Council on Revenue Lowers Forecast Right Before Tsunami

By Sonia Isotov

In its March Forecast, the Council on Revenues lowered its projections for tax revenue growth, in fiscal year 2011, from 3.0 percent to 0.5 percent.

“In this context, consequences of seismic events near Sendai in Northeastern Japan shortly after the Council’s meeting will have to be monitored closely for signs of macroeconomic impacts on the Hawaii economy,” wrote Paul Brewbaker, Chair, Council on Revenues and one of the state’s chief economists, in a statement released by the Council.  “While history teaches us not to overreact in the immediate aftermath of such shocks, especially while humanitarian concerns are paramount, external shocks to Hawaii altered the forecast in recent decades.”

Brewbaker went on to mention events that have adversely impacted the Hawaii economy in the past were Operation Desert Storm in 1991, the 1995 Kobe earthquake, and the 9/11 terror attacks in 2001, as well as biological events such as SARS in 2003 and the H1N1-A virus in 2009.

Brewbaker also commented in his statement that even with recent growth in visitor numbers, other national and international situations, besides the events in Japan could cause estimates to decrease even further, i.e. geopolitical events in North Africa, rising petroleum prices, and expected interest rate increases,

Council members were encouraged that two of the most important “core” components of Hawaii General Fund Revenues continued to grow at a pace consistent with economic recovery and a transition to economic expansion. Collections of General Excise and Use Taxes, and Withholding Taxes on Wages grew at rates of more than 5 percent, on a cumulative basis, during the first half of the current fiscal year. Growth performance of these core components appeared similarly robust in the early weeks of calendar 2011.

The Council on Revenues also raised its revenue growth forecast for FY 2012 from 10.0 percent to 11.0 percent. The growth rates for FY 2013 through FY 2017 remained the same as the previous forecast at 6.0 percent.