The Public Finance Act requires the Treasury to publish a Statement on the Long-Term Fiscal Position at least every four years examining the affordability of government policies over the next 40 years. The Treasury has recently published its 2013 Statement, ‘Affording Our Future’, which can be found here.

Dependency Ratio
Dependency ratio

Leading up to the publication of the Statement, the Treasury, assisted by Victoria University’s Chair in Public Finance, ran a public engagement process to test its analysis and promote wider understanding of New Zealand’s long-term fiscal challenges. Examples of these initiatives included:

• The Long-Term Fiscal External Panel, which was a panel of independent experts and commentators that met periodically to test the Treasury’s analysis of different long-term fiscal issues prior to the publication of the Statement. More information about the Panel is here.

• The Affording Our Future conference, held in December 2012, gathered a number of academics and public policy specialists to address different aspects of long-term fiscal sustainability. More information about the conference, including links to papers and presentations, is here.

As part of this public engagement process, the New Zealand Public Finance website is delighted to host the Long-Term Fiscal Calculator. The Calculator uses the latest Treasury’s Long-Term Fiscal Model to provide estimates of how current spending and tax choices could affect the government’s budget balance up to 40 years into the future.

The options modeled in the calculator are based on policy papers the Treasury published in preparation for the 2013 Statement. These papers, each covering a different area of government spending or revenue, provide an overview of pressures expected within policy areas, as well as a range of options available to address them. For more information on any of the options modeled, see the links below:

For retirement income For health For long-term care For working-age welfare For tax For justice For education

For each option, an estimate is provided of the proportion of the “gap” in the long-term fiscal budget it will help to close. The long-term fiscal gap in this calculator is the difference between the government’s projected financial balance in 2060 (excluding debt-financing costs) if spending grows in line with historical growth rates and demographic trends, and the financial balance required to maintain net debt at a long-term average of 20% of GDP. For more information on these two modeling scenarios used in Treasury’s 2013 Statement on the Long-Term Fiscal Position, see here. A debt level of 20% of GDP was cohsen as a proxy for a prudent level of public debt.

The Calculator, by necessity, provides only simplified and illustrative estimates of the impact of each policy option. As a result no attempts are made to model, for example, secondary effects, behavioural changes, or timing differences. It also necessarily involves elements of ‘speculation’ about the future path of the New Zealand economy and future governments’ budget choices.

For queries about the modeling behind this Calculator, please contact Christopher Ball at christopher.ball@treasury.govt.nz