![New Zealand's Long-Term Fiscal Position [June 2006]](/mastheads/government/longterm/longterm06.gif){kind=small}
Conclusion
The New Zealand Government’s current fiscal position is strong, by both historical and international standards. Debt is low, assets are being built up to provide a buffer against future shocks and tax and spending rates have been stable and predictable.
The projections presented here, which are based on history, current policy settings and judgements, show that this strong position is likely to continue for a long time.
In common with many other countries, New Zealand is experiencing a shift in the structure of the population. The population has completed a transition from a high fertility/high mortality state to a low fertility/low mortality state. This transition is not a demographic bulge that will correct itself at some time in the future and is not just the result of the post-Second World War baby boom. In time, the number of old people will increase as a proportion of the total population and, correspondingly, the number of young and working-age people will fall.
The Statement assumes a continuation of solid economic growth, which means that the tax base also grows through time, giving governments the wherewithal to finance their expenditure.
The combination of the projected structural change in the population and present policy settings is likely to lead to growing challenges to the fiscal position, and these pressures will accelerate in the 2030s. By the middle of this decade, public spending on health and New Zealand Superannuation is projected to rise by more than falls in welfare and education spending.
The base-case projections using the bottom-up approach show the operating balance moving into deficit and the debt-to-GDP ratio rising after about 2030.
However, the Statement assumes that governments will continue to follow the principles of responsible fiscal management contained in the Public Finance Act, meaning that they will act before then to ensure that the fiscal position remains sound.
The top-down projections show that if major spending areas were left to grow as in the base case, other spending would have to fall by half in order to keep gross debt stable at 20% of GDP.
The largest single driver of the fiscal position is the policy choices governments make, which means governments have the capacity to make the necessary changes. Policy adjustments need not be large. A number of small adjustments, starting early and sustained, will be sufficient to maintain a sound fiscal position. Governments have already taken a very long-term view in setting policy and this trend is likely to continue.
Publishing a Statement on the long-term fiscal position is not an end in itself. What this Statement does is present information that will allow readers to develop scenarios consistent with what they define as desirable fiscal results.
