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Treasury report projects 40-year outlook

NZ NewswireNZ Newswire 22/11/2016 Pattrick Smellie

Less reliance on immigration to fill workforce skills gaps and far better value for money from government spending on social policy and higher education emerge as essential counterweights to ballooning health and pension costs over the next 40 years in a new Treasury report.

The four-yearly long-term statement on New Zealand's fiscal position, dubbed Te Tirohanga Mokopuna and published on Tuesday, projects the country's economic outlook over the next four decades, based on current policy settings.

Among the issues it highlights is that Auckland is falling off the pace in its natural tendency, as the country's largest city, to produce disproportionately more economic output than the rest of the country.

Auckland's economic output per head of population "has reduced since the early 2000s, when it was 14 per cent greater than the rest of the country", the report says.

Lagging infrastructure, including public transport, partially explains this, but the report also cautiously suggests too much reliance is being placed on immigration to meet workforce needs.

While New Zealand's light labour market regulation assists people to move from one job to another and helps keep unemployment low, this regulatory environment is also discouraging firms from investing in developing their existing and future workers, the report suggests.

However, migration is not all bad.

The report suggests the country could make more use of the fact that it has a larger proportion of foreign-born citizens than any other developed economy.

"The opportunities this presents for the economy include encouraging the use of our foreign-born population as a source of ideas and market knowledge, to use our offshore diaspora to connect to new markets, and improving cultural literacy so we better understand and engage with growing Asian markets."

On the fiscal outlook, the report projects the tax take remains at current levels, around 29 per cent of GDP, while government spending blows out to 47.1 per cent of GDP.

That's because higher pension and health costs lead to a blowout in debt servicing costs from 1.6 per cent to 11 per cent of GDP by 2060.

The report also identifies environmental threats such as climate change, water quality erosion, and natural disasters as fiscal pressures, along with rising global protectionist sentiment if it reduces New Zealand's ability to grow export markets.

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