Fiscal Strategy Model

Page updated 25 Oct 2011

The Fiscal Strategy Model (FSM) projects the financial performance and the financial position of the government over a medium-term horizon and is normally published with the latest Economic and Fiscal Update.

Note: Previously these medium-term projections were done by the Long Term Fiscal Model (LTFM) however the LTFM is now used solely for longer-term projections (minimum of 40 years).

Fiscal Strategy Model Projections

The principal purpose of the FSM is to produce the post-forecast fiscal projections. The Pre-election Economic and Fiscal Update 2011 updated version of the FSM is published here on the Treasury's website.

The projections:

• begin from the end of the five-year forecasts in Economic and Fiscal Updates (EFUs) and normally cover a period of ten years beyond that;
• are strongly influenced by the EFU forecasts;
• are consistent with Government's approach to fiscal management in that new initiatives are modelled through assumed operating and capital allowances;
• rely on long-term assumptions such as future population growth and economic growth;
• include some degree of recovery to these long-term assumptions in the early years of the projections, if the long-term rates or levels have not been reached at the end of the forecast period; and
• are required to be published annually, as part of the Fiscal Strategy Report, under the Public Finance Act (1989).
  

Download the Fiscal Strategy Model

Notes for this Version of the Fiscal Strategy Model

• Scenarios for different levels of operating expenses and revenue can be tested using the Ready Reckoner sheet of the FSM. The output of the Ready Reckoner is in the Option worksheet.
• The FSM has been updated to incorporate the latest economic and fiscal forecasts contained in the PREFU. Assumptions underpinning the PREFU FSM are outlined in detail in Annex: Assumptions for Medium-term Fiscal Projections of the Pre-election Economic and Fiscal Update 2011 (25 October 2011).

Extra Data for Figures 2.15 and 2.16 in the 2011 Pre-election Update

Figures 2.15 and 2.16 in the Pre-election Economic and Fiscal Update depict longer-term projections, extending out to the year ending June 2055. Figure 2.15 shows three potential paths of core Crown net debt, as a percentage of nominal GDP, over this horizon. Figure 2.16 shows the tracks for core Crown expenses excluding debt-financing costs that correspond to the net debt scenarios.

Neither the graphs nor the scenarios behind them can be produced from the Fiscal Strategy Model posted on this site. This is because:

• they extend beyond the Fiscal Strategy Model's projection horizon;
• the "Historic trends" and "Constrained spending" scenarios employ different methodologies for growing certain expenditure types to that used in the FSM; and
• the "Constant debt" scenario uses expenditure, rather than debt, as the residual of the modelling, which is not a capability of the FSM.

The data used to produce Figures 2.15 and 2.16 in the Pre-election Economic and Fiscal Update is available in this Excel spreadsheet: data-figs-2.15-and-2.16-prefu11.xls (64 KB)

Other Treasury Models

The Long-Term Fiscal Model

Treasury produces another model that projects fiscal and economic variables beyond the forecasts. It is called the Long-Term Fiscal Model (LTFM).

The LTFM differs from the FSM in that:

• modelling for the LTFM extends at least as far as the year ending June 2050;
• the LTFM's projections are not intended to assess the Government's fiscal strategy;
• in regard to the last point, the LTFM projects individual operating and capital expenditure classes with their own particular cost drivers, such as changes in the recipient population and expense growth factors based on historical averages, rather than restricting their growth to a share of projected operating or capital allowances; and
• the LTFM has more modelling capability so that it can, for example, produce scenarios where debt is constrained and some other fiscal variable, such as expenditure or tax revenue, becomes the balancing output.

New Zealand Superannuation (NZS) Fund Contribution Rate Model

The projected required contributions track from the Treasury's New Zealand Superannuation (NZS) Fund Contribution Rate Model is an input into the LTFM and the FSM.