4.3.3 Pressures on government saving position projected to grow
With the current fiscal strategy, the structural deficit is not projected to shift to surplus until 2015. Under the updated version of the Treasury's long-term fiscal statement (based on the Half-Year Economic and Fiscal Update 2010), the pressures of the ageing population, largely from spending on retirement income, health and long term care, send the projected balance back into deficit from the late-2020s onwards (Figures 4.11 and 4.12).
- Figure 4.11: Core operating balance tips back into deficit in the late 2020s
- Source: The Treasury (Historic trends projection based on Half-Year Economic and Fiscal Update 2010)
- Figure 4.12: Spending on NZS and health rises, on benefits and education fall
- Source: Treasury (Historic trends projection based on Half-Year Economic and Fiscal Update 2010)
Once the deficits build from the increasing costs of spending on ageing, debt mounts and financing costs feed back into rising spending. On this basis (including the baseline tax revenue track assumed in Treasury's modelling), government budgets are under growing stress, while the share of spending on the population aged 65 and older grows from 25% now to about 40% in 2050.
The conclusion is that without significant policy change to the relationships between spending and population, or tax rises (with negative flow-on effects on growth), deficits will steadily increase and debt mount further. This will damage growth prospects, and increase the country's external vulnerability.
