Treasury prescribes bitter cure for debt

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The Government is running out of options to start guarding New Zealand against a projected national debt explosion to $400,000 for every person by 2050.

The Treasury's long-term fiscal projections paint a sombre picture of a $2 trillion mortgage over the country in 40 years' time if government spending remains at present levels.

With a projected population of 5 million by 2050, that will mean a national debt equating to $400,000 for every New Zealander, a far cry from the $3953 per head now.

Yet Finance Minister Bill English is reluctant to entertain many of the available options presented by Treasury secretary John Whitehead yesterday – including raising the pension age, cutting services by 10 per cent or increasing taxes.

Mr Whitehead said that, in 40 years, the general population would increase by a quarter, while the over-65s would increase by 150 per cent and over 85s would quadruple.

The cost of that burden to future governments would be a critical liability, he said.

Mr English said the Government had promised to ensure security for older people and would not renege on that. Prime Minister John Key has staked his job on it, saying he will resign if the pension age goes up.

Other than vaguely describing a "whole range of choices" the Government was looking at that would make such cuts unnecessary, Mr English would say only that growth was the answer.

"Future governments will face two basic options. They can either lift economic growth above current assumptions or they can cut spending and reduce public services. This Government is focused on lifting our economic growth and we have a clear plan to do that."

But Mr Whitehead said achieving the magnitude of economic growth required to stave off fiscal ruin without cutbacks in Government policy was a tall order. The only successful battle plan to fight the spiralling debt projections included a range of initiatives from cutbacks to rejigging taxes, as well as economic growth.

Mr English said there were no planned changes to entitlements and he stated his aversion to higher taxes as well.

"We prefer more efficient taxes over higher taxes. We have no desire to increase the tax take," he said in a speech to Auckland's Institute of Chartered Accountants.

Mr Whitehead said the long-term projections showed choices by the Government were needed to stave off the nightmare scenario of a national debt equal to 223 per cent of gross domestic product.

The current net borrowings of $17.1 billion equal 9.5 per cent of GDP.

He said he expected the $2 trillion figure would never come to pass, but warned that decisions needed to be made sooner rather than later to start to ward off such a scenario. "None of the options are nice easy ones."

His own one-year-old grandson was an example of a person who would be hurt by a lack of early action, he said.

"People like him will be asking themselves why he is having to pay for the policies of the past."

BITING THE BULLET

What governments may need to do to keep debt levels sustainable, according to the Treasury.

*Raise the age of entitlement for superannuation from 65

* Keep the state sector workforce growth to zero for 40 years

* Freeze public spending at $1.1 billion plus inflation until 2023

* Change the sickness and invalid benefit regimes

* Reduce availability of public education subsidies

* Invest in non-prison alternatives for low-level offenders

- © Fairfax NZ News