Peter Costello and his conservative treasury forecasters have continued their longstanding tradition of consistently under-cooking estimates on budget surpluses.
As usual, the 2006-07 forecast surplus has increased with each forecast. It started this time last year at $10.8 billion, rose to $11.8 billion in the December update and was yesterday upgraded again to $13.6 billion. By the time we get the final outcome don’t be surprised if another $15 billion has been secreted from taxpayers in 2006-07.
Once again, the government grossly underestimated revenues, particularly company tax receipts flowing from the mining boom and the banking cartel.
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:
The average underestimation of the outcome in the original budget is $4.23 billion each year or a cumulative $45.12 billion over 11 budgets. That means Costello’s $10.6 billion predicted surplus for 2007-08 is likely to finish at $14.83 billion if current trends continue.
And this, of course, is after $1.3 billion has been shaved from the 2006-07 surplus with the $500 one-off payments to oldies in June, much of which will be quickly spent on the likes of pharmaceuticals and a few extra hours on the pokies.
Amazingly, the 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.
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.