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Source: ONE News -
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The economic crash has seen Treasury dramatically revise its long term outlook for the economy, questioning government spending in virtually every area including the eligibility of the pension for 65 year olds.
In its Long Term Fiscal Statement, Treasury says 40 years from now 1.3 million people could be on superannuation, the country's debt could be 220% of gross domestic product and the average wage earner could be in the top tax bracket.
Even now, the government says it is not taking enough tax to cover its spending and if left unchanged the average wage earner would earn more than $70,000 by 2023 - facing the top tax rate of 38%.
Planning for the ageing population is urgent, with 25% of the government's spending going to the 12% of the population aged over 65, secretary to the Treasury John Whitehead says.
The ageing population will slow economic growth with fewer people earning income while supporting the growing number of elderly.
About 522,000 people are receiving New Zealand Superannuation at present but this is projected to grow to 1.3 million in 2050, with most of the shift happening in the next 20 years.
Debt is also a key area addressed by the Treasury projections.
In 2006 when Treasury last did a long-term projection, net public debt was projected to reach over 100% of GDP over a 40 year period but in the new projections, net public debt could reach more than 220% of GDP by 2050.
The revision is due to lower tax revenue, smaller overall economic growth and the recession,
Whitehead says.
"Debt builds debt, and debt financing costs use a larger and larger share of income. In 2050, debt servicing would be around $110 billion annually," he says.
The projections do not take into account the effects and costs of climate change, due to the uncertainty surrounding both the physical effects and national and international policy change.
To deal with the looming problems presented by many elderly and not enough money, Whitehead advises early, incremental corrective measures.
"It's not easy. It will involve choice and change."
He warns that unless debt is kept under control, it could possibly "limit the ability of governments to set the policy they want".
He has also called on the news media to lift the level of debate, for the government to focus on economic growth and productivity, and for government to work on policies to keep older people working longer.
