How does the Treasury’s Long-Term Fiscal Model work, and what is our initial analysis showing?

Speech delivered by Girol Karacaoglu Chief Economist, the Treasury

Affording Our Future Conference 2012

Victoria Business School, Wellington

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10 December 2012

Good Morning.

It is with pleasure that I address this morning’s session following Professor Bob Buckle and the Government Statistician, Geoff Bascand.

As the Secretary indicated in his opening, Bob Buckle has been an outstanding Chair of an independent Long-Term Fiscal External Panel the Treasury established earlier this year to test and challenge our initial modelling assumptions and analysis. Geoff has been an extremely valued member of that Panel and I am grateful to both for giving their precious time and expertise to assist the Treasury meet its Public Finance Act reporting requirements to produce a Statement on the Long-Term Fiscal Position before the end of October next year.

I think it is fair to say that sustainability is a concept that many people are much more familiar with these days than they were 40 or 50 years ago.

In the context of the Crown’s finances, Bob has outlined ways of thinking about what is and isn’t fiscally sustainable. Geoff has focused on projections relating to the structural changes occurring in New Zealand’s population, labour force and productivity in the decades ahead.

I will seek to tie together some of the critical, broad threads arising out of these two presentations. In doing so, my aim is to assist a better understanding of how the Treasury goes about putting together a set of very long term projections for the Crown’s finances.

What is the Long-Term Fiscal Model? It won’t surprise anyone to know that the Treasury has a Long-Term Fiscal Model. And it won’t surprise anyone either that the quality of what comes out of the model is constrained by the quality of what gets fed into it.

So let me outline to you some of the critical assumptions that we put into our model.

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ENDS

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