Treasury forecasts of company tax revenue: back of the envelope or back to the drawing board?

Abstract

The last decade has seen Treasury make large forecast errors when forecasting company tax receipts. This paper demonstrates the source of those errors: Treasury does not model the actual company tax base but rather estimates growth rates for aggregate measures and then makes ad hoc adjustments to Gross Operating Surplus to estimate taxable income. The consequence of this forecasting strategy is that Treasury does not have a detailed understanding of the company income tax.