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The Treasury says the government will need to raise taxes to continue providing health and education services, which are becoming more expensive every year.
He also warned that house prices will continue to rise for some time.
The department’s briefing to the returning Finance Minister Grant Robertson said the government’s books were not sustainable thanks to high public service costs.
The Treasury warned that the government’s finances would be “unsustainable in the medium term if the costs of public services continue to rise at historic rates.”
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That is, unless tax revenue is “increased as part of the economy.”
He said these cost pressures would be “driven by an aging population and rising health and education costs.”
ROBERT KITCHEN / Things
Finance Minister Grant Robertson has been briefed on the skyrocketing costs of utilities and rising house prices.
Finance ministers have historically kicked this issue to the fore, hoping that economic growth will make it easier for their governments to pay the bills.
But the Treasury threw water on this idea, pointing out that “even in optimistic scenarios, higher economic growth alone will be insufficient to ensure long-term fiscal sustainability.”
Despite its warnings about spending, the Treasury warned that the scale of the Covid-19 crisis was so great that in the short term the government needed to spend more to stimulate the economy.
“Today, the risks of fiscal policy doing too little outweigh the costs of doing too much,” he said.
The Treasury said carrying higher debt was the right thing to do, as it would keep unemployment low and improve people’s well-being.
“Too little support will result in more job losses, business closures and a permanently poorer economy.
“While the economy remains weak, the increase in debt from expansionary fiscal policy is likely to improve welfare, if spending is temporary, targeted and timely.”
On home prices, Treasury officials said an underlying housing supply shortage and low effective home tax rates had led to increases in home prices. They also said that house prices would continue to rise for some time.
“Given that interest rates are likely to remain at record levels for several years, and that we have a significant housing shortage, home prices could continue to rise for some time.
“This is already compounding the challenge of finding affordable housing for low-income households or those that have lost income during the recession,” Treasury said.
“Low interest rates and a significant undersupply of homes (due to planning and regulatory constraints coupled with rapid population growth) contribute to high house prices; and housing faces a lower effective tax rate than many other investments. ”
