Editorial: Economists can't predict the future and we shouldn't expect them to

Auckland Central MP Chlöe Swarbrick says Treasury should be more transparent with its economic forecasting. Photo / NZME

EDITORIAL:

We should not expect government agencies to predict the future but we should expect them to be transparent.

Treasury has been in the gun this week for failing to show its working on key house price forecasts.

Treasury's central forecast, that house price growth will fall to 0.9 per cent, raised the hackles of Green MP Chlöe Swarbrick and National MP Nicola Willis.

Swarbrick sought clarity on how Treasury reached its conclusion. And that seems to be where the real problem begins.

Labour MPs blocked efforts to have Treasury officials provide the working at Select Committee.

Belatedly - Treasury has offered a half-hearted summary that has Swarbrick and Willis claiming their methodology was deficient.

The forecast isn't actually far out of line with the market consensus.

Westpac economists now see prices falling in the coming year. ANZ is forecasting growth of just 1.5 per cent in 2022.

ASB sees growth moderating to 2 per cent - with a risk of prices falling if interest rates rise faster than expected.

Treasury's forecast is also broadly in line with that of the Reserve Bank.

Governor Adrian Orr showed none of Treasury's hesitancy in defending his team's forecast.

At the last Reserve Bank press conference he was challenged on the forecasts and enthusiastically ran journalists through all the key assumptions.

He added a caveat that asset prices in the real world are always volatile and that forecasts change when facts change.

Orr later clashed with Swarbrick at Select Committee. It's unlikely his arguments swayed her, but at least they were all out in the open.

People are free to disagree with forecasts but it's important for public trust that institutions are not perceived to be hiding anything.

Had Treasury economists been allowed to speak freely about their forecasts they would almost certainly have explained them articulately and plausibly.

Forecasts can only be based on the past, so always involve judgment calls.

And there is also no "off the shelf' model for a global pandemic.

We are literally in uncharted territory.

That doesn't let Treasury off the hook.

Its forecasting of Crown expenditure and revenue has also been well off the pace for some time.

The Crown accounts were already looking better than Treasury's annual Budget forecasts within weeks of their publication.

There may be good reasons for this too. It wouldn't hurt to hear them.

At its core, this is a problem of communication - a problem that seems to be plaguing this Government right now.

There seems to be a lack of trust around sharing information.

Swarbrick and Willis are right to expect more transparency from Treasury.

One can understand the desire to avoid key judgment calls being turned into political footballs.

But we should be confident that they are free from partisan political assumptions.

As long as they are, then there is little room for controversy.

Debates about accuracy should be framed with a better understanding of economic nuances.

Public trust in Treasury process is crucial for that improved understanding.

It's more important than getting the movement of house prices right or wrong.

Treasury needs to get on the front foot. And the Government needs to let it.