The Influence of an Older Population Structure on Public Finances

The Influence of an Older Population Structure on …
01 Sep 2013

This paper draws on material produced by the Treasury for the 2013 Statement on New Zealand’s Long-term Fiscal Position Affording Our Future. It focuses on scenario projections of the public finances of New Zealand (NZ) over the next half century. In particular it looks at how the ageing of the population structure might impact and via what main channels.

When reading about and viewing the projections, it should be kept in mind that they are not forecasts. In other words, they do not represent a best attempt to predict future outcomes, unlike, for example, the forecast base from which they arise. Rather they should be thought of as "what if?" scenarios that are heavily dependent on the assumptions that generate them.

As an example, in the Cost Pressures scenario net debt rises to nearly 200% of nominal Gross Domestic Product (GDP) by the year ended 30 June 2060, or 2059/60. In reality successive governments would not allow such a debt path to unfold. Even if they wished to, eventually foreign lenders would view NZ as too risky and withdraw their funds. The purpose of this is not to predict such an improbable outcome, but rather to signal that, as debt begins to rapidly rise, fiscal settings have become unstable and policy change is required.

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