Brad Olsen: Infometrics Principal Economist on Treasury issuing a warning about New Zealand's public finances

Treasury has raised the alarm over the state of New Zealand's public finances as part of its long-term fiscal forecast.

Record levels of Government spending, increasing health costs and an ever-growing aging population are among the concerns set to create additional fiscal pressures for the country, according to new reports.

Treasury warned Net Core Crown Debt is set to hit 200 percent of GDP by 2065.

Infometrics Principal Economist Brad Olsen says some of these concerns were flagged as early as 2021 - and we need to start thinking about solutions.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Is re resounding of warning bells over our public finances
and its long term fiscal forecast. Today this is their
sixth edition. If the government made no changes to current settings,
NETCRE Crown debt would hit two hundred percent of GDP
by twenty sixty five. That's largely down to the aging population,
health costs, record levels of government spending. Brad Olsen Informetric's

(00:39):
principal economists with us Hey, Brad good evening. So it's
interesting that some things they have in the most recent
reports sort of overestimated or underestimated. One of those was
the impact of migration on those super costs. Yes, that's right,
although realistically, when you look through the numbers, you've still

(01:00):
got some pretty ugly challenges coming up for the country
when it comes to the cost of everything. And I
guess look, the worry a little bit is that we've
had these warning before. We had something very similar from
the Treasury four years ago in twenty twenty one, and realistically,
I think what the Treasury.

Speaker 3 (01:15):
Is continuing to highlight is that there's a lot of
big challenges in front of us. We don't have to
solve them all tomorrow, but we really do have to
start sometime soon to get us out of what looks
like a very unsustainable pathway going forward. But and here's
the biggest kicker for me. You can't do any one
thing and it will magically solve our sort of fiscal challenges.

(01:36):
There's a lot that's going to have to happen that
will be unpalatable to politicians across the political spectrum. But
by goodness, we've got to start soon.

Speaker 2 (01:44):
Is in every country and would they not be getting
the same report?

Speaker 3 (01:49):
Oh, they probably are getting the same report. But again
I think probably for New Zealand. When we're looking at
some of these factors, we know that and Treasury has
highlighted this in their analysis, that we continue to have
to pay something like ten percent of GDP every decade
for the various economic crises that come up. Yes, other
countries have also got to pay for that. Treasury is

(02:09):
now highlighting that considering where debt actually is more around
forty three percent of GDP that originally expected, if you
go back in time, that would currently be sitting around
twenty three percent, so we've eroded our savings and buffers
for stuff. Yes, other countries are also wearing it, but
again we've sort of got a look after ourselves start with,
and at the moment we're not on a sustainable path.

Speaker 2 (02:31):
What did you make of Anna Bremen, the appointment of
the two ic to the Central Bank in Sweden being
appointed to head our Reserve bank from December.

Speaker 3 (02:41):
Look, I thought it was a very smart, pragmatic appointment.
She has, of course a PhD in economics from Stockholm University.
You know she's got the ability than Nelse to take
on board the challenge that is a central bank, and
I think importantly when she was asked around what she
wants to do, what she's going to do in the role,

(03:02):
her immediate first answer was I need to keep a
laser focus on in fation and keeping that low and stuff.
And that was exactly what we needed to hear. But
it was reassuring that that really is that the immediate
focus for the Reserve Bank governor coming in. Of course,
she does come in after the last monetary policy announcement

(03:22):
for the year, so she'll only be starting to assist
or be part of those interest rate setting discussions from
Debruary twenty twenty six. It does sort of suggest that, look,
we've got a few interest rate cuts that are likely
to come through before she takes up her appointment, but
does give, I guess, give her the summer time to
get her head around sort of where the New Zealand

(03:42):
economy sitting and hopefully hit the ground running as we
head into the new year with some pretty big challenges
and a lot of uncertainty.

Speaker 2 (03:49):
Still, yeah, it's conceivable that her first vote might be
to hold if all the cutting is done this year
of come February next year.

Speaker 3 (03:59):
That's that's exactly right. And I think I mean one
thing though, and that's why it might be important to
have her on board for that first discussion of a
HOLD is because she's been pretty clear, not only today
but actually in a lot of her analysis that she's
done in her current role around the importance of transparency
from central banks and that look, there's a lot of
uncertainty and challenge out there, but central banks have got

(04:21):
to communicate well with the public, they've got to communicate
well with financial markets about all of those tricky things.
And I think again that focus alongside what she's saying
around inflation. They're very much striking the right tone so
early in the piece.

Speaker 2 (04:33):
Yeah, absolutely, Brad appreciate that. Brad Olsen Informetric Principal Economists with.

Speaker 1 (04:37):
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