Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 

Scanning the Far Horizon:Treasury's Fiscal Outlook

Scanning the Far Horizon: Treasury's Fiscal Outlook

Last month the Treasury released a report on New Zealand’s long-term fiscal position, looking out to around the middle of this century.

This is the first such four-yearly report required under the Public Finance Act 2004. Australia and numerous other countries have attempted similar long-term fiscal assessments.

As predictions these would be heroic enterprises. Much of what will happen in the future is unknowable. The mechanistic projections in Treasury’s charts suggest relatively smooth trends. Reality may be quite different, as the economy is impacted by unexpected events and policy changes. This calls attention to the need for prudent planning and economic flexibility.

Nevertheless, the Treasury does a professional job of projecting plausible trends in major spending categories and taxes, based on assumptions about the size and structure of the population and the economy and government policy settings.

Its demographic assumptions are for population ageing with increasing life expectancy and lower fertility rates.

These are largely beneficial trends, and not a crisis. Moreover, attempts to engineer population changes, for example through immigration, would have limited impact.

Interestingly, Treasury implicitly casts doubt on the widespread notion of a marked ‘browning’ of the New Zealand population in the future. It notes that “convergence between Maori and Pakeha is continuing in many aspects of life”. This is likely to include fertility in due course.

The document suggests that with population ageing, spending on New Zealand Superannuation (NZS) and health is likely to rise relative to GDP, particularly from the 2030s. Spending on welfare and education is likely to fall, but not by as much.

So fiscal pressures will increase, but slowly and against a background of a fiscal position which is strong by both historical and international standards.

And Treasury emphasises that the largest single driver of the fiscal position is the policy choices governments make. Even relatively minor changes in such things as the indexation of superannuation benefits can have large cumulative effects.

What may be under-emphasised by the Treasury is the influence of economic performance and productivity on the fiscal choices governments will face and on living standards generally.

Treasury assumes that trend labour productivity growth will be 1.5% a year, which means that real incomes will have more than doubled by mid-century.

This should mean less need for state welfare support by then, just as the much higher average incomes today should mean less need for welfare than when it was expanded in the 1930s.

But such modest labour productivity growth also means per capita income growth in New Zealand is unlikely to be consistent with the government’s stated goal of getting New Zealand back into the high income league. Indeed, given that Australia and many other countries are likely to grow faster, New Zealand could fall further in the rankings.

This prompts two final reflections.

First, the report discusses New Zealand largely in isolation from possible developments in the rest of the world, yet these could have very marked implications.

For example, if an increasing income gap between New Zealand and Australia (and other countries) materialised, it is not implausible to suggest that New Zealand could experience a net outflow of population, as Ireland did for many decades. Many developed countries will be seeking skilled and enterprising workers as their populations age.

Secondly, it is perhaps unfortunate in a document aimed at advancing public understanding and debate that Treasury did not say more about the proper role of government.

In respect of the government’s role in retirement income, it rightly noted that a greater focus on NZS as a safety net and increases in the eligibility age could go far to reduce future fiscal costs. However, a similar discussion of the government’s role in health would raise issues such as the case for greater resort to user charges to discover the value placed on health services, the role of private insurance, and the potential for more efficient provision by the private sector.

It is likely that people will want to spend relatively more on health care as incomes rise, but it doesn’t follow that this should all be done by the government.

Debates on issues such as the mediocre growth outlook and the proper role of the government in the funding and provision of services are better held sooner rather than later if New Zealand is to realise its potential.

Ends


© Scoop Media

 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

Scoop 3.0: How You Can Help Scoop’s Evolution

Entering into its third decade of operation, the Scoop news ecosystem is set to undergo another phase of transformation and evolution.

We have big plans for 2018 as we look to expand our public interest journalism coverage, upgrade our publishing infrastructure and offer even more valuable business tools to commercial users of Scoop. More>>

 
 

Speaking Of Transport: Public Engagement On Wellington Scenarios

“Our work on possible solutions for Wellington’s transport future is ongoing, but has progressed to the stage where we’re ready to share our ideas with the public and seek their feedback to help guide our next steps...” More>>

ALSO:

Parental Leave: National's Time-Sharing Change Fails

National has proposed a change to the Parental Leave and Employment Protection Amendment Bill that would allow both parents to take paid parental leave at the same time, if that is what suits them best. More>>

ALSO:

Train Free Thursday: Workers Strike To Defend Terms Of Employment

"They signed up to these conditions a year ago when they got the contract for Wellington's rail services. Now they're trying to increase profits by squeezing frontline workers." More>>

ALSO:

Seclusion: Ombudsman Emphasises Importance Of Monitoring

Disability Rights Commissioner Paula Tesoriero says that while there have been changes to the Education (Update) Amendment Act 2017 to prohibit the use of seclusion, the report is an important reminder of the importance of regular monitoring of schools. More>>

ALSO:

United Future History: "All Good Things Must End"

'We’re extremely proud of what we’ve achieved over the past 15 years, working alongside the government of the day, both National and Labour.' Mr Light told members on Monday. More>>

Gordon Campbell: On The TPP Outcome, And The Hobbit Law

Somehow the Trans Pacific Partnership trade deal has come lurching back from the dead – and as predicted in this column last week, the member countries gathered in Vietnam have announced a deal in broad principle, shunted aside until a later date the stuff on which they don’t agree, and declared victory. More>>

Agreeing To Differ: Greens Maintain Opposition To TPPA
“The Green Party has long opposed the TPPA. The new proposed deal, which came out of the weekend’s talks, still contains key ISDS concessions to corporations that put our democracy at risk, so our position remains the same,” said Green Party trade spokesperson Golriz Ghahraman. More>>

ALSO:

Monitoring Report: A New Chapter For Children’s Rights In New Zealand?

The Children’s Commissioner is calling on the country to embrace children’s rights to ensure their overall well-being. More>>

ALSO:

 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 
 

Featured InfoPages

Opening the Election