The Hawaii Council on Revenues upgraded its tax revenue forecast for the current fiscal year to 14.5 percent growth from 11 percent, despite sluggish job growth and “tremendous uncertainty” with the U.S. economy.

The group said its forecast is made up of three parts: pure economic growth; lingering effects from last year’s tax refund delay; and impacts from new tax laws that took effect in July.

The group decided Tuesday on an underlying economic growth forecast of 5.2 percent for the current fiscal year. That compares to a negative 0.9 percent growth for the fiscal year that ended June 30.

Another 4.3 percent of the growth forecast is attributed to the lingering effect of delaying tax refunds in July 2010.

The remaining 5 percent of the forecast is tied to tax law changes made by the Hawaii Legislature earlier this year.

By law, the council’s forecasts of general fund revenue have to be considered by lawmakers and the governor in determining state spending.

“I don’t want people thinking we’re in a robust economy,” cautioned council member Jack Suyderhoud.

Council member Carl Bonham said there’s a “tremendous amount of uncertainty” surrounding the impact of the tax changes, as well as a “tremendous amount of uncertainty of the underlying economy.”

Citing little job growth and high unemployment, Bonham added: “Even if Hawaii and the U.S. don’t go into a recession in the next five years, for the next several years it will feel like we’re in a recession.”

The council slashed tax revenue estimates lawmakers are hoping to achieve over the next two fiscal years to pay for the state’s budget. Legislators came up with ways to generate about $600 million in new tax revenue over that time period. Previous estimates had pinned that growth alone at about 7.2 percent in fiscal 2012.

The biggest of those moves includes suspending GET exemptions for some businesses, eliminating income tax deductions for high-income earners, diverting a portion of rental car surcharges and capping the amount of the Transient Accommodations Tax that counties receive.

The group estimates that the state will only see about $200 million of the estimated $312 million in anticipated new tax revenues this year. They have the most doubts about estimates for the GET exemptions, and decided to lower the expected extra revenue to just $50 million from the $170 million lawmakers are hoping to achieve.

The council adjusted lower its forecast for future fiscal years. The group is estimating 6.5 percent growth in 2013, 3 percent in 2014 and 5 percent from 2015 on.

About the Author