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Budget 2016 Home Page Budget Economic and Fiscal Update 2016

General Fiscal Risks

The remainder of this chapter focuses on the links between the economic risks and the Crown's fiscal position. For more on fiscal risks, see the Specific Fiscal Risks chapter.

Revenue Risks

One of the major sources of risk to the fiscal position arises from the inherent uncertainty about future tax revenue, which accounts for around 70% of the Crown's revenue. As indicated by the scenarios set out in this chapter, the amount of tax revenue that the Crown receives in a given year is closely linked to the performance of the economy.

Figure 3.10 plots the main annual tax revenue forecast, along with confidence intervals around these forecasts based on the Treasury's historical tax forecast variances and the assumption of an even balance of risks around the main forecast.[14] The outermost shaded area captures the range ±$7.1 billion in the June 2020 year, within which actual tax outturns are expected to fall 80% of the time.[15]

Figure 3.10 - Core Crown tax revenue uncertainty
Figure 3.10 - Core Crown tax revenue uncertainty.
Source: The Treasury

The tax revenue forecasts from the two scenarios are also shown in Figure 3.10. The 2008/09 global financial crisis showed that exogenous shocks can have severe impacts on government revenue. Should any of the uncertainties outlined in the Economic Riskssection eventuate, Crown revenue would be different from forecast, with Scenarios One and Two being examples of possible outcomes.

Based on average historical forecast variances, Figure 3.10 suggests that an annual tax revenue outturn associated with Scenario One lies between the 25th and 50th percentiles. An annual tax revenue outturn associated with Scenario Two lies between the 50th and 75th percentiles in each year. On this basis, actual tax outcomes would be expected to fall within the range of the two alternative scenarios approximately half of the time, with greater or lesser outcomes also expected approximately half of the time.

There are also risks around other sources of revenue including sales of goods and services, investment income, and fees and levies. This additional revenue is also subject to changes in economic conditions, such as changes in interest rates which impact investment income and changes in oil prices which impact the amount of petroleum royalties the Crown receives.

Notes

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