Ageing Kiwis threaten credit rating

The ageing population could see New Zealand's excellent foreign credit rating savaged by rising debt, Standard & Poor's said yesterday.

The credit-rating agency has studied the implications of the world's ageing population for 32 nations and says this country's AA-plus rating could fall to a single A by 2020 and drop into the "speculative category" by 2030 without policy measures to combat the problem.

S&P said these trends would have dramatic implications for the Government as its age-related spending would rise to nearly 21 per cent of GDP from 12 per cent today.

Demand for public health and long-term care services would increase as would the amount paid in pensions and this would be only minimally offset by fewer unemployment benefits being paid to a shrinking workforce.

Using one of four different spending scenarios, S&P estimates the Government's net general debt will rise to 83.5 per cent of its GDP in 2050 - well above its present 7 per cent.

S&P credit analyst Kyran Curry said New Zealand's problems were not unique. "These are broad projections. They're meant to be a guide but, yes, they're alarming and they're reflected in what we're seeing in other countries. It's typical of an economy that's rich and developed and has a population that's ageing and changing in quite profound ways."

In reality, S&P says it is unlikely governments will allow debt and deficits to spiral out of control and they will tighten their fiscal stances.

If New Zealand embarked on a radical programme to prevent age-related spending from rising, its credit rating could theoretically remain at AA-plus.

Other findings were:

* General government spending (including social security) could rise to 45.6 per cent of GDP in 2050 compared with 33.3 per cent in 2005.

* General government interest spending could rise to 4.3 per cent of GDP from 1.4 per cent.

GROWING GREYER

* In a population of 4.8 million by 2050, the proportion of elderly (over-65s) will double to 23.6 per cent from 12.3 per cent.

* The working-age population will drop from 66 per cent to 60 per cent.

* The ratio of elderly to working-age people will rise to 39 per cent from 18.5 per cent.

- NZPA