On average, in the future we will be healthier, richer, and will live longer. But this is going to require some adjustments. Due to population ageing and rising demand for certain services, some things that the government provides – such as New Zealand Superannuation (NZS) and public healthcare – will become more expensive. In fact, this process has already started. Without policy changes, the gap between how much the government spends and how much it collects in tax revenue will grow over the next 40 years to possibly unsustainable levels.
As a result, ensuring the government operates within its budget over the long term will require policy changes. But there are many different options. We could try to reduce spending growth in NZS or public healthcare, as these are the two areas driving the future financial pressures. Or we may wish to accommodate the pressures in these areas by reducing spending in others, such as education or justice. Alternatively, we could allow costs to grow as projected, and pay for it by raising more tax revenue. Each approach brings trade-offs.
The Long-Term Fiscal Calculator is a way of helping people to better understand the size of the fiscal challenge we face and what kinds of policy choices we might make to address it. It allows you to select different tax and spending options to close the long-term fiscal “gap” and return the government to a prudent fiscal path over the coming decades*. It allows you to choose the package that you think is best for New Zealand.
How would you manage the government’s
future financial pressures?
*The long-term fiscal gap in this calculator is the difference between the government’s projected financial balance in 2060 (excluding debt-financing costs) if spending grows in line with historical growth rates and demographic trends, and the financial balance required to maintain net debt at an average of 20% of GDP. A long-term average of 20% of GDP was chosen as a proxy for a prudent level of public debt.