Budget projection errors: causes, consequences and correctives

by John Daley and Danielle Wood

Presentation at the Melbourne Economic Forum, Tuesday 30 May

The Commonwealth Treasury is making a habit of over-estimating future budget balances. It has been wrong, in the same direction, seven times in a row. This matters, because it gives Treasurers an excuse for avoiding the tough decisions needed to repair the budget. In this presentation to the Melbourne Economic Forum, Grattan CEO John Daley and Australian Perspectives Fellow Danielle Wood identify the causes of the problem, in particular the flaws in the model Treasury uses to make its forecasts. And they propose some solutions, notably Treasury exercising more judgment. If the numbers coming out of the model look ‘off’ because the world has changed, then Treasury officials should override the numbers.