At least every four years the Treasury produces a Statement on the Long-term Fiscal Position of the government, looking at least 40 years into the future to examine the potential effects on our economy of long-term macroeconomic trends.
Statements on the Long-term Fiscal Position describe trends and pressures on spending, revenue, the fiscal operating balance and public debt over this period, based on current policy settings, recent history, and likely long-term developments in key areas. They help inform commentary and discussion on New Zealand’s significant long-term fiscal challenges, and help decision makers assess the long-term impacts of policy options that might be considered in these areas.
These Statements are part of a suite of reporting documents, required by either the Public Finance Act (1989) or the Public Service Act (2020), which also includes:
- Investment Statements
- Wellbeng Reports (the first of which is due for publication in December 2022)
- Long-term Insights Briefings
- Economic and Fiscal Updates
Since 2004 the Treasury has produced five Statements. The latest of these was published in September 2021 and incorporates our first Long-term Insights Briefing to the Minister of Finance, as required by the Public Service Act (2020), looking at the medium to long-term trends, risks and opportunities to New Zealand through the Treasury’s core fiscal stewardship lens:
- He Tirohanga Mokopuna 2021: The Treasury's combined Statement on the Long-term Fiscal Position and Long-term Insights Briefing
Previous Statements are available at the bottom of this page.
How Statements are prepared
Statements on the Long-term Fiscal Position are based on projections from the Treasury's Long-term Fiscal Model (LTFM).
In 2021 for the first time, a general equilibrium model was used to produce alternative scenarios and look at the impact of different assumptions on the projections. More specifically, the stochastic Neoclassical growth model (NCGM) captures, in a stylised way, some of the behavioural responses and feedback mechanisms that are missing from the LTFM, providing complementary analysis to the historical projections from the LTFM.
The NCGM also provides a platform for investigating the impact of shocks and uncertainty on the projections in a consistent and coherent fashion. The model was used to explore the physical impacts of climate change, looking at extreme weather events, and one-off shocks like earthquakes and recessions, on the long-term fiscal position.
More about this model can be found in this background paper: Shocks and scenarios analysis using a stochastic neoclassical growth model.
Each 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.
In the annual Budget, the Minister of Finance also releases a Fiscal Strategy 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.
You can find the 2021 Budget Economic and Fiscal Update (BEFU) of the FSM here: Fiscal Strategy Model - BEFU 2021.
The models used in Statements on the Long-term Fiscal Position and the Budget Fiscal Strategy 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.