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Fiscal Strategy Model

Page updated 23 Aug 2017

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

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 (PREFU) 2017 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 economic and fiscal forecasts that provide their base
  • 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
  • grow operating allowances from the first projection year (at a prescribed rate) so that core Crown expenses stabilise at around 27% of GDP (refer to note below)
  • grow capital allowances from the first projection year (at a prescribed rate) so as to keep net core Crown debt within the target range of 10 – 15% of GDP between 2025 and 2028 (refer to note below)
  • are consistent with the Government’s approach to fiscal management as the increase in the capital allowance represents the amount of fiscal headroom the Government has after expenses as a share of GDP are stabilised (refer to note below), and
  • are required to be published annually, as part of the Fiscal Strategy Report, under the Public Finance Act (1989).

Please note: In the 2017 PREFU FSM, core Crown expenses rise a little above 27% of GDP and net core Crown debt drops below 10% before 2028. This is because the Budget 2017 projection assumptions that achieved these outcomes have not been altered for PREFU 2017. Therefore, for the 2017 PREFU FSM, the increase in the capital allowance does not represent the Government’s fiscal headroom based on its spending and debt targets. It is likely these assumptions will be revisited at the Half Year Economic and Fiscal Update 2017 of the FSM to ensure the expense and debt targets are achieved.

Gross sovereign-issued debt (GSID) stabilises at 20% of GDP, which reflect the policy to maintain core Crown borrowings at around this percentage of GDP once debt has been reduced from current levels. When this occurs the FSM logic assumes that funds that would normally be used to reduce debt are now channelled into building up financial assets.

Also downloadable from the section below is a note Projection Assumptions PREFU 2017. This provides further information about the post-forecast projections, including detailing some of the key assumptions and providing data tables for both economic and fiscal variable projections.

Download the Fiscal Strategy Model

This model is a special purpose document and cannot be provided in HTML format or CSV format.
Using MS Excel Files

Notes for this Version of the Fiscal Strategy Model

  • Scenarios for different levels of operating expenses and revenue, and different NZS Fund tracks, can be tested using the Fiscal Forecast Adjuster and NZS Fund Adjuster worksheets of the FSM. The output of these scenarios can be modelled in the Option worksheet.

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 2060
  • 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.

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