A spending spree after an unexpected Christmas bonus is something we can all understand. Maybe it isn’t the best way of planning your finances, but it isn’t going to really do any harm. Buying a new car on an instalment plan that’s only affordable if those bonuses come every year – that’s a bit different. Even worse would be buying a new house on a mortgage that’s only serviceable if your income doesn’t change, the year before taking retirement.

During the economic boom of the mid 2000s, government spending rose proportionately with tax revenues. While things could have been worse had Finance Minister Cullen not squirreled some of the revenues away in the Superfund, the country is still paying the price for Labour’s expansion in entitlement spending. The government has had to battle to get back to surpluses, and Finance Minister English deserves great credit for this work, but spending-up will prove awfully tempting in the 2017 election campaign.

New Zealand’s ageing population means that healthcare and superannuation expenditures will loom ever-larger for working-age taxpayers. The dependency ratio – the number of retirees and children per working-aged person – could worsen by 44% by 2060. Every year that passes in which the government has failed to schedule increases to the age of superannuation eligibility, to link super to the CPI rather than to wages, or to start finding ways of reducing long-term health costs brings us a year closer to some potentially pretty painful shock adjustments. And every such year that passes also makes the next round of election-year spending sprees more costly.

The New Zealand Initiative today released their report on New Zealand’s fiscal future: Guarding the Public Purse, authored by Bryce Wilkinson and Khyaati Acharya. In it, they detail the magnitude of the coming problem. If the government returns to its historic rate of spending growth without substantial productivity increases, we will face either large tax increases, very harsh spending adjustments, or deficits entirely inconsistent with the Fiscal Responsibility Act.

Fortunately, we’re still a ways away from the cliff face: there is time to avoid calamities.

The first best solution remains improving productivity growth. Successful implementation of the kinds of policies recommended by the 2025 Taskforce could solve much of the looming fiscal problem.

Greater fiscal discipline is critical – regardless. Fiscal Councils, which encourage transparency in the justifications for spending programmes and monitoring compliance with strengthened fiscal rules, can help in informing both Parliament and voters about the quality of new and existing spending programmes. Stronger fiscal discipline is important in its own right; an ageing population makes it more necessary.Bryce and Khyaati will present their report in Wellington at the New Zealand Initiative offices on Monday, 24 November. Do register for this important event.