Report B: FISCAL REVIEW AND OUTLOOK

TOPIC BOX
PRUDENT ECONOMIC ASSUMPTION FOR THE REVENUE FORECAST

PRUDENT ECONOMIC ASSUMPTION
FOR THE REVENUE FORECAST

The 1999/00 budget has been prepared with an explicit element of caution introduced into the revenue estimate. 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 a greater likelihood that total revenues will be on or above budget. This will help the government to achieve its fiscal targets.

In the 1999/00 budget, the revenue forecast is $230 million lower than the revenue forecast that would correspond to the budget economic forecast.

Lower Economic Assumption for the Revenue Forecast

The revenue allowance or "cushion" of $230 million is $100 million larger than the $130 million amount used in 1998/99. As a result, the revenue forecast is consistent with an assumption of a real GDP decline of 0.6 per cent. This is 1.1 percentage points less than the budget economic forecast and 0.6 percentage points below the average of forecasts from the Minister's economic outlook conference held on February 4, 1999 (see chart). Details of this conference are provided in the topic box in Report A. Without the 1999/00 cushion of $230 million, revenues would be 0.8 per cent higher than in 1998/99.

In addition to explicitly presenting the amount of the revenue allowance, this aggregate approach accommodates the various ways that revenue components are subject to economic change. A $230-million revenue allowance could offset lower-than-expected revenue from a variety of sources, including for example:

  • 12 per cent of natural resource revenue, if commodity prices or exports are less than forecast; or
  • 4 per cent of personal income tax revenue, should income and employment grow less than anticipated; or
  • 27 per cent of corporate income tax revenue if profits are below expectations; or
  • 7 per cent of sales tax revenue, if consumer purchases slow; or
  • 14 per cent of Crown corporation contributions, if their financial performance weakens.

 

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