Spending to save: avoiding future fiscal costs
Spending taxpayers' money now to save taxpayers money later should be rigorously factored into policy analysis. But don't mistake it for public value.
The fiscal case for prevention
Some of our biggest policy failures are in long-term preventive measures that we lack the patience and political will to fund. A recent report, Avoidable Costs: Better outcomes and better value for public money, by Australia’s Centre for Policy Development (CPD) examines how better policy and planning could prevent or reduce future public spending.
The report focuses on addressing root causes upstream, to avoid costly downstream responses. Governments often incur “failure demand”: repeated spending on downstream crises that could have been avoided through more effective upstream policy or early intervention. Instead of creating optimal public value, resources are consumed by addressing avoidable entrenched disadvantage, poor health, and environmental breakdown.
As the report notes, short-term political incentives, driven by electoral cycles and pressure for rapid, visible policy wins, often work against long-term investment in prevention. Departmental silos reinforce this pattern, inhibiting shared responsibility and joint investment in early interventions. Fiscal assessment methods often bias budgetary decisions against prevention, prioritising short-term cost containment and interventions with immediate, measurable returns.
By tackling root causes, governments can realise major long-term savings.
The report discusses childhood poverty, preventable disease, and chemical contamination as key examples. Targeted income support and early childhood programs, for instance, not only reduce child poverty but could also save billions in future welfare and service costs.
Victoria’s Early Intervention Investment Framework (EIIF) is a practical case study in modelling and operationalising avoided costs. Using multi-year, data-driven modelling across domains like child protection, homelessness, and mental health, Victoria has redirected resources into early intervention. The EIIF also incorporates feedback loops that refine investment strategies over time, improving both policy design and accountability.
To embed preventative thinking in budgeting, the CPD report makes a case for establishing Avoidable Costs Units within treasuries to model potential savings. These Units are proposed primarily to rigorously model and track fiscal costs that can be avoided through upstream investment, supporting line agencies in quantifying immediate budgetary savings. The CPD report distinguishes these fiscal costs from broader economic and societal benefits, acknowledging their importance but positioning the fiscal dimension as the operational priority for government modelling, offering policymakers feasible and tangible analysis for redirecting investments upstream.
In my view, this perspective is valid but too limited to apply in isolation. The problem is that net fiscal impacts of policies (taking both spending and offsetting savings into account) do not represent public value. I argue that it is essential to assess policies more broadly to ensure fiscal considerations don’t override real public benefit.
Fiscal savings aren’t the whole story.
Fiscal discipline is important for responsible use of taxpayer money. However, relying on future savings to the public purse as a yardstick for policy success would be risky.
Here we need to distinguish analysis that takes a public finance perspective (looking at fiscal costs and savings) from analysis that takes a societal perspective (including economic, social, cultural, and environmental costs and benefits). What is good from a public finance perspective may not be good from a societal perspective. An intervention producing net savings for the treasury could deliver sub-optimal results, or even harm, from a societal viewpoint.
When interventions are appraised for their net fiscal impact, it is important not to lose sight of the actual purpose of public policy: spending wisely for long-term societal gains, not creating savings.
Not all beneficial public investments generate a net fiscal saving.
Public spending often doesn’t repay its costs on a narrow budget basis, but may pay back by transforming lives, increasing fairness, or building collective strength.
For example, restoring natural capital (e.g., wetlands, forests, or urban green spaces) builds environmental resilience and may yield economic benefits such as reduced flood damage or increased tourism. It may also generate some fiscal savings, e.g., by reducing the need for future public expenditure on water treatment. Fiscal savings may not offset the full up-front cost - but nor should they have to, when the principal value is environmental.
Screening for rheumatic fever prevention in schools offers a similar lesson. Systematically identifying Group A Streptococcus infections and treating children with antibiotics prevents severe future illness and, at times, costly surgeries. While this averts major downstream costs and improves both length and quality of life, the net fiscal savings from early intervention may not fully offset what is spent on screening. But nor should they have to. The primary benefit is reducing suffering, improving health equity, and delivering better life prospects for young people.
Fiscal-only thinking can also mislead when applied to government transfers like welfare. Cutting welfare payments may improve a budget’s bottom line, but simply shifts resources from recipients to the state, harming vulnerable people but producing no net gain for society. The social value depends on the real outcomes: reducing welfare because recipients gain stable jobs is genuine progress, not because the payments stop, but because lives are improved and prosperity grows.
These examples illustrate why fiscal analysis alone can miss the full value of public investments. Policymaking that prioritises analysis of fiscal impacts risks under-valuing essential social, economic and environmental impacts.
