I spent some time last night reading Treasury's new long-term forecast of the government's fiscal position, in which Treasury attempts to present some idea of what the government's books will look like in fourty year's time. This sort of crystal-ball gazing is frought with peril, and everything really depends on your initial assumptions. The two key ones for Treasury are that the Department of Statistics' long-term population projections are correct, meaning that we will shortly see a permanent change in our demographic makeup and far more old people, and that as in the past, health spending will rise faster than economic growth. The result of these assumptions is that both health and superannuation spending look set to double as a proportion of GDP by 2040. While welfare and education spending are both set to decline, it is not nearly enough to compensate. The result is a growing slice of government revenue being spent on health, super, education, and welfare, which (if revenue remains roughly constant as a share of GDP) results in narrowing surpluses, and eventually deficits from about 2030 onwards.
(Image stolen from Treasury here)
Its unclear what effect the Cullen Fund has on this, though you can bet we'd be in a worse position sooner if we didn't have it. Saving for the coming rainy day seems to have been a useful strategy, though not enough in itself.
As for the long-term options, its a stark choice: either we accept lower provision of health and superannuation (a political non-starter), or we slowly raise taxes to fund it. I prefer the latter option. Those health and superannuation costs will be paid somehow - people will still get sick, and old people will still need to eat and have a roof over their heads. The only question is whether we fund it through taxation, or the private sector. The latter is inherantly wasteful - you must pay for shareholder's profits as well as benefits delivered - and it leads to inequality, which I regard as being inherantly undesirable. I'm quite happy therefore for the government to increase its share of GDP in order to ensure New Zealanders the standard of living we expect, in accordance with the values we share.