Tomorrow 12 November 2025, South Africa’s Minister of Finance, Mr Enoch Godongwana, will table the country’s Medium-Term Budget Policy Statement (MTBPS). The Statement will review the fiscal outlook, set updated expenditure and revenue projections, and outline the government’s medium-term strategy for managing debt and supporting growth. These topics provide a useful backdrop for reflecting on long-term fiscal sustainability, an area where many countries, including South Africa, are strengthening their analytical frameworks through the use of long-term fiscal models (LTFMs).

Long-term fiscal modelling has become an increasingly important tool for policymakers in both advanced and emerging economies. Unlike the usual three-to-five-year budgeting cycle, an LTFM extends the horizon to 30, 40 or even 50 years, highlighting structural trends such as ageing populations, productivity dynamics, climate transition costs and evolving public-service demands. By doing so, it allows governments to test the sustainability of current policies and the trade-offs involved in tax, spending and debt management decisions.

For emerging markets like South Africa, the challenge is especially acute: high baseline debt, volatile growth and structural reform pressures leave limited fiscal space. A credible long-term modelling framework can strengthen fiscal planning, improve transparency and enhance investor confidence, provided it is grounded in sound assumptions and closely aligned with broader policy objectives.

To explore best practices, this blog examines two international benchmark models: the United Kingdom’s long-term projections produced by the independent Office for Budget Responsibility (OBR), and New Zealand’s legally mandated Long-Term Fiscal Model developed by the Treasury. In each case, it reviews the institutional setup, methodological approach and use in policymaking. The final section considers what
lessons emerging markets, and South Africa in particular, can draw from these examples.

The United Kingdom: OBR’s Long-Term Fiscal Projections
The United Kingdom’s approach to long-term fiscal modelling is anchored in the work of the OBR, which produces official projections of the sustainability of the public finances (OBR, 2025). The OBR’s long-term model primarily decomposes government receipts
and spending by age cohort, estimating how people contribute to and draw from the public purse over their lifetimes. Typically, individuals are net taxpayers through their 20s to 60s before becoming net beneficiaries after retirement. By linking these age profiles to demographic forecasts, the model projects how population ageing will widen the gap between spending and taxes.

The OBR’s work is underpinned by a clear institutional and legal framework. Established as an independent fiscal watchdog in 2010 and supported by the 2011 Budget Responsibility Act, the OBR is legally mandated to report on the sustainability of the public finances (Keep, 2025). Its independence gives the model official status and enhances credibility, distinguishing it from purely academic or ministerial exercises. Each year, the OBR starts from its official five-year fiscal forecast and then rolls forward the public accounts over a 50-year horizon under unchanged policy assumptions (OBR, 2018). These projections are built on detailed Office for National Statistics (ONS) demographic data, applying fixed per-person spending and tax profiles for key public services such as education, health, and pensions (OBR, 2025). For example, the model assumes that existing pension rules and tax thresholds continue unchanged, while productivity growth, fertility and mortality evolve in line with official projections.

Methodologically, the OBR’s long-term model follows a largely accounting-based approach centred on demographic profiles and unchanged policy assumptions, rather than a full structural macro-economic simulation. From the end of the five-year forecast period, the model projects how population ageing shifts fiscal balances over time. Results are typically presented as long-term trajectories for the deficit, debt, and spending-to-GDP ratios over a 50-year horizon. Additionally, the model simplifies long- term feedback mechanisms by assuming no direct effect of higher debt on economic growth, a standard simplifying assumption among fiscal sustainability models.

For example, in the OBR’s July 2025 Fiscal Risks and Sustainability Report, spending on the state pension is projected to rise from around 5% of GDP in 2024-25 to 7.7% by 2073-74, driven by demographic change and the operation of the “triple lock” (a UK policy that increases the state pension each year by whichever is highest: inflation, average earnings growth, or 2.5 %). This is depicted in Figure 1 below.

Figure 1. UK state pension spending under different demographic scenarios (OBR, 2025).

