Social return accounting: using social science to calculate rates of return for government expenditures

17 Aug 2018

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 privileged over social infrastructure. This report provides a method—Social Return Accounting—for evaluating all government expenditures on a level playing field.

Many government expenditures or investments have returns that are not easily put into monetary terms. What is the value of a hospital? A school? Public housing? Even the benefits of physical infrastructure cannot be determined from market prices when there are spillovers/externalities from use. In short, it’s not easy to determine the social benefits of many government expenditures.

Social Return Accounting provides a method of doing so using rigorous, modern social scientific techniques. It provides a bridge from social science to social benefits.

This report outlines the Social Return Accounting approach and illustrates it through two detailed examples of large Australian government expenditures: the National Broadband Network and the National Disability Insurance Scheme.

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.

This report shows how to calculate the Social Internal Rate of Return of both technologies. We estimate the SIRR of FTTN at 15.2% and the SIRR of FTTP at 21.1%.

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 does not do away with the need to make assumptions. What it does do is deliver a principled way to measure the return on social investments of all kinds—ranging from physical infrastructure to social insurance schemes. By putting all government investments on a level playing field it permits a clearer assessment of how to prioritise government investments.

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