5 Conclusions
This paper has projected social expenditures in New Zealand over the fifty-year period 2011-2061, based on a stochastic approach using 13 categories of social spending, decomposed by age and gender. By allowing for uncertainty about fertility, migration, mortality, labour force participation and productivity, and all categories of social spending, it has been possible to generate projections with accompanying confidence bands.
Focussing on ‘pure ageing' results (whereby per capita social expenditure costs in each category grow at the same rate on average as productivity growth), the projections reveal considerable uncertainty regarding the ratio of total social expenditure to GDP as the time period increases. In the benchmark case, the mean ratio of expenditure to GDP is projected to rise from its current level of 25 per cent to 28 per cent by 2061. However, the 5th and 95th percentiles are 22.5 per cent and 35 per cent.
A negligible part of the dispersion in this ratio is contributed by demographic uncertainty. Much of the uncertainty was found to be contributed by uncertainty regarding future unemployment and labour force participation rates, and the rate of productivity growth. More optimistic assumptions regarding labour force participation and health costs among the aged produced lower average ratios of expenditure to GDP. A consistent finding was the tendency for the average expenditure ratio to fall slightly beyond around 2040, following the death of the post World War II baby boom generations.
