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New Zealand's Long-Term Fiscal Position [June 2006]

4  Demographic and Economic Assumptions

This chapter outlines projections of the population and GDP, as well as the other economic assumptions used in the Statement.

Who will populate New Zealand?

The starting point of the projections is to look at the issue of the size of the New Zealand population. Three things drive population: fertility (how many children are born), mortality (how many people die each year and, importantly, at what age) and migration (how many people leave and arrive in New Zealand).

Demographic change: the big picture

In common with many other OECD nations, New Zealand is experiencing a shift in the structure of the population.[23] The developed world (and increasingly the developing world) is in a transition from a high fertility/high mortality state to a low fertility/low mortality state. This is commonly referred to as “population ageing” and is the result of more people living into old age (defined here as 65 and older) and very old age (85 and older).

Figure 4.1: Demographic transition in New Zealand - birth and death rates have fallen.

Source: Statistics New Zealand and the Long-term Data Series. Total crude birth and death rates. In the demographic charts and tables, most of the historical data points are averaged from around census years, such as 1996 or 2001. For clarity and consistency with other charts, we have moved the data to the nearest “rounded” year.

This transition is not a demographic bump that will correct itself at some time in the future. In particular, it is not just the result of the post-Second World War baby boom. Rather, what has been driving this ageing of the population (Figure 4.1) is a demographic transition from the high fertility and high mortality rates of a century or more ago to the present and projected low fertility and low mortality rates. This is a permanent change in the age structure of the population; it will not reverse in the coming centuries, given the trends in demography.

The reduction in fertility is, of itself, likely to lead to a lower population (with no migration), while lower mortality has the opposite effect.

The combined effect is seen in the resulting median age of the population; this is the age that divides the population exactly in half. If you were 19 in 1880, half the New Zealand population would be older than you, and half younger. In 2005, the age of the median person had nearly doubled to 36.

Figure 4.2: The median age has been rising in New Zealand.

Source: Statistics New Zealand

Assumptions for population projections

Statistics New Zealand, in the official National Population Projections published in December 2004, presents a range of different scenarios for fertility, mortality and net migration. They have produced nine separate projections. Of these nine, Statistics New Zealand considers that the mid-range projection (known as Series 5) is the most suitable for assessing future population changes. The Statement therefore uses Series 5 as the basis of our future demographic profile, but also illustrates the uncertainty around this series by use of alternative scenarios and probabilistic projections.

The Statement contains demographic and other projections for the entire New Zealand population and does not break out Ma¯ori as a separate group. There are several reasons for this. First, Statistics New Zealand’s projections of sub-populations go out only to the early 2020s. Second, convergence between Māori and Pākehā is continuing in many aspects of life – labour markets, income support, and intermarriage, to list but three. This is not to deny that disparities and differences exist between parts of New Zealand society, but only to suggest they are probably less important to the aggregate long-term picture than the similarities.

For further details, see Statistics New Zealand’s report to the 2005 Hui Taumata (Ma¯ori Economic Development Conference).[24]

Fertility

The total fertility rate is assumed to fall in New Zealand from around 2 live births per woman now to 1.85 in 2016 and then remain constant. This is the level favoured by the United Nations in its long-term work for world population. The rate that replaces the population with zero net migration is around 2.1. This Statement’s projections are therefore based on an assumption of a sub-replacement birth rate.

New Zealand’s experience of fertility rates falling below replacement levels is not an isolated one. In some European countries, the total fertility rate has fallen, reaching 1.2 in Italy and 1.7 in the United Kingdom. Currently, 65 countries (with a combined population of over 2.8 billion people) have fertility rates at or below replacement levels (United Nations, 2005). The United Nations is predicting that the international trend towards sub-replacement fertility rates will continue.

Figure 4.3: After the baby boom, fertility has stayed flat for 30 years.

Source: Total fertility rate from Statistics New Zealand, history and medium fertility assumption

Alternative fertility paths

Statistics New Zealand has produced projections based on two alternative assumptions of the future course of fertility: low fertility, where fertility falls more sharply to 1.60 in 2016, and high fertility, where fertility actually increases from the base-year rate (2004) of 2.01 to become 2.10 in 2016, before remaining constant.

The effect of the low fertility assumption, with nothing else changed, is to reduce the proportion of young New Zealanders in the population in 2050, and raise the proportion of people 65 and above compared with the base case. Overall population is smaller by 7% in 2050. Hence, there will be less demand for schooling, and greater pressures on pensions and health care for the elderly.

Using the high fertility assumption will result in the opposite: a larger population (by 7% in 2050), with a greater proportion of youth and smaller relative numbers of elderly.

 

Notes

  • [23]For a summary of the demographic transition, see Lee (2003).
  • [24]Statistics New Zealand (2005).
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