PEFO analysis uses projections Coalition dismissed as 'not credible' and explains volatility in economic predictions
An independent analysis by the Treasury has stuck with economic forecasts the federal Coalition has labelled "not credible" but has provided margins of error and lengthy explanations to explain volatility in its recent economic predictions.
The government is using the pre-election economic and fiscal outlook (PEFO) to ramp up its attack on the Coalition, accusing the opposition leader, Tony Abbott, of trying to use allegations of uncertainty about the forecasts to "hide" deep spending cuts he intends to make if he wins.
Kevin Rudd said Abbott lacked "the guts" to say where he would make cuts, because he was worried people would be less likely to vote for him.
But Abbott, who said he "wanted to be known as a prime minister who keeps his commitments", for the first time categorically ruled out any change to the GST, even if elected for a second term, despite its inclusion in the Coalition's promised first-term tax review.
"The GST will not change. Full stop. End of story," he said.
He also promised no unexpected spending cuts, beyond those to be announced by the Coalition later in the campaign, saying pressure to cut further after the election "will be pressure that I will resist, I will defy … I will do what I say we will do".
The pre-election fiscal outlook document - an independent calculation by the Departments of Finance and Treasury - maintains every major forecast from the government's economic statement that was delivered shortly before the election was called, except for the small projected surplus in 2016-17, which is revised upwards slightly, from $4bn to $4.2bn.
The shadow treasurer, Joe Hockey, had said the forecasts and projections in the economic statement were "not credible" and the numbers "not real" and that the coalition was unlikely to commit to any budget surplus or deficit using them as a starting point, an intention Abbott appeared to confirm in remarks to the press.
And the Coalition will ask the Treasury to strip out what it claims are unrealistically optimistic and politically directed assumptions from the budget to reveal a true picture of the government's bottom line, which it believes will be much bleaker than the official forecasts.
Abbott said this was because "we want to get the best possible advice''.
''I absolutely respect the professionalism of the treasury; it is unfortunate though that under this government the figures, the forecasts, the costings have been consistently unreliable. We want everyone to lift their game," he said.
But treasury and finance have gone to some lengths in the PEFO document to explain the uncertainties faced when making economic forecasts and to include a "margin of error" calculating the probability, based on experience, that the budget outcome will be in line with its forecasts.
"The degree of uncertainty around forecasts can be estimated based on past forecast errors and presented using confidence intervals. Similar approaches for estimating
uncertainty have been adopted by a number of monetary and fiscal authorities," it says.
For the all-important forecasts about growth, treasury presents an average over the next two years (when it is forecast at 2.5 per cent and 3 per cent).
"Average annualised real GDP growth over the two years 2011-12 to 2013-14 is expected to be 2.75 per cent, with the 70 per cent confidence interval," it says. "In other words, if forecast errors are similar to those in the past, there is a 70 per cent probability that the average annualised growth rate will lie in this range."
For its projections of unemployment, treasury also uses some "alternative assumptions" which would mean unemployment stayed slightly higher for longer - falling to 6 per cent in 2015-16 instead of 5 per cent as in the official projections, and to 5.75 per cent in 2016-17, instead of 5 per cent.
Treasury has stuck with its projections of the revenue to be reaped from the mining tax and the carbon tax, both of which have been questioned by the coalition. But it concedes the floating carbon price "is subject to considerable uncertainty" and provides a way of calculating the impact of any variations on the budget.
It says the carbon price "will continue to be significantly affected by changes in the economic outlook in Europe following a period of profound economic weakness, as well as uncertainty associated with the impacts of short-term and structural reform proposals in the EU ETS."
"To illustrate the sensitivity of the estimates to changes in the Australian dollar carbon price, in the absence of policy change, a simple rule of thumb for a $1 change in the carbon price in any given year would be a change in the underlying cash balance of around $160 million in 2014-15 or around $220 million in either 2015-16 or 2016-17."
It says there are "both external and domestic risks" to Australia's outlook.
"The crisis in the euro area remains unresolved, and markets are anxious about how the eventual unwinding of US monetary policy will play out. There is also lingering uncertainty about the sustainability of Japan's recovery, while markets remain concerned about financial developments in China.
"This uncertainty surrounding global growth prospects poses a risk to the terms of trade and nominal GDP forecasts. There is also a risk that the anticipated fall in resources investment following its peak could be sharper than expected, especially around the middle of the decade. In addition, the transition to new sources of growth may not occur as smoothly as anticipated. Unexpected global or domestic developments could also generate further sharp movements in the exchange rate."
It also maintains the assumption that asylum seekers will continue to arrive by boat at the rate of about 1,100 per month during 2013-14, despite some evidence that arrivals may be falling following the decision to send all new arrivals to Papua New Guinea.
"Retaining the arrival assumption at 1,100 per month for 2013-14 at this time is prudent. It reflects an on-balance judgment that incorporates recent arrival rates on the one hand and the likely impact, over time, of recent policy announcements on arrivalnumbers on the other hand," the treasury says. Reported by guardian.co.uk 13 hours ago.
