Long-Term
Page updated 12 Feb 2008
The Treasury is required to produce at least every four years a statement on the Long-Term Fiscal Position that covers a period of at least 40 years.
The Statement on the Long-Term Fiscal Position indicates possible trends in spending, revenue, operating balance and debt over this period, based on current policy settings and recent history. The first statement was released in June 2006 and based on projections from the Treasury's Long-Term Fiscal Model (LTFM). The statement attempts to project the consequences of current revenue and spending decisions over the next four decades or so and will pick up slower moving trends such as population ageing, the compounding effects of surpluses and deficits, wage and price growth, and so on.
The Treasury sees the purpose of the statement as being to increase the quality and depth of public information and understanding about the long-term consequences of policy decisions and to assist governments in making fiscally-sound decisions.
This statement is part of a suite of reporting documents the Public Finance Act requires from the Minister of Finance and the Treasury. Twice a year, for the budget (around May) and in the middle of the financial year (around December), the Treasury produces an Economic and Fiscal Update, containing forecasts covering the next 3-5 years. With each budget, the Minister of Finance also releases a Fiscal Strategy Report, outlining the long-term objectives of fiscal policy and including projections over at least 10 years. These projections are based on Treasury's Fiscal Strategy Model (FSM) and show the likely progress against the long-term fiscal objectives.
The models used in the long-term statement and the Fiscal Strategy Report have many things in common, but a crucial difference is that the FSM keeps the allowances for new spending separate from spending based on past decisions. This reflects current budget practice used in the Economic and Fiscal Update forecasts. The LTFM, on the other hand, allocates forecast new spending to the major spending categories which are then grown out by demographics, wages and other cost drivers. Another difference is that health spending in the LTFM takes greater account of changing health status over the long term. These differences mean that it is difficult to compare the two models.