17 May 2018
For all the Government emphasised its prudence in the recent New Zealand budget, lurking in the Treasury’s long-term fiscal projections is the fact the country’s demographics mean the universal-at-65 superannuation system is unsustainable.
Earlier in May the NZ government emphasised its prudent fiscal stance, projecting a decline in net core Crown debt to just 19.1 per cent of GDP by 2022. However, a closer look at the Treasury’s long-term projections shows healthcare and superannuation costs are set to soar.
"Under current policy settings, NZ’s ageing population is projected to drive a steady rise in government spending.”
Under current policy settings, NZ’s ageing population is projected to drive a steady rise in government spending on health (from just over 6 per cent of gross domestic product in 2015 to almost 10 per cent by 2060) and superannuation (from around 5 per cent of GDP in 2015 to almost 8 per cent by 2060).
To cover the shortfall between revenues and expenses, the government will need to increase its borrowings; debt financing costs are projected to increase from less than 2 per cent of GDP in 2015 to 11 per cent by 2060.
The power of compounding interest does the rest, and net core Crown debt takes off, exceeding 200 per cent of GDP by 2060.
This isn’t feasible – change will be forced upon the nation at some stage, and the earlier the issue is addressed, the less extreme the solution will need to be.
Miles Workman is an economist at ANZ NZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
17 May 2018
08 May 2018