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Treasury says own forecasts too rosy

Written By: - Date published: 9:00 am, June 3rd, 2011 - 28 comments
Categories: budget 2011, Economy - Tags:

Oh dear. Only two weeks after its Budget 2011 economic forecasts were released, Treasury is already warning they are too optimistic. In their defence, they say the forecasts were settled in April and growth prospects have got worse since then. Well, you’re not much of a forecaster if you can’t see that happening in the middle of an oil shock.

Brendon Burns has stats that show Treasury has been wrong in its quarterly growth prediction 28 out of the last 30 times. I’d have about the same odds of success leaving sheets of paper with the numbers -1.0% to +1.0% scattered around my living room and picking whichever one the cat walked on first.

Remember, that’s actually predicting the past: GDP figures are released nearly 3 months after the quarter ends. And Treasury can’t even get that right.

Over time, all those wrong estimates add up, as David Cunliffe showed:

On one hand, it’s very easy to poke fun at Treasury’s forecasters and suggest that, perhaps, the best way they could contribute to the economy would be to hand the dartboard over to a minimum wage worker, give up their fat salaries, and get a real job that actually delivers and people can rely on – postman for example.

On the other, these forecasts are very important because they form the basis of how much the government thinks it will get in taxation and pay out for certain policies, which in turn tells the government how much it can afford to spend boosting needed services in lolly scrambles for the rich. When the forecasts are drastically wrong, as they have been for in the past two budgets and now are confirmed in the latest budget, that spells less tax, more dole payments, and extra borrowing.

Can we afford such poor forecasting?

Don’t get Treasury to calculate the answer to that one.

– Bright Red

28 comments on “Treasury says own forecasts too rosy”

  1. D 1

    Why is it measured in 95/96 dollars?

    • Blighty 1.1

      That’s the figures that GDP is reported in so that inflation is canceled out.

  2. r0b 2

    So the budget isn’t going to “create” 170,000 new jobs then? Just like the last one didn’t? But we need to find work for all those “lazy beneficiaries”! Now what?

    The budget was made of promises rather than ideas. A sandcastle. Here comes the tide…

    • Treetop 2.1

      The budget was made of promises rather than ideas. A sand castle. Here comes the tide…

      The budget is like a cake and it gets carved up. This year English went to the caboard, got out the flour, eggs and butter etc, then threw it altogether hoping that the cake could be eaten, because he surely did not use a recipie which would give him the best chance of success. There was nothing of substance in the cake either e.g. dried fruit because it could not be afforded.

    • Lanthanide 2.2

      The budget was clearly one to simply tread water.
      They announced 1b of magical state services cuts, but not where they were going to happen. Then less than 2 weeks later we find out about the merges and cuts of the 17 agencies and tribunals etc.
      Less than 2 weeks later we find out that they’re going to campaign on welfare reform.
      Less than 2 weeks later find out that they’re going to privatise ACC.

      • Treetop 2.2.1

        See Capital Coast DHB have a 58 million deficit and Ryall is giving a one off payment of 40 million. Just over two weeks after the budget.

        2011 budget really lacks specifics.

  3. These treasury forecasters are paid big bucks to think and number crunch. May be too much time spent on freebies at corporate functions and not enough time spent on management of the economy.

    • lefty 3.1

      The basic economic theories the neo liberals in treasury base all their research on are uncontaminated with reality or facts.
      They just feed numbers into a computer programmed with Freidmanite fantasies and treat the rubbish that is spat back at them as if it were real data.
      It is a disgrace that either they, or the bank economists who back them up, are still treated seriously by the media and political commentators.
      Labour would win votes by promising to disband treasury and replace it with a department staffed by grown up economists with an interest in producing analysis and information that would be useful in forming policy to serve all New Zealanders, not just the crooks in the financial sector.

  4. Peter 4

    If you want more Treasury amusement go to “Nominal GDP is Recovering” at http://www.treasury.govt.nz/budget/2011/taxpayers/01.htm#_nznominalgdp

    Mind you it is rather sad because they do not inspire confidence or a feeling of impartiality. This graph is the first to feature on their 2011-12 essential facts for taxpayers summary.

    This one does not take out the all important effect of inflation so it appears as if total GDP is on the up and up, a rosy picture indeed! In reality we have had periods of negative or minimal real GDP growth since 2008 so the GDP that counts (Real GDP – the actual amount of goods and services produced) has gone down or grown at a pathetic rate.

