(Bloomberg) -- New Zealand faces rising debt in coming decades as an aging population exacerbates a structural budget deficit, in a major challenge for fiscal policy, a top Treasury adviser said.
Government debt is projected to climb to more than 100% of gross domestic product by 2050 from about 43% now, Dominick Stephens, chief economic adviser at the Treasury, said in a speech on Thursday in Wellington. He was citing the most recent estimates from 2021, with the agency due to publish an updated track next year.
Debt is accumulating as the government struggles to bring spending back under control in a weak economic environment. In May, Finance Minister Nicola Willis forecast the 2025 deficit would swell to 2.4% of GDP and said the budget wouldn’t be out of the red until 2028.
“The current trajectory of debt is concerning,” said Stephens, adding a key problem is the budget deficit isn’t solely the result of the current downturn.
“The Treasury estimates that we would be in deficit even if the country was in normal economic times rather than recession,” he said. “Government action, as well as economic recovery, will be needed to return the books to surplus.”
Stephens said the cost of delivering current services will rise by about NZ$2.5 billion ($1.6 billion) over the year ahead, essentially absorbing all of the NZ$2.4 billion Willis had allowed for new spending.
The government has already begun a program of savings and reprioritization of projects to help fund its policies, and this will likely be a feature of future budgets, Stephens said.
“The Treasury’s latest forecasts assume that most of the return to surplus will be driven by declines in per capita government consumption,” he said. “The implied speed and size of this decline is generally unprecedented in recent history in New Zealand.”
New Zealand’s aging population is a primary long-term driver of rising government outlays and debt because it spends considerably more on over-65s than it gathers in tax revenue from that age group.
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