The Requirements for Long-Run Fiscal Sustainability (WP 13/20)

Abstract

New Zealand, like many other countries, is experiencing a changing demographic profile from one dominated by young people during the 20th century to one where the population is more evenly distributed across age groups. This has implications for the economy and society, including the government's fiscal position in the future and for the sustainability of its spending programmes. This paper discusses the link between the government budget constraint and fiscal sustainability, how fiscal sustainability can be measured and why it's important. We also examine the Treasury's current approach to modelling the extent of fiscal adjustment required and options available to achieve this adjustment. The paper proposes criteria to evaluate potential policy changes to address these long-term fiscal challenges and suggests areas where further work could be worthwhile.

Acknowledgements

We are grateful for comments received from Matthew Bell, Anne-Marie Brook, Neil Cribbens, John Janssen, Brian McCulloch, Bill Moran and Paul Rodway from the New Zealand Treasury; John Creedy, Norman Gemmell and Viv Hall from Victoria University of Wellington; Michael Reddell from the Reserve Bank of New Zealand; Graeme Wells from the University of Tasmania; Hon Sir Michael Cullen; participants at the New Zealand Association of Economists (NZAE) Conference on 27-29 June, 2012 in Palmerston North, the Treasury Long-Term Fiscal External Panel on 30 August, 2012, and the Affording our Future Conference on 10-11 December, 2012 at Victoria University of Wellington..

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.