and benefits, quantifying them credibly, and ensuring robust data requires skill, diligence – and, crucially, political will.

In a policy environment where decisions often have intergenerational and cross-sectoral consequences, the importance of cost-benefit analysis is hard to overstate.

It enables decision-makers to move beyond intuition and ideology, focusing instead on evidence and impact. It also promotes transparency, providing a framework to communicate a policy’s expected outcomes. This can enhance public understanding and trust.

Consistent, transparent and timely

Traditional cost-benefit analysis has long struggled with complex social policies. Benefits such as improved mental health, stronger social cohesion or reduced criminality are harder to quantify than savings from, say, infrastructure.

This limitation can skew assessments and omit critical aspects of wellbeing. Recognising this gap, the New Zealand Treasury developed a more advanced tool: CBAx with its first version released at the end of 2015.

CBAx is a cost–benefit analysis toolkit developed by the New Zealand Treasury to help public agencies assess and compare the long-term fiscal and social impacts of their initiatives. At its core, CBAx is a spreadsheet-based model designed specifically for use by social sector agencies.

The CBAx includes a comprehensive database of New Zealand-specific monetised impact values, covering areas such as health, education, justice and subjective wellbeing. These values are drawn from a range of non-market valuation methodologies and adjusted to ensure consistency and comparability across government.

CBAx standardises key elements of cost–benefit analysis – such as the discounting of future impacts – and supports more consistent, transparent and timely evaluations of policy options.

The CBAx toolkit also includes guidance documents, templates and training resources. It is supported by a growing community of practice aimed at improving cost–benefit analysis capability across the public sector.

This has changed how cost benefit analyses are conducted in New Zealand.

Previously, many agencies lacked either the capability or the incentive to produce robust cost benefit analyses. Since the introduction of CBAx, both the number and quality of cost-benefit analysis submissions linked to budget bids have increased.

The tool has helped standardise assumptions, improve consistency and enable more meaningful comparisons across projects. Still, many recent government-funded programmes – famously the Auckland Light Rail Project – did not use any cost-benefit analysis to justify their merits. The result has been an avoidable waste of both fiscal and economic resources.

Realising the full potential of CBAx

Cost-benefit analyses have limitations. Monetising impacts relies on assumptions, many of which are contestable. Assigning a dollar value to life, mental health or cultural outcomes is inherently fraught. Some effects cannot be captured with precision.

Rigorous CBAx analysis also requires time, resources and technical expertise – assets not equally distributed across agencies. Institutional barriers, such as budget processes and regulatory frameworks, may further limit its influence.

Critically, CBAx remains a tool. It does not replace judgement. While it can illuminate tradeoffs, quantify impacts and support sound decisions, it cannot determine what is “right”. Politics, values and public priorities still matter.

New Zealand has made commendable progress towards evidence-based policy with CBAx. It reflects a mature understanding of public value – one that extends beyond the bottom line to encompass wellbeing. But its full potential remains unrealised.

To strengthen the use of CBAx, several steps are needed.

First, the government should expand the database of impact values, particularly for non-market and wellbeing outcomes. More research is required to develop robust methodologies that capture the full value of public policy.

Second, public servants should receive broader training and support to ensure consistent and competent use of the tool.

Third, CBAx should be more deeply embedded in policy design – especially where decisions have long-term or cross-sector consequences.

The Treasury deserves credit for developing and promoting CBAx. A well-functioning Treasury ensures not only fiscal discipline but also that public spending delivers value for money.

The use of CBAx supports this aim – helping to ensure government policy delivers real, measurable and lasting value for all New Zealanders.