The Pre-election Economic and Fiscal Update 2011 document, which was released this afternoon, shows once again that The Treasury continues to look at the economy, and the Government’s fiscal position, through rose coloured glasses.
The last Pre-election Update, which was published on 6 October 2008 in the midst of the global financial crisis, forecast a Budget deficit of $0.1 billion for the June 2009 year compared with an actual deficit was $3.9 billion.
The forecast deficit for the 2010 year was $1.8 billion compared with an actual deficit of $6.3 billion.
The table below shows how the forecastes for the 2011 to 2016 period have changed since the release of the last Pre-election Update in October 2008 (The Treasury releases forecasts every May and December).
Government Budget Forecasts ($billion)
| Forecast Date | Forecast year (June years) | |||||
| 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |
| Oct ‘11 | 3.1 | 1.50 | -0.9 | -4.4 | -10.8 | -18.4* |
| May ‘11 | 1.30 | -0.7 | -4.1 | -9.7 | -16.7 | |
| Dec ‘10 | 0.00 | -1.5 | -4.4 | -6.0 | -11.1 | |
| May ‘10 | -3.0 | -4.4 | -5.4 | -8.6 | ||
| Dec ‘09 | -2.2 | -2.7 | -2.9 | -3.4 | ||
| May ‘09 | -4.2 | -5.0 | -5.1 | |||
| Dec ‘08 | -2.9 | -3.1 | -3.1 | |||
| Oct ‘08 | -3.4 | -3.1 | -2.5 | |||
*Actual
The Budget deficit forecast for the June 2011 year has gone from $2.5 billion to an actual $18.4 billion and the June 2012 forecast from a $3.1 billion to a $10.8 billion forecast. The Christchurch earthquakes contributed $9.1 billion to the 2011 deficit.
The main problem is that The Treasury has got its tax revenue forecasts horribly wrong although the Key Government’s tax cuts have been a contributor to this.
For example The Treasury was forecasting total Government revenue of $68.3 billion for the 2012 year in its 2008 Pre-election Update but it is now forecasting revenue of only $61.2 billion for the same period.
The optimistic 2015 forecast is primarily based on the belief that Crown revenue will surge from $57.5 billion to $74.8 billion in the four years ended June 2015. In other words The Treasury is forecasting a $17.3 billion increase in Crown revenue over the next four years but a much more modest $5.1 billion rise in expenses.
It is highly unlikely that The Treasury’s optimist revenue forecasts will be achieved and the Crown will continue to run large Budget deficits in the 2015 year and beyond.
Brian Gaynor