Fiscal strategy model

Fiscal Strategy Model - BEFU 2022

Formats and related files

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 Budget Economic and Fiscal Update 2022 (BEFU) version  of the FSM is published here on the Treasury's website. This model uses economic and fiscal forecasts prepared for the Budget Economic and Fiscal Update 2022 (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 40,800 by the final forecast year and then declines by 2,000 per year to reach 25,000 by 2033/34, which is two years before the end of projection period
  • include some degree of transition 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, government 10-year bond rate and nominal average hourly wage growth, which are projected to move towards long-run stable assumptions by no later than the fourth year of the projections. 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 $3.0 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 $7.0 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 maintaining net debt below 30 per cent of GDP, subject to significant shocks, and keeping the total Crown operating balance before gains and losses (OBEGAL) at an average surplus between 0 and 2 per cent of GDP, subject to economic and fiscal conditions
  • 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) 2022 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.

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 2061
  • 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 the projected growth of individual expense categories, such as health or education, can be altered.

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 - BEFU 2022 is an input into the LTFM and the FSM.