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Tales of three budgets: Changes in long-term fiscal projections through the GFC and beyond

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Abstract

This paper examines fiscal projections based on three consecutive budget forecasts (2009-2011) and provides cautionary insights as to how these projections only a year or two apart can lead to dramatic differences in projected debt levels in the future. Projections of net debt from a Budget 2011 forecast base are much lower, by 2050, than those for Budget 2009. This is largely due to the Budget 2011 forecast base having lower expenditure and higher revenue than the forecast base of the Budget 2009 projections. The paper also underscores how short-term policy changes, if sustained, can make a big difference over the long term and how, over time, the more fundamental structural factors such as demographics can prove to be more durable in influencing fiscal sustainability. Finally, it argues that, even though the level of debt-to-GDP shifts by mid-century, the messages we take from these projections remain the same: spending and possibly tax policies need to change, if we are to avoid passing debt that generates little social return onto our descendants, and early changes alleviate the need for more drastic revisions in the future.

Suggested Citation

  • Matthew Bell & Paul Rodway, 2013. "Tales of three budgets: Changes in long-term fiscal projections through the GFC and beyond," Treasury Working Paper Series 13/23, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:13/23
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2013/13-23/twp13-23.pdf
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    References listed on IDEAS

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    1. Bandyopadhyay, Debasis & Barro, Robert & Couchman, Jeremy & Gemmell, Norman & Liao, Gordon & McAlister, Fiona, 2012. "Average Marginal Income Tax Rates in New Zealand, 1907-2009," Working Paper Series 2423, Victoria University of Wellington, Chair in Public Finance.
    2. John Creedy & Grant M. Scobie, 2005. "Population Ageing and Social Expenditure in New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(1), pages 19-39, March.
    3. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 639-660, winter.
    4. Matthew Bell & Gary Blick & Oscar Parkyn & Paul Rodway & Polly Vowles, 2010. "Challenges and Choices: Modelling New Zealand’s Long-term Fiscal Position," Treasury Working Paper Series 10/01, New Zealand Treasury.
    5. John Creedy & Grant M Scobie, 2002. "Population Ageing and Social Expenditure in New Zealand: Stochastic Projections," Treasury Working Paper Series 02/28, New Zealand Treasury.
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    Cited by:

    1. Dhritidyuti Bose & Renee Philip & Richard Sullivan, 2016. "Returning to Surplus: New Zealand's Post-GFC Fiscal Consolidation Experience," Treasury Working Paper Series 16/05, New Zealand Treasury.

    More about this item

    Keywords

    Long-term fiscal projections; Fiscal sustainability;

    JEL classification:

    • H69 - Public Economics - - National Budget, Deficit, and Debt - - - Other
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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