Aging population weighing finances down

02:26, Oct 12 2010

More old people, combined with a declining working age population, could escalate pressures on New Zealand's long term fiscal position, Standard & Poor's Ratings Services says.

S&P today published an individual country report as part of a global study updating its 2007 study on the sustainability of public finances in the light of demographic change.

S&P credit analyst Kyran Curry said this country's total age-related spending on health, pensions, and aged care was expected to rise to 20.9 percent of GDP in 2050, from 14.4 percent in 2010.

"Without further reforms to address these mounting spending pressures, increasing net general government debt over the period may weaken New Zealand's long-term credit quality," he said.

The increasing trend was in line with global findings, with S&P projecting that the government debt burdens of most advanced economies could reach unsustainable levels of more than 300 percent of GDP in the next 40 years, without fresh measures to address long term age-related spending trends.

"In our view, population aging will lead to profound changes in economic growth prospects for countries around the world, and lead to heightened budgetary pressures from greater age-related spending needs," Mr Curry said.

"Nevertheless, New Zealand is ahead of many peers in responding to the aging population challenges because of its fiscal flexibility, which is underpinned by low public debt and fiscal discipline.

"It has either introduced or announced policies directed at raising productivity and savings, promoting greater health-care system efficiency; pre-funding pension entitlements; and providing incentives for the long term self-provision of retirement incomes."