Friday, July 12, 2013

New Zealand Treasury: Government Debt Could Hit 198.3% of GDP by 2060 if Steps Not Taken

By Rebecca Howard

WELLINGTON, New Zealand--Government debt could increase more than ten-fold by 2060 if steps aren't taken to address emerging fiscal pressures due to an ageing population among other factors, the New Zealand Treasury said Thursday.

In its statement on New Zealand's long-term fiscal position, the Treasury said that net debt as a percentage of gross domestic product could reach 198.3% in 2060 versus 13.9% in 2010 if no effort is made to address the situation.

"There is no crisis...but the reality is that the sooner we make decisions, the better," Gabriel Makhlouf, secretary to the Treasury, told a press briefing. The aim of the document is to generate debate about the choices New Zealanders make regarding the future, he said. "The best thing we can do is make informed decisions," he said.

The Treasury's projections assume that net debt reaches 27.4% in 2020 but Mr. Makhlouf noted that the current government is focused on bringing down net government debt to no higher than 20% of GDP by 2020.

"Certainly if all governments stick to the current strategy, it would be a big help and would make a big difference." He added, however, that long-term cost pressures would still exist and need to be addressed.

In the May 2013 budget the ruling National Party, which has followed a path of austerity since winning office in 2008, said it was on track to cut debt to no more than 20% of GDP by 2020 from a peak of 28.7% in the fiscal year ending June 2015.

New Zealand's fiscal position has suffered as a result of a deep recession triggered by the global financial crisis as well as a string of major earthquakes, the worst of which killed 185 people and destroyed thousands of buildings in the nation's second largest city of Christchurch.

The Treasury's projections Thursday assume the government collects tax revenue of around 29% of GDP over the projection period but spends significantly more on things like healthcare and the New Zealand superannuation or pension fund.

According to the projections the cost of the superannuation fund could rise to 7.9% of GDP in 2060 versus 4.3% of GDP in 2010. Healthcare spending could rise to 10.8% of GDP in 2060 versus 6.8% in 2010.

New Zealand's population over the age of 65 has already doubled since 1980 and Statistics New Zealand estimates it will double again by 2036, reaching 1.18 million to 1.25 million in that year. By 2061 it could number between 1.44 million and 1.66 million.

Regarding different options for governments between now and 2060, the Treasury discusses the possibility and ramifications of increasing taxes, restricting spending growth in areas like healthcare as well as increasing the age that people can receive their pension to 67 from the current 65. Mr. Makhlouf emphasized, however, the Treasury wasn't making recommendations but rather was seeking to generate debate.

Write to Rebecca Howard at rebecca.howard@wsj.com

(END) Dow Jones Newswires

July 10, 2013 22:17 ET (02:17 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

Source: http://www.euroinvestor.com/news/2013/07/11/new-zealand-treasury-government-debt-could-hit-1983pct-of-gdp-by-2060-if-steps-not-taken/12405129

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