Why young Kiwis leaving is a big worry for the economy

Keeping young New Zealanders in the country - or encouraging them back when they leave - will be vital to help the country balance the books in the future.

But economists say offering them a tax cut, as Portugal is, is unlikely to be the solution.

The Portuguese government is cutting taxes for people under 35 to encourage locals to stay and young migrants to move to Portugal.

It is one of many countries around the world facing an older population becoming more expensive, while at the same time the working age population paying the bills grows smaller.

It was an issue highlighted by Dominick Stephens, chief economic adviser at Treasury, in a speech recently.

He pointed out that in the 1960s there were seven people aged 15 to 64 for every person aged 65 and over. Now, there are four and in 50 years there will be about two.

He said it would be important for New Zealand that future generations remained willing to support their elders.

"Taking early action to manage the fiscal burden on younger generations will also encourage our best workers to stay in New Zealand, and will help us attract the most skilled migrants, boosting productivity and prosperity."

The number of people leaving New Zealand has reached record levels this year, and the bulk have been aged 25 to 34.

Shamubeel Eaqub, an independent economist, said there was a risk that the population could become "lopsided" before long if the younger population was not maintained.

He said it could not be assumed that young people would be called on to pay for the increasing needs of the population.

"Because of the ageing population, declining fertility, the current setup is a Ponzi scheme relying entirely on people aged 30 to 60 to pay tax to pay for all the promises made to everyone.

"The promises are weighted towards older people - we are going to be spending all the taxes from work on just super and health in the not-too-distant future.

"That's not a reasonable place to start from. You cannot come to me and tell me that when my children are working, all the tax they pay from their work is going to be spent entirely on the old people who chose not to save for themselves."

He said the burden on young people could be shifted and there could be opportunities to boost the economy through higher productivity and higher incomes.

"Young people won't allow all their money to go to older people. The politics will become very toxic because the promises that people have made to their future selves - but didn't choose to do anything about - those promises will be broken because there's no way we can have a situation where your taxes will pay for my healthcare and super but not your children's education or your health."

He said Portugal's plan was unlikely to work here because there was no level of immigration that was politically feasible and would balance out the ageing population.

"There's no way we can have the infrastructure and housing necessary to serve that, we can barely keep up now."

ANZ chief economist Sharon Zollner said it was worrying to see large numbers of people in their 20s leaving to go overseas. But she said it made sense.

"If you were made redundant in New Zealand at the moment it's entirely sensible to try your luck in Australia. The labour market is so much stronger, it's a three-and-a-half hour flight away, you don't need a visa."

She said Australia's economy had diverged from New Zealand's when it started mining, and that allowed it to invest in things like education and health. "Australia can sustain higher real wages than New Zealand can and that's going to be a chronic challenge."

Zollner said it was unlikely to be politically palatable to import enough immigrants to change the population make-up.

Infometrics principal economist Brad Olsen said working out the economic incentives to encourage people to stay would be important. "Jobs, pay - those wider amenities, house and lifestyle, a place - if they want to have kids - for their kids to grow up… how do you set the right conditions so people feel they can make the choice to stay or to come back?"

He said it was hard to see where migration trends might settle in the longer term, considering there had been large moves in both directions lately.

But he said the government had never had a clear strategy when it came to influencing movement in or out. "Immigration is something the government has more control over than some parts of the economy yet we still have these wild swings which don't make it easy to plan for the future."

Eaqub said people needed to be offered options.

"Quite often when we talk about it, it's 'we want to force people to stay'. That's not what it is. It's how do we give people choices and reasons to stay here that are positive and good. New Zealand has a lot of things going for it."

He said the challenge for the country was that a lot of people who were leaving were talented and skilled but saw better opportunities elsewhere.

"How can we give them choices and options to stay here, too… there should be good reasons to come back and it should be a positive experience coming back. I don't think that's true for everyone and therein lies the dilemma. In terms of income, cost of living, quality of life - are we getting all those things ticked off? The answer is 'not quite'."

He said Portugal's move reflected an understanding that having younger people around would drive the "fun and energy" of a place, in society as well as the economy.

"You've got to have a decent portion of people who are young and active and doing things, living life."

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