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Modelling New Zealand's Long-term Fiscal Position - PP 06/01

3. Who will populate New Zealand?

The starting point of our modelling is to look at the issue of the size of the New Zealand population.

From any given starting point, three variables 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:  a transition from a high fertility/high mortality state to a low fertility/low mortality state.

In common with many other OECD nations, New Zealand is experiencing a shift in the structure of the population.[16] The developed world (and increasingly the developing world) 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. In particular, it is not just the result of the post-World War Two baby boom. Rather, 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 is what has been driving this ageing of the population. Figures 3 and 4 show the long-term trends in fertility and mortality.

Figure 3: The long-run demographic transition in New Zealand - birth and death rates have fallen . . .
Figure 4: . . . and death rates have fallen across all age groups
Source: For Figures 3 and 4, Treasury Long-term Data Series and Statistics New Zealand. Total crude birth and death rates. In the charts and tables in the demographics section, most of the historical data points are averaged from around census years such as 1991 or 1996. For clarity and consistency with other charts, we have moved the data to the nearest “rounded” year.

The reduction in fertility is, of itself, likely to lead to a lower population (absent migration), while lower mortality has the opposite effect.

The combined effect of lower fertility and lower mortality rates is seen in the resulting median age of the population: this is the age which divides the population exactly in half.

Figure 5: The median age has been rising in New Zealand (apart from the arrival of the baby boom) and is expected to continue rising
Source: Statistics New Zealand’s historical population and Series 5 projection

Statistics New Zealand, in the official National Population Projections, published in December 2004, presents a range of different scenarios for fertility, mortality (or the converse, survival rates) and net migration. They have produced nine separate projections. Of these nine, Statistics New Zealand considers that the “medium” projection (known as Series 5) is the most suitable for assessing future population changes. Because Statistics New Zealand prefers it, we have adopted Series 5 as the basis of future demographic profiles, but we will also illustrate the uncertainty around this series by use of alternative scenarios and probabilistic projections.

Fertility

The total fertility rate is assumed to fall slightly from 2.01 in 2005 to 1.85 live births per woman 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 births per woman. Hence we are assuming a sub-replacement birth rate, although one that is at present high compared with most of the OECD.

New Zealand’s experience of fertility rates falling to below replacement levels is not an isolated one.  Currently, 65 countries have fertility rates at, or below, replacement levels.

New Zealand’s experience of fertility rates falling to below replacement levels is not an isolated one. Currently, 65 countries (with a combined population of over 2.8 billion people) have fertility rates at, or below, replacement levels (UN 2005). The UN is predicting that the international trend towards sub-replacement fertility rates will continue into the future.

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 by 2016 and high fertility scenario, where fertility actually increases from the base year rate (2004) of 2.01 to 2.10 in 2016, after which it remains constant.

Figure 6: After the baby boom, fertility has stayed flat for 30 years
Source: Total fertility rate from Statistics New Zealand, medium fertility assumption

The effect of the low fertility assumption 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 and the number of people between 15 and 65 will be fewer. Assuming SNZ’s high fertility case will result in the opposite: a larger population (by 7% in 2050), with a greater proportion of youth and smaller relative numbers of the elderly.

Notes

  • [16]For a summary of the demographic transition, see Carter (2004).
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