NZIER raises an important point regarding New Zealand – the core costs of government look set to increase substantially in the next 15 years.
Now I don’t want to overplay the increase in health costs and superannuation – those will occur, but at the same time a smaller proportion of people in the youth category will lead to relatively smaller costs for education and health care for the young.
However, in net-terms the dependency ratio will increase, and the average “cost” of each dependent will rise. As a society we will undoubtedly want to look after the most vulnerable among us – but if we are truly serious about that we need to keep in mind what we can afford.
In reality, if society is serious about looking after dependents in the future there is a significant liability in the future – and this is a liability we need to fund now. Although some may say we should do this by increasing taxes, lets not forget that our current rate of government spending as a % of national income is fairly high. As a result, we may have to cut back on some of our “golden cows” such as the age of eligilibity for super, the degree of funding for health care, our comprehensive ACC system, and our willingness to give families income through Working for Families.
If the US can get downgraded for not facing up to these challenges, NZ can too – it is best for everyone that we face them now, and try to decide where society as a whole is willing to make cuts to fund these future costs.
So I have to ask, given that economists have been walking around trying to get this issue on the agenda for over the past decade how can we actually inform the voting public of how much of a big issue this actually is?
Update: Bill Kaye-Blake from NZIER adds the following important point on Twitter:
Another thing to think about is the difference between the size of liabilities – because we are all aging – and who pays
So the size of the liability is increasing, but we also need to remember that the pool of people who will be paying for this liability is shrinking (or at least growing at a much smaller rate). There are a growing number of “dependents” that society needs to cover for each taxpayer – which is why we really need to fund some of this now.