Over this period, the pensioner population is expected to grow more than twice as fast as the working-age population, consistent with rising life expectancy, from roughly 89 to 94 years at birth, and from 21 to 26 years at age 65 (OBR, 2025). These trends underpin the model’s projection that age-sensitive spending categories, such as pensions, health, and social care, will rise faster than revenues from the working-age population.

Crucially, the OBR uses scenario analysis to communicate uncertainty. Its baseline scenario assumes current policies remain unchanged; tax brackets, pension ages, and benefit structures all persist (OBR, 2018). However, it also runs alternative projections under varying assumptions for productivity, migration, or fertility to illustrate the fiscal implications of different demographic and economic paths. These are not forecasts but structured projections based on hypothetical but realistic assumptions, designed to highlight fiscal risks rather than predict precise outcomes.

Similarly, in Figure 2, illustrative projections from 2017 show net debt stabilising in the medium term before rising sharply to around 283% of GDP by 2067 under unchanged policies. This pattern is largely driven by ageing-related costs such as pensions and healthcare (OBR, 2018). Findings by the Institute for Fiscal Studies, using a model closely aligned with the OBR’s, confirm that demographic change is the dominant long-run driver of fiscal imbalance in the UK (Amior, Crawford and Tetlow, 2013).

Source: 2016-based National Population Projections, ONS and July 2018 Fiscal sustainability report, OBR

Figure 2. UK OBR population and public sector net debt projections: 2017 versus 2067 (OBR, 2018).

Overall, the OBR’s long-term model serves as a key analytical tool for assessing fiscal sustainability and informing public debate. It does not set policy directly, but its findings shape discussions within Parliament and across government departments on issues such as pension reform, healthcare funding, and the sustainability of fiscal rules. The UK government’s own responses to the OBR’s Fiscal Risks and Sustainability Reports have repeatedly reaffirmed the importance of maintaining disciplined medium-term frameworks to prevent long-run debt from becoming unsustainable (HM Treasury, 2025). In this way, the OBR model illustrates how a transparent, institutionally independent framework can help policymakers confront uncomfortable fiscal realities while maintaining public trust. 

New Zealand: The Treasury’s LTFM

New Zealand’s approach to long-term fiscal analysis is distinctive in that it is embedded directly in law. The Public Finance Act requires the Treasury to present to Parliament a Long-Term Fiscal Statement (He Tirohanga Mokopuna) at least every four years, covering a projection horizon of no less than 40 years (The Treasury, 2025). These statements aim to inform strategic fiscal choices and encourage prudent policy over time. To meet this requirement, the Treasury maintains a Long-Term Fiscal Model (LTFM), an internally developed analytical tool used to produce progress outlooks of the fiscal position for the government’s Fiscal Strategy Report.

The Treasury highlights that the model’s primary contribution is in illustrating the long- run consequences of today’s fiscal settings, showing, for instance, how raising the pension age or modifying benefit indexation could materially improve debt sustainability. External reviews, including by the Auditor-General, have noted that the model helps policymakers visualise trade-offs between expenditure priorities such as health and education when debt-stabilisation targets are imposed (Whitehead, 2006). The intent is clearly set out in legislation: to “increase the quality and depth of public information and understanding about the long-term consequences of government spending and revenue decisions” (Whitehead, 2006). In this sense, the model serves as both a policy-planning instrument and a transparency mechanism for Parliament and the public.

The LTFM was first developed in the mid-2000s, following the passage of the Public Finance Amendment Act (2004), which introduced Section 26N mandating long-term fiscal statements (The Treasury, 2025). The Treasury’s first report, published in 2006 and covering the period 2005–2040, set the precedent for regular updates that have continued roughly every four years, most recently in 2025. The model itself is a comprehensive accrual-accounting framework built in Excel, designed to mirror the government’s balance sheet under Generally Accepted Accounting Practice (GAAP). It projects major expenditure categories, tax revenues, assets, liabilities, and debt levels well into the future (The Treasury, 2025).