An independent analysis by the Treasury has stuck with economic forecasts the federal Coalition has labelled "not credible" but has provided margins of error and lengthy explanations to explain volatility in its recent economic predictions.
The government is using the pre-election economic and fiscal outlook (PEFO) to ramp up its attack on the Coalition, accusing the opposition leader, Tony Abbott, of trying to use allegations of uncertainty about the forecasts to "hide" deep spending cuts he intends to make if he wins.
Kevin Rudd said Abbott lacked "the guts" to say where he would make cuts, because he was worried people would be less likely to vote for him.
But Abbott, who said he "wanted to be known as a prime minister who keeps his commitments", for the first time categorically ruled out any change to the GST, even if elected for a second term, despite its inclusion in the Coalition's promised first-term tax review.
"The GST will not change. Full stop. End of story," he said.
He also promised no unexpected spending cuts, beyond those to be announced by the Coalition later in the campaign, saying pressure to cut further after the election "will be pressure that I will resist, I will defy … I will do what I say we will do".
The pre-election fiscal outlook document - an independent calculation by the Departments of Finance and Treasury - maintains every major forecast from the government's economic statement that was delivered shortly before the election was called, except for the small projected surplus in 2016-17, which is revised upwards slightly, from $4bn to $4.2bn.
The shadow treasurer, Joe Hockey, had said the forecasts and projections in the economic statement were "not credible" and the numbers "not real" and that the coalition was unlikely to commit to any budget surplus or deficit using them as a starting point, an intention Abbott appeared to confirm in remarks to the press.
And the Coalition will ask the Treasury to strip out what it claims are unrealistically optimistic and politically directed assumptions from the budget to reveal a true picture of the government's bottom line, which it believes will be much bleaker than the official forecasts.
Abbott said this was because "we want to get the best possible advice''.
''I absolutely respect the professionalism of the treasury; it is unfortunate though that under this government the figures, the forecasts, the costings have been consistently unreliable. We want everyone to lift their game," he said.
But treasury and finance have gone to some lengths in the PEFO document to explain the uncertainties faced when making economic forecasts and to include a "margin of error" calculating the probability, based on experience, that the budget outcome will be in line with its forecasts.
"The degree of uncertainty around forecasts can be estimated based on past forecast errors and presented using confidence intervals. Similar approaches for estimating
uncertainty have been adopted by a number of monetary and fiscal authorities," it says.
For the all-important forecasts about growth, treasury presents an average over the next two years (when it is forecast at 2.5 per cent and 3 per cent).
"Average annualised real GDP growth over the two years 2011-12 to 2013-14 is expected to be 2.75 per cent, with the 70 per cent confidence interval," it says. "In other words, if forecast errors are similar to those in the past, there is a 70 per cent probability that the average annualised growth rate will lie in this range."
For its projections of unemployment, treasury also uses some "alternative assumptions" which would mean unemployment stayed slightly higher for longer - falling to 6 per cent in 2015-16 instead of 5 per cent as in the official projections, and to 5.75 per cent in 2016-17, instead of 5 per cent.
Treasury has stuck with its projections of the revenue to be reaped from the mining tax and the carbon tax, both of which have been questioned by the coalition. But it concedes the floating carbon price "is subject to considerable uncertainty" and provides a way of calculating the impact of any variations on the budget.
It says the carbon price "will continue to be significantly affected by changes in the economic outlook in Europe following a period of profound economic weakness, as well as uncertainty associated with the impacts of short-term and structural reform proposals in the EU ETS."
"To illustrate the sensitivity of the estimates to changes in the Australian dollar carbon price, in the absence of policy change, a simple rule of thumb for a $1 change in the carbon price in any given year would be a change in the underlying cash balance of around $160 million in 2014-15 or around $220 million in either 2015-16 or 2016-17."
It says there are "both external and domestic risks" to Australia's outlook.
"The crisis in the euro area remains unresolved, and markets are anxious about how the eventual unwinding of US monetary policy will play out. There is also lingering uncertainty about the sustainability of Japan's recovery, while markets remain concerned about financial developments in China.
"This uncertainty surrounding global growth prospects poses a risk to the terms of trade and nominal GDP forecasts. There is also a risk that the anticipated fall in resources investment following its peak could be sharper than expected, especially around the middle of the decade. In addition, the transition to new sources of growth may not occur as smoothly as anticipated. Unexpected global or domestic developments could also generate further sharp movements in the exchange rate."
It also maintains the assumption that asylum seekers will continue to arrive by boat at the rate of about 1,100 per month during 2013-14, despite some evidence that arrivals may be falling following the decision to send all new arrivals to Papua New Guinea.
"Retaining the arrival assumption at 1,100 per month for 2013-14 at this time is prudent. It reflects an on-balance judgment that incorporates recent arrival rates on the one hand and the likely impact, over time, of recent policy announcements on arrivalnumbers on the other hand," the treasury says. Reported by guardian.co.uk 13 hours ago.