New Zealand demographics and their role in an overlapping generations model

Like many developed countries, New Zealand’s population is ageing. Its population is living longer and fertility rates have fallen, shifting the age composition towards older generations. This change in demographics is expected to continue into the future. In this paper, we explore a demographic model based on three core components: fertility rates, survival probabilities, and net migration. We illustrate how varying the assumptions affects the size and age-composition of the long-run population. The baseline projections indicate that New Zealand’s population could reach approximately 7.5 million beyond 2100, though there is considerable uncertainty about all of the demographic assumptions that underpin such a long-run projection. Given the fertility rates that currently prevail in New Zealand, net migration is likely to play a large role in maintaining New Zealand’s population. If current sub-replacement fertility rates continue, New Zealand’s population would eventually decline to zero if there was no net migration inflow. These demographic trends have implications for many important areas of fiscal policy including superannuation, health, education, and taxation. Population ageing is expected to substantially increase the fiscal cost of superannuation and health care. In related analysis, the Treasury is developing an overlapping generations (OLG) model to explore how the demographic trends identified here might influence private behaviour, including participation in the labour force, saving, and capital accumulation. This OLG framework also enables us to consider how private behaviour interacts with different fiscal policies, and how such policies would influence fiscal sustainability and the wellbeing of different generations.