At its core, the LTFM combines demographic, labour, and productivity assumptions to generate long-run projections of GDP and fiscal aggregates. It draws on Statistics NZ’s official population projections by age and gender, and applies assumptions about labour-force participation and productivity to estimate output growth. Earlier iterations of the model used a simplified Solow-growth structure, assuming constant capital per effective worker and exogenous technological progress (The Treasury, 2025). More recent versions have refined these relationships, particularly around health-care costs, ageing, and participation rates, while maintaining methodological transparency. Fiscal parameters such as the eligibility age for New Zealand Superannuation, benefit indexation rules, and per-capita health spending are hard-coded, allowing users to test the long-term implications of current policies. Labour-force participation is modelled by five-year age cohorts, calibrated to historical trends and expected to converge gradually over time (The Treasury, 2025).

Conceptually, the model functions as a bottom-up accounting exercise. It aggregates projected spending and revenue under current policy settings, year by year, and treats the residual as the borrowing requirement that determines future debt. In doing so, it explicitly avoids complex macroeconomic feedback mechanisms, such as the potential effect of rising debt on growth or interest rates, in order to keep the framework transparent and interpretable. To complement this, the Treasury often applies a top- down perspective alongside the baseline, asking what level of spending restraint or revenue adjustment would be required to stabilise debt at a chosen long-term ratio (The Treasury, 2025).

Consistent with its legislative mandate, the Treasury presents LTFM results as a range of scenarios rather than as a single forecast. Typical variations explore higher or lower productivity growth, different fertility paths and migration levels, or alternative assumptions about labour-force participation and expenditure decisions. For example, Figures 3 and 4 depict alternative spending and investment scenarios from He Tirohanga Mokopuna 2025. These explore how varying assumptions about defence expenditure and capital investment affect long-term debt outcomes respectively.

Figure 3. Net core Crown debt (excluding NZS fund and advances) under different defence expenditure assumptions (The Treasury, 2025).

Figure 4. Net core Crown debt (excluding NZSF and advances) under different capital investment assumptions (The Treasury, 2025).

If defence spending stabilises at 1% of GDP, net core Crown debt is projected to rise to around 160% of GDP, compared with 233% if it stabilises at 3%. Similarly, under higher capital investment, where public assets reach 50% of GDP by 2065, debt increases to 225%, while lower investment (around 30% of GDP) results in debt of roughly 183%. These scenarios highlight the fiscal trade-offs between investment intensity and debt sustainability: greater public investment expands the asset base and supports productivity but comes at the cost of higher debt, whereas restrained investment lowers fiscal pressure but risks constraining future infrastructure capacity and resilience.

The Treasury explicitly cautions that these are projections, not predictions, intended to illustrate how uncertainty can dramatically alter fiscal outcomes (The Treasury, 2025). Even modest shifts in expenditure, productivity or demographic trends can produce vastly different debt trajectories, underscoring the model’s role as a tool for sensitivite analysis rather than precise forecasting. Through its combination of legal mandate, clear documentation, and accessible structure, New Zealand’s LTFM represents an international benchmark for transparent, institutionalised long-term fiscal planning. It demonstrates how a relatively simple technical framework, applied consistently and communicated clearly, can foster sustained public engagement and political accountability in fiscal strategy.

Key Features and Lessons for Emerging Market Economies

Although the UK and NZ models differ in detail, they share common best practices that South Africa and other emerging market economies can emulate:

– Demographics-driven: Both models start with official population forecasts (ONS in the UK; Stats NZ in NZ) and use age-based profiles of spending/revenue. This age-profile approach is crucial: it isolates how ageing (or youth bulges) affect taxes and costs. Emerging economies should similarly map major budget items (social security grants, education, health) by age cohort.

-Transparent assumptions: Both countries clearly document their assumptions. For instance, New Zealand’s law requires that “all significant assumptions” be published with the long-term statement. In practice, the NZ LTFM documentation (and the UK FSRs) spell out fertility, productivity, participation rates, etc. Emerging models should likewise list assumptions up front, so users can judge if they are realistic.

-Scenario analysis: Instead of a single headline forecast, both use multiple scenarios to reflect uncertainty (NZ publishes ranges for low/high growth; the UK FSR gives “alternative” demographic/GDP cases). This practice is a key lesson: given the large uncertainty over 30-50 years, it is misleading to present only one trajectory. Economists should emphasise ranges of outcomes rather than point estimates.

