Finance Minister Nick Minchin was boasting on Lateline last night that Treasury has some of the finest forecasters in the country who can be relied on to get it right.
whoever has been in charge of budget forecasting over the past few
years, particularly revenues, has been as good as a drunk with a dart
board because the overshoots have been big and getting bigger – to the
point of embarrassment and public scepticism.
perplexing aspect of Treasury’s woeful revenue predictions has been
that the key revenue driver, economic growth, which has been pretty
accurately forecast in recent years.
The following table pulls
together the entire budget forecasting record over the Howard and
Costello years, including the original forecast in May before a
financial year commences, the mid-year update shortly before Christmas,
the next year’s forecast when there are only seven weeks of a financial
year to go, and then the final outcome:
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|Year||Budget||Mid-year update||Next Budget||Outcome||Forecasting error|
|2006-07||$10.8bn||to come||to come||to come||to come|
government has only managed to keep its forecasting error below $1
billion once – the first effort way back in 1996-97. The record, which
has been deteriorating in recent years, peaked at $11.23 billion in
2004-05 when the commodities boom first started to kick in.
the average surplus has been $6.72 billion more than forecast over the
past four years, does this mean we’ll finish with a record 2006-07
surplus of $17.52 billion? With an election due next year, it’s safe to
assume any trend in this direction would be quickly redistributed in
the traditional pre-poll spending spree.
There’s only been one
year, 2001-02, when the budget outcome was worse than the original
forecast. This suggests that both Treasury and Peter Costello are
inherently conservative, which isn’t such a bad thing, although it
would be nice to have more confidence in the projections.