Financing of Government Liabilities as the Population Ages in New Zealand

Abstract

As New Zealnd's population ages, the government must look to health care and pension policies to curb the government's rising liabilities. In New Zealand in the next 50 years, an aging population is expected to elevate government liabilities and weaken the government's fiscal position. To maintain fiscal balance, the government must either substantially pre-fund future increases in its liabilities or significantly raise taxes in the 2030s-40s, following few small possible tax cuts in the next 10 to 15 years.

Expected fiscal problems are related to the increasing costliness of publicly providing for health care and retirement. Moreover, the aging population's negative effects on the fiscal balance could be exacerbated by any slackening in economic performance or in fiscal prudence. Long-term fiscal projections for the country, and literature on the problem, indicate that the most effective way to contain the expected rise in government liabilities is to reform health care and pension policies.

This paper - aproduct of the Country Operations Division, Country Department II, Europe and Central Asia - is part of a larger effort in the department to advise countries on reforming the role of state, drawing on best practice worldwide.