    So why would such an esteemed organisation as Treasury proudly display a grossly misleading picture of GDP and convey such meaningless information. My only guess is that they are excited about inflation and any associated pay increases that will lead to a greater PAYE tax take.

    • Blighty 4.1

      ‘nominal gdp recovering’ lolz. Of course the nominal number has gone up faster – the government induced 5% inflation with its GST hike

      nominal numbers are meaningless. Poor and very dishonest attempt at spin from Treasury

      • Peter 4.1.1

        Should Treasury be involved in spin? You would think they would come clean as honorable Civil Servants. Mind you I think they are just despairing and desperate!

        • Tom Gould

          Good question. Word around town suggests they are now almost completely politicised, and under close control from the English and Joyce offices.

          • Colonial Viper

            There was a noticeable flood of top public sector expertise and management leaving for Australia starting more than 12 months ago.

            Sayonara talented and motivated Kiwis, New Zealand doesn’t want or need you here any more!

        • Blighty

          no, they certainly shouldn’t be spinning but they certainly do.

  5. randal 5

    you have to remember that treasury recruits a specialised type of person. i.e anally retentive and oblivious to the outside world until they get bitten by reality. and they are usually tories to boot.
    they have to be because they want control of the money but dont know how to make it themseselves. the only risk they ever take is getting out of bed in the morning or changing their brand of breath freshener in case they dont smell right.

    • Colonial Viper 5.1

      Well, the Treasury analysts can always take risks with the powerpoint colour scheme that they use.

    • Georgecom 5.2

      Randal. You forgot to add Treasury hiring pimple faced young Management graduates who have had 4 years of brain washing to believe that the free market is always correct, that privatisation is correct and that low taxes some how magically creates unending economic growth.

      If ever you try to debate economics with these young naive neo-liberalites you only hear a mantra of tax cuts and privatisation.


      • Draco T Bastard 5.2.1


        So glad I went to uni economics after having a couple of decades in the real world. Made it sooo much easier to pick out the logical fallacies within what was being taught.

  6. Jilly Bee 6

    Thank you Guest Post for using ‘got’ instead of ‘gotten’ in paragraph 1 of your post.

    • Lanthanide 6.1

      What’s wrong with gotten?

      • McFlock 6.1.1

        depends on what you got 🙂

        Actually, the OED reckons that “got” is a contraction of the actual past participle of “get”, which is of course the now archaic “gotten”. Trouble is that in NZ “gotten” is all too frequently used by people who also say “knowen” or “showen”.

  7. Afewknowthetruth 7

    The long descent began when per capita energy peaked around 1979.

    The absolute peak in conventional oil extraction was 2005/6.

    The term ‘oil shock’ is taboo in government circles.

    Depression is another taboo word in government circles.

    We should expect to see increasing use of the word ‘adaptation’, as the globalised economic system implodes.

    • johnm 7.1

      Hi AFKTT

      UK Gov recognises seriousness of the end of easy cheap oil!!

      The Peak Oil Crisis: An Announcement
      Her Majesty’s Department for Energy and Climate has concerns that global oil supply will begin to fall behind demand within as little as five years.
      Gone is the rhetoric about the billions of barrels of oil remaining that will last for so many decades that nobody alive today needs to worry. Official recognition has been given to the concept that the remaining oil will be so expensive to extract or will be locked into the earth by intractable political disputes, so that it simply will not be available in the unlimited quantities or at the prices we have known for the last 100 years. Also implicit in the announcement is that ever-rising real energy costs will destabilize nearly all of the world’s economies and that economic growth in the form we have come to know it will no longer be possible.
      the world-as-we-know-it will come to an end shortly
      This raises the key issue of the next few decades – What will be the role of government in holding society together during the transition to the post carbon age?

      refer link: http://www.postcarbon.org/article/353229-the-peak-oil-crisis-an-announcement

  8. exit lane 8

    Treasury are not alone … MED are utterly useless at forecasting future oil prices, – they have been consistently over- optimistic for decades.  These projections actually matter as they underpin not just energy planning but for planning for the whole economy — except of course for road funding where the oil price is conveniently ignored

  9. MrSmith 9

    Bright Red or anyone here, what I would like to know in retrospect is, what percentage of treasury GDP per capita forecasts are low and what percentage are high ?

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