Standard and Poor's has warned that an aging of New Zealand's population and a decline in the working age population could increase age-related spending on pensions and healthcare to 20.9% of GDP by 2050 from 14.4% now if significant reforms are not made.
Standard and Poor's made the claims in a report on global trendsd titled "Global Aging 2010: An Irreversible Truth."
"Without further reforms to address these mounting spending pressures, increasing net general government debt over the period may weaken New Zealand’s long-term credit quality," Standard and Poor's credit analyst Kyran Curry said, adding New Zealand faced similar problems as in other developed economies with aging populations.
"We project that the government debt burdens of most advanced economies could reach unsustainable levels of over 300% of GDP in the next 40 years, without fresh measures to address long-term age-related spending trends," Curry said.
"In our view, population aging will lead to profound changes in economic growth prospects for countries around the world, and lead to heightened budgetary pressures from greater age-related spending needs. Without appropriate budgetary adjustments, further pension and health-care systems reforms, or structural measures to improve sovereigns' economic growth potential, our projections--which are based on national government estimates, as well as those of the European Union, the OECD, and the IMF--suggest that the future debt burden of the majority of sovereigns would increase to historically unprecedented levels," he said.
"Nevertheless, New Zealand is ahead of many peers in responding to the aging population challenges because of its fiscal flexibility, which is underpinned by low public debt and fiscal discipline. It has either introduced or announced policies directed at raising productivity and savings, promoting greater health-care system efficiency; pre-funding pension entitlements; and providing incentives for the long-term self-provision of retirement incomes."
Treasury Deputy Chief Executive Gabs Makhlouf told the Retirement Income Policy and Intergenerational Equity conference in Wellington in July Treasury has forecast net public debt would rise from around 20% now to over 100% by 2050 without changes to government policy. See more here.
See a Double Shot interview with Gabs Makhlouf below.
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