Meanwhile, our fiscal affairs are beginning to look a bit like HMNZS Manawanui. Underwater.
Treasury released our fiscal accounts for the year ending June 2024. Like me, they are not pretty.
For the last year we took in $167, and spend $180. Billion. That thirteen billion shortfall is 3% of GDP.
Now. Nothing much happened in 2023. No earthquake, lockdowns or major economic crisis. It was a year much like any other; yet for every dollar the government spent, it had to borrow seven cents.
In 2019 net core crown debt was $60 billion, or 20% of GDP. Today it sits at over $176 billion and 42% of GDP.
For the last year we took in $167, and spend $180. Billion. That thirteen billion shortfall is 3% of GDP.
Now. Nothing much happened in 2023. No earthquake, lockdowns or major economic crisis. It was a year much like any other; yet for every dollar the government spent, it had to borrow seven cents.
In 2019 net core crown debt was $60 billion, or 20% of GDP. Today it sits at over $176 billion and 42% of GDP.
Click to view ~ Total tax revenue growth and total tax revenue as a percentage of GDP.The Treasury
The speed at which Crown accounts have deteriorated is alarming and despite efforts made by Finance Minister Nicola Willis; all she has managed to do is slow the rate of decline, not reverse the trend.
The impact of rising debt can be seen in the interest cost; rising from $7.5 billion to $10 billion in a single fiscal year. The education budget is $21 billion; to put this into perspective, and don’t forget, we still have to pay back the principal. In theory.
To help confirm the scale of the slowly evolving crisis we have a speech from former Westpac economic spokesman turned Treasury economist, Dominick Stephens, given just a week before the financial data was released.
Stephens focuses on the demographic trend. He tells us that in the 1960s we had seven potential workers aged between 15 and 64 for every individual over 65. Today that number is four and without a severe flu season or two, we will be down to two working aged Kiwis for every senior citizen later this century.
This isn’t great; but we have specific policy settings that make it worse. Stephens notes that the OECD estimates we have the highest state pension relative to gross earnings in the OECD and our superannuation is unusual in being universal.
According to Stephens; “Since 2006, the Treasury’s Long-term Fiscal Statements have repeated the message that our fiscal settings are not sustainable over the long run, given the impact of population ageing.”
Because our pension is not abated against income, we have a high level of oldies in the workforce. Almost half of those between 65 and 70 are still punching into work each week. We’ve gone from the lowest participation rate in the OECD in the early 1990s, to one of the highest today.
This will help defray the cost of servicing the elderly’s healthcare, but it isn’t going to solve the deeper structural deficit.
Stephens’ forecasts our debt to GDP ratio over the next 25 years, showing a steady rise to over 120% by 2050. “Between 1992 and 2008, government debt consistently fell despite periodic adverse shocks. However, since 2008 sequential fiscal responses to events and persistent fiscal deficits have led to increasing government debt.”
Then he gets subversive, pointing out that the 2024 budget forecasts a return to surplus by 2027/28 before helpfully making the point that there is nothing in the current policy settings that will achieve this. He states, optimistically; “This implies that savings and re-prioritisation will likely be a feature of future Budgets, as in Budget 2024.”
It is difficult to reconcile Stephens’ speech and the subsequently released Treasury financial statements. Treasury claims that the government aims for a return to surplus by 2027/28 and net core Crown debt as a percentage of GDP will be moving back towards 40%, while Stephen’s concludes that our deficit is structural and not the result of the current economic malaise.
The speed at which Crown accounts have deteriorated is alarming and despite efforts made by Finance Minister Nicola Willis; all she has managed to do is slow the rate of decline, not reverse the trend.
The impact of rising debt can be seen in the interest cost; rising from $7.5 billion to $10 billion in a single fiscal year. The education budget is $21 billion; to put this into perspective, and don’t forget, we still have to pay back the principal. In theory.
To help confirm the scale of the slowly evolving crisis we have a speech from former Westpac economic spokesman turned Treasury economist, Dominick Stephens, given just a week before the financial data was released.
Stephens focuses on the demographic trend. He tells us that in the 1960s we had seven potential workers aged between 15 and 64 for every individual over 65. Today that number is four and without a severe flu season or two, we will be down to two working aged Kiwis for every senior citizen later this century.
This isn’t great; but we have specific policy settings that make it worse. Stephens notes that the OECD estimates we have the highest state pension relative to gross earnings in the OECD and our superannuation is unusual in being universal.
According to Stephens; “Since 2006, the Treasury’s Long-term Fiscal Statements have repeated the message that our fiscal settings are not sustainable over the long run, given the impact of population ageing.”
Because our pension is not abated against income, we have a high level of oldies in the workforce. Almost half of those between 65 and 70 are still punching into work each week. We’ve gone from the lowest participation rate in the OECD in the early 1990s, to one of the highest today.
This will help defray the cost of servicing the elderly’s healthcare, but it isn’t going to solve the deeper structural deficit.
Stephens’ forecasts our debt to GDP ratio over the next 25 years, showing a steady rise to over 120% by 2050. “Between 1992 and 2008, government debt consistently fell despite periodic adverse shocks. However, since 2008 sequential fiscal responses to events and persistent fiscal deficits have led to increasing government debt.”
Then he gets subversive, pointing out that the 2024 budget forecasts a return to surplus by 2027/28 before helpfully making the point that there is nothing in the current policy settings that will achieve this. He states, optimistically; “This implies that savings and re-prioritisation will likely be a feature of future Budgets, as in Budget 2024.”
It is difficult to reconcile Stephens’ speech and the subsequently released Treasury financial statements. Treasury claims that the government aims for a return to surplus by 2027/28 and net core Crown debt as a percentage of GDP will be moving back towards 40%, while Stephen’s concludes that our deficit is structural and not the result of the current economic malaise.
Click to view ~ New Zealand net core Crown debt projections in the Treasury’s 2006 and 2021 Long-term Fiscal Statements.The Treasury
He even has a nice graph showing that Treasury expects debt to GDP to blow past one hundred percent in the next twenty years “…in the absence of any offsetting action by governments.”
He looks at the path back to surplus and appears sceptical. “Treasury’s latest forecasts assume that most of the return to surplus will be driven by declines in per capita government consumption. The implied speed and size of this decline is generally unprecedented in recent history in New Zealand.”
To date Willis had demonstrated seriousness in bringing down the civil service headcount and putting pressure on the public service to stick to shrinking budgets. This is admirable, but Stephen’s analysis makes it clear that if she wants to point the ship of state away from the reef, she will need to make some drastic course corrections and possibly drop a lot of ballast overboard.......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective.
1 comment:
The Greens and Te Pati Maori are probably incapable of grasping this grim scenario . They may well consider this to be irrelevant. For these reasons, they must be kept away from power at all costs.
Post a Comment