The Treasury, which periodically assesses the performance of its economic and tax forecasts and publishes the findings on its website, has released its latest stocktake with data up to the 2010 calendar year.
The 2011 report indicates that the Treasury's gross domestic product (GDP) and consumers price index (CPI) inflation forecasts continue to compare favourably against other regular forecasts for which there are public records, although all forecasters were not strong at picking the arrival of the 2008-2009 global financial crisis (GFC) and its initial impact on the domestic economy.
Key findings of the latest stock-take include:
- The Treasury's forecast performance compares favourably with other public forecasts of the New Zealand economy, ranking either first or second for forecasts of real GDP growth and CPI inflation over the 2000-2010 period, on average, for current-year and one-year-ahead forecasts.
- In the five years to June 2007, which coincided with a significant global upturn, the average difference between the Treasury's current-year real GDP growth forecasts and actual March-year real GDP outturns was 1.1%. The actual current-year Budget forecast errors for March-year real GDP growth for the 2009 and 2010 years were -2.6% and +1.3% respectively.
- The average errors for GDP growth forecasts have either remained the same or increased slightly over the past couple of years in the aftermath of the GFC, depending on the forecast horizon. The increases arose mainly as a result of not forecasting the arrival and impact of the recession of the late 2000s. Specifically, all of the forecasts up to and including the 2008 Budget Update did not forecast the recession that lasted from the March 2008 quarter to the March 2009 quarter.
- During the height of the global upturn in the five years to June 2007, the average difference between the Treasury's one-year-ahead forecast and actual core Crown tax revenue was 4.4%.
- In 2009, the Treasury resolved to improve this statistic and set itself a target of achieving one-year-ahead tax revenue forecast errors of less than ±3%. The actual forecast errors observed after this target was set were -3.6% and -1.7% for the years ending June 2009 and June 2010 respectively. The one-year-ahead forecast error for the 2010/11 year has to date been running at just over -3%, inclusive of earthquake-related effects, i.e. if not for the Canterbury earthquakes, the forecast error would likely have been within the ±3% target in the year to date.
- Overall, the average errors for unconsolidated tax forecasts have increased over the past couple of years. The main reasons for this were large and negative forecast errors (i.e. outturns below forecast) during the recession.
- There is no firm evidence of statistical bias in the Treasury's tax forecasts, i.e. forecasts are neither persistently too high nor too low, but there is evidence of serial correlation of forecast errors, i.e. significant periods of forecast errors in one direction.
The full report is available at: http://www.treasury.govt.nz/publications/informationreleases/forecastingperformance/reviews