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 (00:00):
U sounding 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, net
core 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

(00:22):
principal economists with us Hey, Brad good evening. So it's
interesting that some things they have in the most recent
reports sort of over estimated or underestimated. One of those
was the impact of migration on those super costs.

Speaker 2 (00:40):
Yes, that's right, although realistically, when you look through the numbers,
you've still 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 warnings before. We had something very
similar from the Treasury four years ago in twenty twenty one,
and realistically, I think what the Treasury is continuing to
highlight is that there's a lot of big challenges in

(01:02):
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. There's a lot that's
going to have to happen that will be unpalatable to

(01:23):
politicians across the political spectrum, but by goodness, we've got
to start soon.

Speaker 1 (01:27):
Is in every country and would they not be getting
the same report?

Speaker 2 (01:32):
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, but Treasury

(01:52):
is now highlighting that considering where debt actually is more
around forty three percent of GDP that originally expects did
if you go back in time, that we'd 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

(02:13):
sustainable path.

Speaker 1 (02:14):
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 2 (02:25):
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 the nolse 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,

(02:45):
her immediate first answer was I need to keep a
laser focus on in fation and keeping that low and stable.
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 come out in. Of course,
she does come in after the last monetary policy announcement

(03:06):
for the year, so she'll only be starting to assist
or be part of those interest rate setting discussions from
February 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

(03:26):
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 1 (03:33):
Still, Yeah, it's conceivable that her first vote might be
to hold if all the cutting is done this year,
and of come February next year, when.

Speaker 2 (03:42):
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

(04:04):
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 1 (04:17):
Yeah, absolutely, our Brad appreciate that Brad Olsen, Infometric Principal Economists.

Speaker 2 (04:21):
With us for more from Heather Duplessy Allen Drive.

Speaker 1 (04:24):
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