Gareth Morgan, Director of Gareth Morgan Investments
For our politicians, so often the butt of abuse, the opportunity to pillory Treasury officials over their tax forecasting skills, must be as welcome as the chance impoverished Angelenos have had to rebel, loot and worse during this last week. But in NZ the issue is whether the politicians have any right to feel aggrieved at the disappointing tax flow news, or whether the attack on the Treasury is more a manifestation of their frustration in governing such a lacklustre economy. For Treasury, the episode must be reminiscent of the last time they were admonished by politicians – on that occasion for their office refurbishing – but for the MPs it offers a respite, no matter how brief, from being held to account for the rolling domestic recession.
As the incensed pummel the driver of the revenue truck, one is left wondering whether they’re venting their spleen on the real perpetrator of the deficit crime, or whether they’re simply vigilantes blaming someone else, anyone else, for the fiscal faeces they’ve landed in. And is the Treasury a fiscal forecasting malfeasant?
It should be noted that no other forecaster has come forward with a set of taxation projections over the last few years that have consistently out-performed the official ones. While there are examples of forecasts closer to the mark on tax flows for 1991/92, they are forecasts based on either a economic scenario that has been astray from the actual, or ones with scant analytical foundation (ie; they’re guesses). That those crying out “incompetence’ either have no expertise in the area, or are competing forecasters without a credible and transparent framework, speaks heaps for the plausibility of the critics.
The tax forecasting purge really does distract from the issue central to the deficit deterioration. Tax revenues are in trouble – not just corporate tax, but personal tax as well. Looking at the nature of the economic recovery we are struggling towards, there is a far greater chance of business tax lifting from here than there is personal tax. That likelihood lies in the income distribution that economic recovery will accentuate. It is a shift of income away from salaries and wages and towards profits.
The Minister of Finance can rightly claim she has trimmed government expenditure, but if the budget deficit is to be contained through the first half of the 1990s, further trimming of expenditures and/or increases in taxation will be necessary. Right now the government shows little stomach for the measures necessary, so a scenairio of further deficit ballooning is most likely. We might like to consider our fiscal choices- kowtowing to potential creditor restrictions now by stamping on deficit deterioration, or abstaining and hoping some windfall will descend before further debt downgrading engenders policy responses that ensure the social dam bursts. The politics favour the latter don’t they?