Ross Gittins has lashed-out at “pernicious” long-term Budget projections, calling for them to be outlawed “in the interests of responsible economic management”:
It’s supposed to increase transparency and accountability, but in practice does more harm than good, presenting the government of the day with an almost irresistible temptation to portray the future as more assured than it is.
The future is unknowable. We can’t forecast the economy even a year ahead with any accuracy, but what we can be most sure of is that, even with pure motivations, a mechanical projection out 10 years is highly likely to be way off-beam.
We know the economy never moves in straight lines, but each year’s 10-year projection shows it on glide path to where we want to be. Obviously, no account is taken of unexpected shocks to the economy – even though it’s a safe bet there’ll be more than a few in the space of a decade.
Treasurers’ unworthy intention is to leave non-economists with the impression everything’s under control and on the improve. But I think it’s likely to leave even our economists and econocrats with a false sense of comfort…
Sad to say, the medium-term projection has been about deception – both numerical and visual – from the off. In all the budgets since Swan introduced them, never once has the budget balance failed to glide smoothly up to a healthy surplus, nor the net debt failed to glide smoothly down towards zero.
How’s it done? By making assumptions, of course…
Even without the ever-present temptation to fudge, projections are a device for deluding ourselves we know more about the future than we do. By ignoring all the uncertainties, they breed not understanding, but complacency. An honest government would abandon the practice.
These are excellent arguments by Ross Gittins. One only needs to look at the below charts to see how poorly Treasury’s Budget forecasting has been: