3.2.4 Sensitivity of projections to assumption changes
This section examines two alternative central population projections around the Series 5 projection. It also looks at the extent to which more extreme demographic scenarios affect the fiscal position.
“Alternative central” demographic projections
The Treasury commissioned several updated population projections from Statistics New Zealand for the 2009Statement with the estimated resident population at 30 June 2008 as the base. The assumptions for these are summarised in the Table 3.2.
| Series | Fertility from 2026 | Period life expectancy at birth | Migration from 2012 |
|---|---|---|---|
| Births per woman | Males: Females, years, in 2061 | Inwards less outwards | |
| 1 | Low (1.7) | Low (82.0: 86.0) | Low (5,000) |
| 5 | Medium (1.9) | Medium (84.5: 88.0) | Medium (10,000) |
| 9 | High (2.1) | High (87.0: 90.0) | High (15,000) |
Source: Statistics New Zealand
In 2050, the Series 1 total population is 654,000 smaller than Series 5, while the Series 9 case is nearly 700,000 higher (see Table 3.3 below). The low case has the population peaking in 2043 before deaths overwhelm births and net migrants and the total falls (the situation of shrinking population that several fast-ageing countries are facing now). For the low case, the youth dependency ratio (under 15s as a ratio of 15-64s) is much lower than the base case. This ratio is a strong driver of public schooling costs as a proportion of GDP. In the high case (Series 9), the youth ratio remains largely constant.
| Series | Population size, millions | Youth dependency ratio | Old age dependency ratio | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2008 | 2030 | 2050 | 2060 | 2008 | 2030 | 2050 | 2060 | 2008 | 2030 | 2050 | 2060 | |
| 1 Low | 4.27 | 4.80 | 4.85 | 4.74 | 31.3 | 26.5 | 25.5 | 24.6 | 18.9 | 34.2 | 42.1 | 45.4 |
| 5 Mid | 4.27 | 5.09 | 5.50 | 5.60 | 31.3 | 29.3 | 28.4 | 28.0 | 18.9 | 34.3 | 41.7 | 44.3 |
| 9 High | 4.27 | 5.39 | 6.20 | 6.53 | 31.3 | 31.8 | 31.3 | 31.3 | 18.9 | 34.3 | 41.2 | 43.4 |
Source: Statistics New Zealand
The old age dependency ratio is the key driver of the costs of NZS. All three cases see this ratio more than doubling, with the low case having slightly more ageing than the medium which has a slightly older population than the high case.
The next step is to see how these different population scenarios flow through to changes in the fiscal position. Here we assume the same participation and unemployment rates for all three population scenarios. Primary spending (which excludes finance costs) rises with increased age dependency, producing higher debt.
| Series | Primary expenditure | Operating balance | Net debt | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 2008 | 2030 | 2050 | 2008 | 2030 | 2050 | 2008 | 2030 | 2050 | |
| 1 | 30.4% | 33.8% | 36.1% | 2.2% | -5.0% | -15.1% | 5.7% | 81.1% | 224.8% |
| 5 | 30.4% | 34.3% | 36.6% | 2.2% | -5.3% | -15.8% | 5.7% | 79.5% | 223.4% |
| 9 | 30.4% | 34.4% | 36.9% | 2.2% | -5.5% | -16.1% | 5.7% | 76.6% | 218.3% |
Source: The Treasury