Budget 2025: Social investment makes a comeback

Budget 2025 set aside $275 million for social investment initiatives to improve the lives of vulnerable New Zealanders, including the creation of a Social Investment Fund.

Social investment is not a new idea, but it has certainly re-emerged for right and centre governments. I remember contributing, in 2017, to Social investment: A New Zealand policy experiment. This book presented the first comprehensive analysis of social investment as a policy programme published in New Zealand.

At the time the Minister of Finance, Bill English, was championing this policy. It was premised on the case that higher investment in social programmes earlier in life could be justified by the savings in preventing poor future life outcomes and the resulting costs to the government in health, justice, or employment.

His attempt was in effect to flip the argument on its head, arguing that higher and more effective spending on social programmes (in particular earlier in life), could in effect be fiscally responsible in the longer-term, and by doing so merging left and right-wing priorities into a centrist policy platform.
 

But despite this centrist framing, the policy narrative and argument did not land well with social services and workers at the time. Entrenched and mutual distrust between central government and community services endures, and policy innovation and ideas such as social investment are typically met with scepticism.

The scepticism stems from the perception that social investment could be a pretext to renegotiate or end contracts, and change contractual arrangements towards outcome targets and greater data gathering. Community services were expecting a drive towards efficiency and funding cuts, under the guise of a quest for effectiveness and better outcomes.

The primary hurdle in getting social investment off the ground is, in essence, the complexity and interpretation of the social investment policy itself. This is not a flaw, it is by design. For social investment to operate as intended layers of policy, governance, trust, data, and innovation must come together. It is a complex undertaking and the inherent lack of clarity, about what it essentially is, consistently leads to difficulties in securing the buy-in, particularly from front-line services, that is necessary for it to take-off.

Fast forward to last week, social investment is back, with the creation of a Social Investment Fund of $190 million.

At its core, social investment is an issue of governance, and how funding, data, and contracts are collectively governed. It is ultimately about the approach to governing contracts for our community services, and within that the nebulous question of the relationship between government and social services.

A generous though potentially crude version of this relationship between government and community services, under the social investment framework, is that of a reset under a new arrangement.

This ‘arrangement’ would involve greater funding offered from one side, and in return of expectations for a better understanding of outcomes (not outputs), data collection, and innovation to achieve improved outcomes from the other side. Under this new arrangement trust would ideally be gradually restored over time, through a new working relationship under the social investment model.
 

This is all very well in theory, until it must be put into practice. Governance is where the rubber hits the road, particularly with so-called ‘social funds’.

I distinctively recall discussing, with advisers to Bill English at the time, various possible ‘fund manager’ models in which these managers would be held accountable for the ‘social return’ of their funding decisions towards a set of community programmes. My immediate thought was, who would want to be a fund manager?

Social returns would have long lead times. There is inherent uncertainty in achieving better outcomes from vulnerable populations with complex needs, not to mention how to appropriately set expected returns on social investment that fund managers would need to meet.

It is likely that there is no perfect solution as to how to run a Social Investment Fund such as the one created last week. The current government and Social Investment Agency will probably have to wrestle with the same questions that arose a decade ago.

Ultimately, for social investment to truly benefit government, community services, and the vulnerable populations needing care and support, it needs to embrace risk tolerance, cultivate strong feedback loops for lessons and learnings, and commit to a long-term vision.

This approach would be aiming to gradually change the institutional and systemic gridlocks that have constrained the system’s ability to turn people’s lives around.

Social investment, in its most constructive expression, is a potential platform for parts of the system to engage again and work more closely together, step by step. Consistent, open, and transparent engagement from both sides of the system could deliver better outcomes for those in need. That is worth a try.