Barnaby Is Right

Here is a classic example of why this government’s constantly revised economic predictions are not worth the paper they are printed on.

And why — as quoth MacroBusiness reader “Mav” — we could replace the Treasury department with a monkey and a dartboard, and get the same standard of accuracy with economic forecasts.

According to Bowen / Treasury in their “$33 billion black hole” Economic Statement released on Friday, this year the headline unemployment rate will rise to 6.25%. With an annual growth rate in employment of 1%. It will remain at 6.25% in 2014-15, with employment growth of 1.5%.

In 2015-16, however, something magical is predicted to happen.

Despite employment growth remaining steady at 1.5%, the unemployment rate will, somehow, plummet to 5%:

August Economic Statement, Overview, page 1

Er … say what now?

I am not the only one questioning this “major economic parameter”, on which all the budget predictions are based — including tax revenues, the public debt level, interest expenses, and an alleged return of that mythical creature in the ALP museum, a surplus in 2016-17.

National Australia Bank were quickly out with an economic statement of their own on Friday, where they too remarked on this amazing budget prediction:

“The estimates beyond 2014/15 appear unrealistic, with employment growth too weak to reduce the unemployment rate to 5%. While 1½% employment growth in 2014/15 is expected to maintain the unemployment rate at 6¼%, the same employment growth in 2015/16 reduces the unemployment rate to 5%.”

The only way that is possible, is if they are expecting an awful lot of people to leave the work force, and yet, not be counted as “unemployed”.

A mass extinction event?

Or a mass retirement of baby boomers, perhaps.

If so, then all those folks looking forward to retiring in 2015-16 will be very pleased to know that, under the government’s Crisis Management strategy, APRA is being given “robust” new statutory powers — “direction powers”, they say — which enable the government to order your super fund where and how it should “direct” your super.

For your benefit, of course (see Crisis Management: APRA To Be Given Power To “Direct” Your Super).

Somehow though, I don’t think a mass retirement of baby boomers is a plausible, or sufficient explanation for that amazing budget update prediction.

A more plausible explanation is one that I came across recently … alas, I cannot recall where.

And that explanation was, that in the years beyond the “Estimates” period — those years labelled “Projections” in government budget figures — the Treasury modellers simply assume a “return to trend” for major economic variables.

How does that return to “trend” happen?

Who knows.

It is an assumption.

Just like so much of the pseudo-science we call “economics”.

Oh yes, by the way.

In 2015-16, when unemployment will magically plummet from 6.25% to 5%, the government is predicting a deficit of $4.7 billion. And then, a surplus of $4 billion the following year:

August Economic Statement, Overview, page 1

It’s magic Johnny … magic!

Tags: august economic statement, chris bowen, labour force, treasury forecasting, unemployment rate