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Foreword

The Treasury takes more than just a short-term perspective. While we provide ongoing advice to the government of the day, we also take into account how New Zealand's economy and state sector need to evolve over coming decades in response to a changing world.

In our stewardship role, our long-term objective is to help people live better lives, now and into the future – to increase their well-being on a sustained basis. However, we do not judge how people should be living their lives. Rather, we focus on expanding the opportunities and capabilities of people to live the lives they value. Undeniably, well-being will be increased by improvements in people's material living conditions. But there are also other dimensions of well-being. Broadening the framework of our long-term thinking requires a multi-disciplinary approach to economic, social, and environmental policies.

The Public Finance Act 1989 requires that the Treasury prepares a statement on New Zealand's long-term fiscal position (the Statement) at least every four years. The Statement must cover at least the next 40 years and include a description of all significant assumptions underlying any projections.

The title of this Statement, He Tirohanga Mokopuna, conveys the sense of a future outlook and taking a long-term view. Mokopuna is used conceptually to signify a new generation; our mokopuna are the future and we have the responsibility today to leave New Zealand a better place for them in the decades ahead. He Tirohanga Mokopuna also underscores the unique relationship between the Crown and Māori under Te Tiriti o Waitangi as an imperative in lifting living standards for New Zealanders.

As in previous long-term fiscal statements, we include "what if" projections of New Zealand's long-term fiscal outlook – the government's revenue and spending – and what drives it. A growing economy makes an important contribution to improved living standards. If the economy is growing, tax revenue also generally increases, and can strengthen the long-term fiscal position, although this will depend on how government spending responds. As was the case in the July 2013 Statement, the projections indicate that governments face long-term fiscal challenges, and they have choices about how to manage these pressures. But unlike previous Statements, this time we also consider whether improving social outcomes provides fiscal benefits in addition to improving living standards.

Since our last long-term fiscal statement, we have:

  • Produced an Investment Statement, also required by the Public Finance Act.
  • Released our 2014 Briefing to the Incoming Minister, which included the Treasury narrative around priorities for New Zealand's future (entitled "Holding On and Letting Go: Opportunities and challenges for New Zealand's economic performance – A perspective from the Treasury").
  • Engaged more extensively with the New Zealand public (this is summarised in a background paper prepared as part of this Statement, titled "Conversations about things that matter").

This, our fourth long-term fiscal statement, builds on the challenges and opportunities for New Zealand identified through these processes.

A number of international trends will impact on New Zealand's future living standards, of which demographics – and an ageing population – is only one. It also recognises that we cannot consider the fiscal impacts of these trends in isolation from their wider impact on living standards. The approach taken in this Statement will provide the foundations for the Treasury's future strategic documents, particularly the next Investment Statement, due by 2018.

Amendments to the Public Finance Act in 2013 added new principles of responsible fiscal management. These principles require that when formulating fiscal strategy, governments have regard to the likely impact of that strategy on present and future generations, and work to ensure that the Crown's resources are managed effectively and efficiently. This Statement, together with the next Investment Statement, will help the Treasury give advice that better enables government fiscal strategies to meet these principles.

This Statement includes the following:

  • Section One sets out the Treasury's Living Standards Framework and the perspectives it can bring to long-term fiscal analysis.
  • Sections Two to Five examine: economic growth; employment and skills; social inclusion; and natural resources. This builds on the strategic challenges identified in "Holding On and Letting Go".
  • Section Six summarises updated long-term fiscal projections, scenarios, and options.
  • Annexes provide additional information and summarise our key projection assumptions.

The Statement is also accompanied by a set of background papers that underpin our analysis and conclusions.

In preparing this Statement, the Treasury has used its best professional judgement about the risks and outlook for the long-term fiscal position.

Gabriel Makhlouf,
Secretary to the Treasury

 

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