The TaskLong-Term Fiscal Schools Challenge

Page updated 22 Feb 2012

The Issue

Like most households, governments need to budget: they must draw up credible plans to raise revenue, and constrain and prioritise spending.

New Zealand, like most other developed countries, is in the midst of a permanent change in the structure of its population. An ageing of our population began more than a century ago; we are currently entering an accelerating phase, which is placing increasing pressure on government finances.

Future New Zealand governments will face challenges and choices in securing the sustainability of the Crown's long-term fiscal position. If no changes are made to current policies over the coming decades, they will become increasingly expensive. Increased productivity (and therefore an increased tax take) would help, but productivity would have to be much higher to make a significant difference to the overall fiscal situation. To keep New Zealand's debt within sustainable levels, we will need either to raise taxes, to sell some assets, or to stop funding some services that are currently publicly-funded (or fund them to a lesser degree).

Why You?

This is a challenge for your lifetime.

The ageing of our population is expected to have wide-ranging fiscal implications for government tax and spending programmes in the future. Your generation will be affected by the changes.

Your Task

The Minister of Finance has asked for your advice on New Zealand's future fiscal policy choices, in particular:

• What are our options for ensuring that the level of services the government provides is affordable and sustainable?

• What are the likely impacts of the various options, and which option or options do you recommend? You may recommend one option, or present several possibilities.

In groups of up to four people, please prepare both a paper and a presentation for the Minister that outlines your advice. The paper may be up to 1500 words in length (excluding graphics). For teams invited to Wellington to present your submissions, your presentation should be 5-10 minutes long, using a maximum 10 slides with up to 30 words per slide. You may have one or several presenters.

When analysing the impacts of various options, you may wish to consider:

• Does this option actually address New Zealand's fiscal issues?
• What are the impacts of this option on economic growth?
• How will this option affect the most vulnerable New Zealanders?
• How will the costs and benefits of this option be distributed across society? Will some benefit more than others? Will some bear a disproportionate amount of the cost?
• What trade-offs does the option involve? A trade-off is where pursuing one policy option makes an alternative option more difficult to achieve.

To apply this framework to a practical example, consider the option of cutting spending in healthcare drastically, thus easing some of New Zealand's fiscal pressure. If this option is one you consider in your answer, you should also analyse the likely effects on economic growth through, for example, an overall unhealthier workforce leading to decreased productivity. If poor health means that more people are unable to work, this might also put more spending pressure on the benefit system. Also, this option might impact heavily on poorer people, who already have worse health and have less ability to pay for their own healthcare.