Thinking About Future Generations
A future challenge will be the ageing of the New Zealand population which, incrementally over a number of years, will place significant upward pressure on government spending. There is no “quick fix” that addresses this. Rather, the change to the structure of the population will require governments to make a whole series of policy and spending decisions over a long period of time.
The Government's fiscal strategy is mindful of the longer term. Decisions to restrict the growth in Crown expenses, and reduce the structural budget deficit, have had a significant effect on projections of the Government's fiscal position into the future. And, in particular, the Government has recognised that changes to the institutional arrangements that drive future spending can have a profound effect over a long period of time.
This Budget is an example. The changes to operating allowances have a permanent and compounding effect across all future years. The Government is also making institutional changes with the aim of lessening future fiscal liabilities.
The investment approach to welfare, for example, looks to identify benefit recipients who are most likely to gain from being helped back into the workforce because they are at higher risk of remaining on a benefit in the long term. Once identified, those recipients would receive more support. This approach involves more spending up front, but it will mean that the Government will need to spend less on welfare in the future. It is an example of a policy change that will have long-term benefits for both welfare beneficiaries and the Government's accounts.
These sorts of measures will help reduce spending as a share of GDP which is an essential building block towards dealing with the cost pressures that are likely to arise in the future. A lower expenditure base will allow governments a wider range of options for dealing with these pressures when they arise.
The Treasury is required under the Public Finance Act 1989 to publish a statement on the long-term fiscal position, at least every four years, which looks at least 40 years into the future. The Treasury expects to release the next Long-term Fiscal Statement in July 2013.
