Finance Minister Bill English announced on Tuesday that the Crown's operating deficit before gains and losses (obegal) is now forecast to be $11.1 billion, or 5.5 per cent of gross domestic product, for the June 2011 year. This compares with the previous deficit forecast of $8.6 billion or 4.2 per cent of GDP.
The 5.5 per cent of GDP deficit compares with a similar deficit of 6.1 per cent for the 30 OECD countries but a number of points are worth noting:
New Zealand's projected deficit is not too far off the four "pigs", which are forecast to have the following budget deficits to GDP next year: Portugal 5.0 per cent, Ireland 9.5 per cent, Spain 6.3 per cent and Greece 7.6 per cent.
As he points out, things have not been that bad...
New Zealand had a great record throughout most of the 1990s and 2000s with 15 consecutive budget surpluses between 1993 and last year. Norway was the only OECD nation to have a better performance over the same period.
But as the saying goes, all good things must (will) come to an end. And so it is.
Gaynor lists the causes of "the end" thus -
The Crown's fiscal position has deteriorated since 2008 because of a number of initiatives including KiwiSaver, Working for Families, the indexation of benefit and this year's income tax cuts.
There have also been a number of one-off items, including the Canterbury earthquake and the leaky homes scheme, while tax revenue growth has slowed because of the weaker economy.
There are essentially two elements that give rise to the deterioration of NZ's financial position over the next 40 years. They parallel the difficulties being experienced in the PIGS economies; the increasing cost of age pensions and health care. There is a common factor in the two; the "aging population". Gaynor again -
The Treasury's long-term Crown revenue and expenditure figures are based on a number of assumptions, the most important of which are population demographics. Its main assumptions are:
The total number of individuals aged 65 and over will rise from 549,900 this year to 1.3483 million in 2050. As a percentage of the population, this age group will increase from 12.6 per cent to 24.5 per cent over the same period.
The number of individuals aged 90 and over will go from just 22,400 this year to 155,100 in 2050. This age group is expected to represent 2.8 per cent of the country's population in 2050 compared with 0.5 per cent at present.
Yep, include the ol' probligo in that demographic for sure.
The first expenditure line, which is New Zealand Superannuation, demonstrates the dramatic impact of the ageing population on Crown finances. NZ Superannuation is projected to cost $71.1 billion in 2050 compared with just $8.3 billion last year.
Most retirees claim that they are entitled to full Government superannuation because they paid taxes throughout their working lives but the big question is whether the country can afford this.
There will have to be a dramatic increase in the country's economic performance, and the Crown's taxation revenue, if the current superannuation scheme is to be maintained for all those aged 65 and over.
The next major expenditure item is health, which is projected to blow out from just $13.1 billion last year to a massive $95.1 billion in 2050.
The basic problem is that total government expenditure on superannuation and health is projected to escalate from just $21.4 billion last year to $166.2 billion in 2050, yet the working age population - those in the 25 to 64 age group - will only increase from 2.268 million to a projected 2.612 million over the same period.
In other words, each working person will have to pay annual tax of $63,600 in 2050 just to pay for superannuation and health, compared with tax of only $9400 this year to pay for the same two items.
And that is where I drop out of the demographic. It is not as if this is a "new" problem. It was foreseen when I first started work; it was the number one reason why I started contributing to personal superannuation savings almost immediately. But let's leave that debate there because there are some very sore points within.
It is at that point that dear old Garth George chips in. Now, to explain, George is one of those media commentators who would fit very nicely with the lifestyle and attitudes of the likes of TF Stern. Not that I expect TF will pass this way, let alone comment. Unlike TF, George is a sad, angry, and probably (I am guessing) lonely old codger.
Garth George picks up on that last (quite true) comment from Gaynor and uses it to beat his anti-abortion drum.
However, when it comes to the argument that the major problem with national super is the population increase in the number of people aged 65 and older, I want to vomit.
I wonder if it occurs to any of these doomsayers - invariably comfortably well-off folk in middle age and younger - that between April 24, 1974, and the end of last year, more than 409,000 potential New Zealanders have been slaughtered in the womb by state-paid abortionists - at the cost of tens of millions of taxpayer dollars.
I do not need to quote any further from his tirade.
I wonder if it has occurred to George that if those 409,000 "potential New Zealanders" were alive in 20 years time (when the last of them might have been starting work) there would likely be 200,000 more in the unemployment lines; 60,000 on permanent benefits as permanently hospitalised adults, or enjoying the free board and lodging of HMTK (I doubt that ER will be still going in 30 years...); the rest having departed for greener pastures in Australia and further afield.
To make matters worse, he completely ignores the fact that adding 400,000 to the total population used for the Treasury numbers (quoted by Gaynor) reduces the taxation load from $63K to $55K. That assumes that all of those 400,000 people will be in full employment; an unlikely prospect.
As I said, Garth George is a sad, angry old man. He is also well past his use-by date.