-Institutional basis: The UK model shows the value of independence. An autonomous fiscal council, like the OBR, can produce candid long-term projections even if they seem alarming. NZ’s model shows the benefit of a legal mandate, ensuring continuity across governments. Emerging economies could consider either approach: formalise long-term analysis in law, or assign it to a non-partisan body (IMF and OECD also recommend publishing long-term sustainability reports).

-Policy relevance: The purpose of these models is not to predict the future, but to inform policy trade-offs. The NZ Treasury explicitly frames its top-down and bottom-up outputs as discussion aids. Likewise, the UK uses its results to illustrate the implications of the pension “triple lock” or health spending trends. Emerging countries should tie their long-term projections to specific questions: what debt target is feasible, or what reforms (e.g. to pensions or education) could offset ageing?

-Clear communication: Both the UK and New Zealand emphasise accessibility in how their long-term projections are presented. Rather than relying solely on technical tables, they use clear visual tools, such as charts showing lifetime tax and benefit profiles or debt-to-GDP trajectories, to make fiscal trends easier to interpret. The OBR’s 2017 report, for instance, used simple graphical summaries to help stakeholders understand long-run debt and demographic dynamics[6]. For emerging economies, such communication is essential: effective visuals and plain-language explanations can enhance transparency and public engagement with fiscal sustainability issues.

-Moderate complexity: Note that both UK and NZ models deliberately avoid embedding macro feedback loops (e.g. higher debt → higher interest rates). This keeps the models transparent and manageable. For most emerging economies, starting with a simple spreadsheet model (like NZ’s Excel LTFM) and gradually improving it (adding cohorts, health costs, etc.) is practical. 

The experiences of New Zealand and the UK demonstrate how institutionalising long-term fiscal modelling can strengthen resilience, a lesson increasingly relevant for emerging markets  like South Africa. In a global context marked by rising debt burdens, demographic transitions, and fiscal volatility, forward-looking frameworks offer a means to navigate uncertainty with greater strategic clarity. For South Africa, adopting a structured approach that integrates demographic trends, policy parameters, and scenario analysis could significantly enhance the credibility of fiscal policy. It would enable government to better anticipate structural pressures, support intertemporal budget planning, and promote more informed public discourse, all of which are vital for sustaining inclusive growth and macro-fiscal stability in an era of intensifying fiscal risk.

References

Amior, M., Crawford, R. and Tetlow, G. (2013). The UK’s public finances in the long run: the IFS model. IFS Working Paper W13/29. [online] Available at: https://ifs.org.uk/sites/default/files/output_url_files/wp201329.pdf [Accessed 5 Nov. 2025].

HM Treasury (2025). Government Response to the 2024 Fiscal Risks and Sustainability Report (Accessible). [online] GOV.UK. Available at: https://www.gov.uk/government/publications/government-response-to-the-2024-fiscal-risks-and-sustainability-report/government-response-to-the-2024-fiscal-risks-and-sustainability-report-accessible [Accessed 6 Nov. 2025).

Keep, M. (2025). Office for Budget Responsibility. House of Commons Library. [online] Available at: https://commonslibrary.parliament.uk/research-briefings/sn05657/ [Accessed 4 Nov. 2025].

Office for Budget Responsibility (2018). Choose your own long-term projections. [online] Office for Budget Responsibility. Available at: https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/choose-long-term-projections/ [Accessed 5 Nov. 2025]. 

Office for Budget Responsibility (2025). Fiscal risks and sustainability – July 2025 – Office for Budget Responsibility. [online] Office for Budget Responsibility. Available at: https://obr.uk/frs/fiscal-risks-and-sustainability-july-2025/ [Accessed 4 Nov. 2025].

The Treasury (2025). He Tirohanga Mokopuna 2025. [online] The Treasury New Zealand. Available at: https://www.treasury.govt.nz/publications/ltfp/he-tirohanga-mokopuna-2025 [Accessed 6 Nov. 2025].

Whitehead, J. (2006). Facing Fiscal Futures. [online] The Treasury New Zealand. Available at: https://www.treasury.govt.nz/publications/speech/facing-fiscal-futures[Accessed 6 Nov. 2025].