Future cost savings are not a valid indicator of public value.
A myopic focus on fiscal returns can lead policymakers to underestimate the worth of interventions that significantly improve quality of life and equity. Viewing public spending solely through a fiscal lens can result in misguided decisions, where valuable investments are rejected due to their cost, or savings-driven measures inadvertently cause harm.
That’s why cost-benefit analysis (CBA) aims to assess impacts on the whole of society, not just government finances. Public policy must keep this broader frame in mind.
Beyond fiscal analysis: the case for social cost-benefit analysis and Value for Investment
Social CBA accounts for the social, environmental and economic impacts of public investments, aiming to determine whether a proposal leaves society - not just the treasury - better off overall. Social CBA can assign monetary values to some intangible benefits, such as wellbeing, making it possible to weigh many social benefits against their costs.
However, as the CPD report notes, not all important benefits can be quantified. Attempting to value long-term intangibles, like community resilience or civic trust, can be so fraught that these effects are often left out of the analysis. Yet omitting them distorts investment decisions.
Policymakers need frameworks that bring hidden or hard-to-measure benefits into view. Here, Value for Investment (VfI) approaches can play a crucial role, combining insights from economic analysis with explicit consideration and systematic evaluation of diverse and highly intangible benefits, helping ensure policies are comprehensively assessed against their fundamental public purposes.
VfI frameworks provide a practical process for policymakers and stakeholders to engage systematically with the complexity of assessing interventions, factoring in long-term, intangible, and cross-sectoral outcomes that are challenging to include in fiscal and economic modelling. VfI prompts targeted reflection on what constitutes public value, guiding thorough but streamlined assessment of alternative options. This approach complements the CPD’s recommendations by looking beyond narrow fiscal measures and enhancing transparency and accountability in evaluative decision-making.
Learning from the evolution of New Zealand’s Social Investment Approach
Initially, NZ’s Social Investment Approach emphasised reducing the government’s long-term fiscal forward liability by using actuarial analysis to identify individuals and groups most likely to require extensive public support in the future, and directing interventions to where they could generate the greatest fiscal savings.1 However, over time, the approach - now called “Social Investment 2.0” - has evolved. Now, priority is given to achieving meaningful improvements in social and economic value: enabling people, families, and communities to achieve their full potential through influencing system conditions and supporting community delivery. This shift aligns with the argument that fiscal savings in isolation are not a valid indicator of social value.
Applying a longer-term investment lens requires more than structural reform - it demands a shift in how we value prevention and long-term planning.
There are real-world constraints on government action, including the complexity of measuring long-term impacts and the difficulty of convincing the public to support investments with benefits that are intangible, uncertain, or might not be seen for decades. The report rightly calls for structural reforms, but overcoming these barriers would take more than just new tools or units. It requires a cultural shift in how leaders and citizens value prevention and long-term planning. Transparent and credible ex-ante appraisal and ex-post evaluation of preventive spending can help to foster this shift.
Bottom line
Stewardship of public finances is vital to public trust and long-term system sustainability. The challenge is to ensure that public financial rigour works alongside, rather than above, the need to deliver meaningful improvements for people and communities. Upstream preventative approaches make good sense - but they make better sense from a societal perspective than a purely fiscal one.
While CPD’s report makes a compelling case for the dangers of short-term, siloed fiscal thinking, I see its overriding focus on a longer term fiscal perspective as a missed opportunity. Given the authors’ background in wellbeing economics, I had hoped to see a deeper analysis of how policy appraisals could consider not just government savings, but the full range of social, economic, and environmental benefits at stake. By extending their argument to include these dimensions, the report could have strengthened the case for policy models that deliver systemic, long-term public value.
Thanks for reading!
I appreciate the thoughtful peer review from Cathy Shutt. Errors and omissions remain my responsibility. The views expressed here are my own and don’t represent any organisations or individuals I work with. I welcome constructive feedback.
Next week I’ll return to the topic of AI in evaluation, with an interesting experiment. Stay tuned!
In the context of NZ’s Social Investment Approach (1.0), “forward liability” referred to the projected future costs to government if current trends were to continue - such as welfare payments, healthcare expenditure, or corrective services for cohorts facing entrenched disadvantage. Interventions that reduced the need for future spending would lower the government’s unfunded forward liability. Actuarial analysis involved applying statistical and mathematical models (as commonly used in insurance) to estimate the likely future costs to government of serving particular individuals or groups. It calculated risk and expected expenditure over time, enabling targeted investment in high-risk populations where interventions could produce maximum fiscal savings.