A more informative number is found on page 78 of the statement (which happens to be the last page of text in the document). The \u201cprimary balance\u201d is the difference between revenue and expenditure, setting aside interest payments. <\/p>\n
In other words, this measure tells us what the underlying difference is in the additional cost of New Zealand Super and healthcare versus expected tax revenue. This gap is 1.8% of GDP by 2045, eventually reaching 5.5% of GDP by 2065. <\/p>\n
Roughly half of the projected deficit, and therefore half of the accumulated debt by 2065, is due to this imbalance. The other half is due to compounding debt repayments that reach 8.8% of GDP by 2065, based on the assumption that no Government will do anything about this situation for 40 straight years. <\/p>\n
An unpaid credit card bill left for 40 years will look similarly dramatic, but this does not tell you anything about what the size of the bill was in the first place. <\/p>\n
On the tax side of the equation, the model assumes that tax revenue remains anchored around its current level of 30% of GDP. This might sound reasonable, but in practice it is comically implausible. <\/p>\n
Wage growth pushes people into higher tax brackets<\/a>. Those brackets are occasionally adjusted to the effects of inflation \u2013 most recently in 2024<\/a> and prior to that in 2010. <\/p>\n Keeping revenue at 30% of GDP means adjusting income tax brackets for the effects of inflation and real wage growth every single year. No Government has come close to this level of ongoing tax cuts, which sits behind the alarming fiscal numbers that we are often told we are \u2018on track” for. <\/p>\n Put simply, these long-range projections assume recurring rounds of tax cuts that are unlikely to occur. <\/p>\n Anything short of this will mean taxation slowly increases as a result of some level of bracket creep. <\/p>\n The rising cost of superannuation and health, as outlined in these long-range forecasts, will probably blunt calls for tax cuts to hold revenue at the 30% of GDP level. <\/p>\n The pressures of future New Zealand Superannuation costs have led a number of parties to focus on large increases to KiwiSaver contribution rates. <\/p>\n National committed to raise employer and employee contributions to 6% each, \u201cto match Australia by 2032\u201d. New Zealand First had gone further, suggesting that these rates should ultimately reach 10% each. <\/p>\n But higher private savings via KiwiSaver do not address the affordability of New Zealand Super itself, unless changes are made to what the Government pays towards that entitlement. <\/p>\n Australia has compulsory employer contributions that many New Zealanders envy. They also have something that we do not, which is a means-tested pension. <\/p>\nKiwiSaver was the brainchild of Sir Michael Cullen. Photo \/ Ross Setford<\/p>\n