PRUDENT ECONOMIC ASSUMPTIONS
The 1998/99 budget has been built with an explicit element of caution introduced into the revenue forecast. The purpose is to provide a buffer against economic risk: primarily, adverse economic developments that could reduce taxation and natural resource revenues. The reason for introducing this caution is to provide greater certainty that total revenues will be on or above budget. This will help ensure that government's fiscal targets are met.
In the 1998/99 budget, the revenue forecast is $130 million lower than the revenue forecast that would correspond to the budget economic forecast. As a result, the revenue forecast is consistent with real economic growth of 0.3 per cent. This is about 0.6 percentage points less than the budget economic forecast and just over 1 percentage point lower than the average of forecasts from the Minister's economic conference held on January 22, 1998 (see chart).
In the 1997/98 budget, all components of the revenue forecast were based on a lower economic growth scenario. However, the presentation of the revenue forecast in the 1998/99 budget includes an explicit revenue allowance of $130 million, while individual revenue components are based on the budget economic forecast. In addition to explicitly presenting the actual total amount of the revenue allowance, this aggregate approach better reflects the various ways that revenue components are subject to economic risk.
For example, the revenue allowance is roughly equal to:
- 7 per cent of natural resource revenue, if prices and exports are less than forecast; or
- 2 per cent of personal income tax revenue, should income and employment grow less than anticipated; or
- 13 per cent of corporate income tax revenue if profits are below expectations; or
- 4 per cent of sales tax revenue, if consumers pause to re-build their savings; or
- 8 per cent of Crown corporation contributions, if their financial performance weakens.
