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Fiscal strategy model

Fiscal Strategy Model - BEFU 2021

Issue date: 
Thursday, 20 May 2021
Status: 
Current

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Document Date: 
Thursday, 20 May 2021
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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 2021 Budget Economic and Fiscal Update (BEFU) of the FSM is published here on the Treasury's website. This model uses economic and fiscal forecasts prepared for the 2021 Budget Economic and Fiscal Update (BEFU).

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;
  • incorporate the Treasury’s forecasts and projections of net migration, which reaches 43,000 by the final forecast year and then declines by 2,000 per year to reach 25,000 by one year before the end of projection period in 2033/34;
  • include some degree of recovery in many fiscal variables, including tax revenue, to their long-term assumptions in the early years of projections, if the long-term rates of growth or levels of GDP have not been reached at the end of the forecast period;
  • include several economic variables such as the unemployment rate, CPI growth, annual labour productivity growth, and nominal average hourly wage growth, which are projected to transition back to long-run stable assumptions by the third year of the projection period. Once this transition has happened, the economy is assumed to grow at trend growth rates with no economic cycles in the projections;
  • apply an annual increment of $2.0 billion to the end-of-forecast operating allowance in the first projected year and increase this increment by 2% each year in later projected years;
  • apply an annual increment of $4.0 billion to the end-of-forecast capital allowance in the first projected year and increase this increment by 2% each year in later projected years;
  • assume the capital allowances are spent in the year they are allocated, in contrast to the forecast period where capital allowances are spread over a number of years;
  • illustrate potential future progress towards achieving the Government’s long-term objectives, of stabilising net core Crown debt as a percentage of GDP by the mid-2020s and then reduce it as conditions permit; and running a total Crown operating balance before gains and losses (OBEGAL) consistent with meeting the long-term debt objective.
  • are required to be published annually, as part of the report on the Fiscal Strategy, under the Public Finance Act (1989).

Also downloadable from the section below is a note Projection Assumptions for the Budget Economic and Fiscal Update (BEFU) 2021 version of the Fiscal Strategy Model. 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

Release Date Title Download
20 May 2021 Fiscal Strategy Model – Budget Economic and Fiscal Update (BEFU) 2021 version. fiscal-strategy-model-fsm-befu21.xlsx (1,481 KB)
20 May 2021 Projection Assumptions for the Budget Economic and Fiscal Update (BEFU) 2021 version of the Fiscal Strategy Model. fsm-projections-may21.pdf (219 KB)

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 Scenario 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

Last updated: 
Thursday, 20 May 2021