Intergenerational Report misses opportunity to lay groundwork for Tax White Paper

Instead, a better way to deal with this problem would be to present options for personal tax, such as no indexation of thresholds, indexation to inflation or indexation to wages; and the IGR could argue which of these options seems more reasonable. If tax thresholds aren’t indexed, the Budget position could be in surplus, while if thresholds are indexed to wages it could be in a much larger deficit. But we don’t know for sure.

Making these assumptions is not ideal (in every other significant area of the Budget, the IGR assumes no policy change). But it is better for assumptions to occur transparently rather than obscurely in an assumption about all tax revenue, and to present options so that readers can make their own judgement. And it is better for there to be assumptions for some of revenue rather than all of it.

Separate modelling of each major item of tax revenue will significantly improve the IGR. It will facilitate a better discussion of the actual future budget position, improve the coherence of the IGR and enable much more detailed modelling on the factors affecting the Budget and the impact of the Budget on demographic groups. It would lay a better groundwork for the Tax White Paper.

Tax is the real issue missing from the IGR.