Treasury has again significantly miscalculated the state of the economy, with the latest government accounts showing that tax revenue and receipts are about $1.8 billion lower than forecast before the election.
Treasury deputy secretary Peter Bushnell yesterday blamed the variance between the pre-election update and the figures for the actual eight months ended February on a temporary timing difference that was expected to reverse next month.
"Once this timing difference reverses, we expect tax revenue and receipts to continue tracking more in line with the forecast in the December update, as the continued deterioration in the world economic situation flows through to the New Zealand economy."
However, an analysis of the government accounts showed that core Crown revenue for February 2009, at $39.34 billion, was 0.2% up on the $39.26 billion reported in February 2008.
That suggests that Treasury could have been overly optimistic in preparing the pre-election update, which was presented by former finance minister Michael Cullen when the country was in recession.
The economy has been in recession for probably five quarters now, certainly all of the last calendar year.
Treasury seems to have not made any recognition of that fact as it continued to provide optimistic forecasts as the global economy collapsed.
In the explanations to the accounts, Treasury said corporate tax revenue in the eight months was $717 million, or 11.5% lower than forecast.
Factors that hurt corporate tax revenue included terminal tax assessments which were $350 million lower than forecast due to lower-than-expected profits, and provisional tax assessments $250 million lower, reflecting weaker-than-expected 2009 tax year profitability.
Also, as the last day of February fell on a weekend, the February tax due date was moved to March 2, resulting in a timing difference of about $100 million that was expected to reverse in March.
It would seem a simple matter for a Treasury official to look at a 2009 calendar when preparing the pre-election update, noting that February 28 fell on a Sunday and realising the tax due date might have to be shifted.
Interestingly, core Crown expenses came in broadly in line with forecast.
No significant variances were noted.
Before the election, Bill English, now finance minister, accused the previous Labour administration of cooking the books to give a glowing picture of the economy.
Mr English said yesterday his budget next month would map out a road for economic recovery, as well as a credible plan for getting the Government's deteriorating finances in order.
The accounts showed the Government's operating deficit had increased to $8.4 billion in the eight months, compared with a forecast surplus of $3.2 billion in the pre-election update - a turnaround of more than $11.6 billion.
The main contributors to the large variance appeared to be the further losses suffered by the New Zealand Superannuation Fund, ACC and the Earthquake Commission in their investment portfolios.
The superannuation fund lost a greater-than-forecast $5.6 billion in the year to date, ACC lost $499 million and the commission lost $406 million because of continuing turmoil in global financing markets.
Given the finance markets have been in disorder for more than a year, it seems odd Treasury had not included those losses in its earlier forecasts.
If Treasury wants to continue to be considered as a credible forecaster of economic activity, it needs to take a wider view of the economy.
Each government bases its spending promises and policy on Treasury forecasts.
Having them so far out of kilter causes pain throughout the economy, especially if the current downturn forces the Government to, as expected, not deliver its tax cuts next year or in 2011.
