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.