There’s a great new working paper out today from the Commonwealth Treasury, Estimates of Uncertainty Around Budget Forecasts, which suggests a change to budget reporting that would make it hard for current and future Australian Governments to claim they will restore the budget to surplus. That is, unless they’re forecasting a surplus of several tens of billions of dollars. Check out the confidence intervals around the budget balance (e.g. the range over which we’re 90% confident the budget balance will lie in) in the chart below, bearing in mind 1% of GDP is around $15 billion. The basic story is don’t give any credibility to a budget forecast beyond next financial year, and don’t trust next year’s forecast too much either.
Well done to leading Treasury boffin John Clark and his colleagues for a great paper.
I’ve previously discussed the difficulties of budget forecasting on my favourite radio show, Mornings with Steve Austin on 612 ABC Brisbane: