Our children's children will still be paying off the COVID debt as the cost of a rapidly ageing population starts to bite, an economist has warned.
Though early fears of double-digit unemployment have proven so far unfounded, and spending is holding up, Cameron Bagrie says this week's Pre-election Economic and Fiscal Update (PREFU) is going to be "splattered and red".
"The good news is the economy hasn't taken the big hit that we feared in the June quarter. The books are actually looking slightly better - or shall we say, less worse," he told The AM Show on Tuesday.
But he's urging politicians to look beyond the next term - long beyond, tipping Government debt to balloon to $200 billion, or 55 percent of GDP.
"The payback is going to be beyond the PREFU - it's actually the 10 years beyond 2024 that we need to start to think about in regards to how we're going to get that debt burden back down."
The problem is not just the borrowing, which is being done as interest rates hit historic lows - it's the growing cost of paying for our ageing population.
By 2036 - just slightly past Bagrie's 10-year timeframe - nearly a quarter of all Kiwis will be eligible for superannuation, which isn't means-tested. The over-65 demographic will be growing more than 10 times faster than the under-14s, the Ministry of Social Development forecasts - meaning the proportion of people working and paying taxes compared to the retired will be shrinking fast.
But it gets worse.
"That's not just the increased spending on social welfare via NZ superannuation - that's about half of benefit expenditure at the moment and it's rising," said Bagrie. "It's pressure on health costs."
The increased cost of supporting a swelling elderly population while trying to pay back money borrowed to ease the economy through the COVID shock will make it hard for New Zealand to save up for the next rainy day, Bagrie warns.
"We've got some major structural challenges that are going to make it harder to put some money back away for that rainy day over the next 10 or 20 years.
"Who's going to pay for the fiscal cost of an ageing population? The longer we keep kicking the can down the road, the more it's going to be the kids, and the kids of the kids."
Labour has proposed introducing a new top tax rate of 39 percent on the country's top 2 percent of earners, which will bring in an estimated $500 million a year. Bagrie says it's unlikely to be the last, unless there's cross-party consensus on what to do about the demographic changes - such as increasing the age of eligibility.
Despite the problems, Bagrie says New Zealand is still well-placed compared to many of its peers, and the borrowing was the right thing to do in the circumstances.