Committee
Finance Committee 06 January 2016
06 Jan 2016 · S4 · Finance Committee
Item of business
Draft Budget 2016-17
That is fine. In the section of your report entitled “Improving the Forecasting Process”, you say in paragraph 8.2: “data limitations may place a constraint on the forecasters’ ability to apply more sophisticated methods.” You go on to say: “we are increasingly concerned about the residential LBTT forecasts which still assume no behavioural responses.” There are two issues. The first is whether the availability of data has been improving. That issue has concerned the committee for a number of years. You mentioned the limited span of data on buoyancy for non-domestic rates income. Given that you think that there are issues with the availability of data, what areas should the Scottish Government focus on in improving data availability, where that is possible?
In the same item of business
The Convener
SNP
Let us get the show back on the road. We will now take evidence on the draft budget 2016-17 from the Scottish Fiscal Commission. We are joined by Lady Susan ...
Lady Susan Rice CBE (Scottish Fiscal Commission)
Thank you very much for having us back so soon after our last visit to the committee. On behalf of the commission, I offer you all good wishes for the new ye...
The Convener
SNP
Thank you very much, Lady Rice. Professor Leith, is there anything that you wish to add at this point?
Professor Campbell Leith (Scottish Fiscal Commission)
No, thank you.
The Convener
SNP
The report is excellent and comprehensive. It fulfils the transparency criteria because you have given great detail on all the meetings that you have had, wi...
Lady Rice
There are two aspects to that. The first is the importance of the Best and Kleven work, which Campbell Leith is best equipped to speak to. The other is highl...
Professor Leith
The Best and Kleven paper is an academic paper that looks at the impact on the property market of changing property transaction taxes. It is one of a relativ...
The Convener
SNP
Okay. Thank you for that. Paragraph 3.5 of the report states: “What drove the Commission’s initial concerns is that the current forecasting methods essent...
Professor Leith
The current approach to forecasting residential LBTT revenues is essentially built up from a forecast for house prices and a forecast for transactions, which...
The Convener
SNP
Okay. Thank you for that. In terms of non-domestic rates income, paragraph 5.4 of the SFC report states: “In the forecasting of buoyancy for the 2015-16 D...
Professor Leith
Okay. Last year, the Scottish Government approached the issue of forecasting buoyancy by starting from the long-run average, then it looked at a range of eco...
The Convener
SNP
Thank you for that comprehensive answer. I move on to the additional land and buildings transaction tax, which is new for 2016-17. Paragraph 7.1 of your rep...
Professor Leith
The figures are from the Scottish Government; we are talking through the various adjustments that the Government has made to the underlying forecast. There i...
The Convener
SNP
That is fine. In the section of your report entitled “Improving the Forecasting Process”, you say in paragraph 8.2: “data limitations may place a constrain...
Professor Leith
A number of improvements have been made in data availability through the years. For the buoyancy figures, we now have a longer historical time series, albeit...
The Convener
SNP
You would also like more emphasis on behavioural responses.
Professor Leith
Yes.
Lady Rice
I will add a footnote to what Campbell Leith said. There might be instances in which it is not possible to get data. For example, at the high end of property...
The Convener
SNP
I will now open out the session. The first colleague to ask questions will be John Mason.
John Mason (Glasgow Shettleston) (SNP)
SNP
Thank you for your report, which makes good reading. I picked out a few things on my way through it. Lady Rice mentioned having a protocol. That is referred ...
Lady Rice
I am searching for the right word, which might not be a technical word. The purpose of the protocol is to respond to some conversations that we have had with...
John Mason
SNP
That is helpful. There will probably be an agreement between the commission and the Government, but the protocol will give the commission’s angle on how it v...
Lady Rice
The protocol will set out how we intend to do our work.
Professor Leith
The way in which we develop the protocol will be contingent on the remit that we ultimately get from the Scottish Fiscal Commission Bill and the response to ...
John Mason
SNP
I will come back to that later, but first I will turn to other specifics. Paragraph 3.5 on page 8 of the SFC’s report highlights concerns “that the current ...
Professor Leith
The nuts and bolts of forecasting are about discerning what is going on and discerning whether something is a long-term trend or whether there are just cycli...
John Mason
SNP
If a new trend is starting, surely it is impossible to predict.
Professor Leith
There are techniques for identifying time variation in trends, so people can see that a historical trend no longer applies to the current data releases.
John Mason
SNP
So it is a question of picking up a new trend once it has started.
Professor Leith
It depends. In simple statistical models, techniques can be used that allow people to pick up new trends as they develop. The idea is that turning points are...