Annex 2
Key modelling assumptions
This Annex sets out the key modelling assumptions that we used when producing our "Resume Historic Cost Growth" scenario. We also set out the corresponding assumptions we used when producing our 2009 Statement on the Long-Term Fiscal Position. In some cases our assumptions have changed.
For more detail on how we produce the "Resume Historic Cost Growth" scenario, see Paul Rodway (2013). Long-Term Fiscal Projections: Reassessing Assumptions, Testing New Perspectives. Background paper for the 2013 Statement on the Long-Term Fiscal Position. Available at www.treasury.govt.nz/government/longterm/fiscalposition/2013.
| Issue | 2013 Statement | 2009 Statement |
|---|---|---|
Demography |
||
| Base case | 50th percentile 2011-base, 2012-2061 | Series 5 2008-base |
| Fertility | Falls to 1.9 babies per woman from 2032 | Falls to 1.9 babies per woman from 2026 |
| Life expectancy at birth | Rises to 88.1 (M), 90.5 (F) in 2061 | Rises to 85.6 (M), 88.7 (F) in 2061 |
| Net migration | Reaches and holds 12,000 from 2015 | Reaches and holds 10,000 from 2011 |
Economy |
||
| Real output per hour worked | 1.5% from 2020 | 1.5% from 2014 |
| Participation rate | 50th percentile labour force (2012); participation rate in 2061: 65% (This assumes 25% to 33% of 65+ group in labour force from 2020) | Series 5 medium labour force (2010); participation rate in 2061: 63% |
| Unemployment rate | 4.5% from 2019 | 4.5% from 2015 |
| Annual CPI inflation rate | 2% | 2% |
| 5-year government bond rate (average) | 5.5% in 2020s, rising to 6% from 2030s | Holding 6% throughout projection |
Fiscal |
||
| Revenue (largely tax) as ratio to GDP | Core Crown tax building to 29% around 2020 and holding there (base case) | Core Crown tax 31% to 2023, then 30% (base case) |
| Expenditure | Growth controlled by operating allowances for three years (to 30 June 2015, near end of Parliamentary term) | Growth controlled by operating allowances for four years |
| Bottom-up projections begin in 2015/16 | Bottom-up projections begin in 2013/14 | |
| Healthcare (non-demographic growth in spending in projection period) | Real per person growth 1.5%; non-demographic total real spending growth of 2.4% a year. Healthy ageing effects modelled | Real per person growth 0.8%; non-demographic total real spending growth 1.7% a year. Healthy ageing effects not modelled |
| Education (non-demographic growth in spend in projection period) | Real per person growth of 1%; real growth in spending rate 1.9% | Real per person growth of 0.8%; real spending rate 1.7% |
| Other spending (non-demographic growth in spend in projection period) | Real per person growth of 0.8%, real growth in spending rate 1.7% | Real per person growth of 0.8%, real growth in spending rate 1.7% |
| Transfers: NZ Super | Per recipient spending indexed by nominal wage growth | Per recipient spending indexed by nominal wage growth |
| Transfers: Welfare (excluding NZ Super) |
Main benefits adjusted by CPI, some supplementary benefits adjusted by CPI and others by nominal wages | Indexed by CPI |
| Debt-finance costs | Average of opening and closing stock this year times an effective interest rate; this year's interest cost is proxied by last year's to avoid circularity | Last year's closing debt times this year's 5-year bond rate |
| NZ Superannuation Fund | Capital contributions resume in 2021; drawdown from the fund begins in 2032 | Capital contributions resume in 2021; drawdown from the fund begins in 2032 |
