Sunday 15 April 2012

New Zealand economy 'on a crash course with doom'


Since before I started this blog a year ago there has been an awareness of the growing debt mountain and that New Zealand faces the same bursting of the bubble as the rest of the world while the mainstream media has repeated the same mantra that everything is OK.

Here, at last is some recognition of the problem in a fairly minor article in the Business section of the paper.

NZ: Crash course to debt doom
New analysis confirms what most of us already fear - the New Zealand economy is on a crash course with doom if big changes aren't made soon.



13 April, 2012

Projections by The Economist show that by 2050 New Zealand would have the second highest debt as a percentage of our GDP.

If changes aren't made soon then the country's economy would be in a crisis and government funding would be heavily restricted.

Japan would have the highest debt, but countries which are currently in a dire economic state - such as Spain, Greece and Portugal, would fare better than New Zealand, the United States and Britain, according to The Economist.

The data analysed what countries are doing to adjust spending and revenue with the aim of bringing public debt down to safe levels by 2050.

Big changes need to be made in New Zealand now, not in 10 or 20 years time, if we want to avoid being crippled with debt, New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said.

Eaqub said New Zealand's debt was comparative to that of other countries "but when we look out to 20 years we've got a problem in the pipeline".

"To be sustainable we need to change something and those changes need to be around reducing debt and operating balance. We're going to have a massive problem if we don't change."

The ageing population plays a big part in why Japan, New Zealand and the United States are predicted to be in the worst positions in regards to debt come 2050, Eaqub said.

"It reinforces the view that ageing is a real big problem in New Zealand and we need to have a clear discussion about it and that doesn't seem to be happening in the political scene."

Changes need to be made to superannuation, the retirement age and to health care, Eaqub said.

While it was a nice ideal to have free healthcare, the reality was that it was untenable.

Baby boomers were starting to reach retirement age which meant that decisions needed to be made now, before the country's debt reaches "crisis point".

And the chart from the Economist

What the crisis has done to rich-world public finances

12 April, 2012


ASK most people to name the rich-world countries with the worst public finances and they will single out Portugal, Italy, Greece and Spain (aka the PIGS). But viewed in terms of adjustments to spending and revenue required to bring public debt down to safe levels by 2050 (the fiscal gap), those countries do not fare too badly. Instead, another quartet of countries comes to the fore: Japan, New Zealand, the United States and Luxembourg (commonly known as the NULJ). That these countries are not on the tips of the tongues of those forecasting economic doom is down to two factors. First, most people don't think with such long horizons in mind. Second, all these countries (apart from Luxembourg, which is small and rich) have their own currencies, and so have the option of inflating debt away if the necessary consolidation becomes too painful.


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