The Treasury today released its second Long-term Fiscal Statement, which looks at the issues of government spending, the tax needed to pay for it, debt – and population ageing – out to the year 2050.
Under the Public Finance Act the Treasury is required to produce a statement on the long-term fiscal position at least every four years and the Statement is the Treasury's document and not government policy.
"The fiscal outlook has worsened significantly since 2006, when the first Statement was produced," Secretary to The Treasury John Whitehead said. "We already have budget deficits – spending higher than revenue. If government spending follows historic trends, then these deficits would last beyond 2050, resulting in net public debt reaching more than 220% of GDP."
"The deterioration since 2006 shows the effects of the recession on tax revenue, increased costs in existing programmes, and policy changes over the past three years," he said.
Mr Whitehead said the projections in the Statement highlighted the challenges and choices around revenue and spending that governments may be confronted with over the next 40 years.
The Statement showed how demographic changes add to the long-term fiscal pressures. "The population is ageing as people live longer and have smaller families," Mr Whitehead said.
"Population ageing is important because 25% of government spending is currently on the 12% of the population aged 65 and over. By 2050 the ratio of people 65 and over to those of working age will double, and this change starts soon - the first baby boomers start to turn 65 in 2011."
Mr Whitehead said the Statement was designed to generate public discussion about what is required to achieve a sustainable fiscal position into the future.
"A sustainable fiscal position requires the maintenance of Budget surpluses over time – spending to be slightly less than revenue. There are many mixes of spending and taxes that produce a sustainable position, but returning to surpluses will require choices about policy priorities," he said.
"Ultimately, the Statement is about the country's future and the big issues that the public and governments need to think about if New Zealand wants to maintain or improve living standards and public services."
ContactAngus Barclay | Senior Communications Advisor
Tel: +64 4 917 6146 or (027) 337 1102
Email: [email protected]
Online copies are available of the Challenges and Choices: New Zealand's Long-term Fiscal Statement. Speech notes and presentation slides are available at www.treasury.govt.nz.
A technical paper detailing the economic modelling and assumptions used to create long-term forecasts and projections in the statement will be published in late November, along with a downloadable version of the model.