Despite increasing signs that Hawaii’s economy is slowing down, there’s one metric that’s exceeding expectations: state tax collections for the 2019 fiscal year, which ends June 30, are predicted to increase by 4.7% over the previous year.

It’s a big upward adjustment by the Hawaii Council on Revenues, a panel of tax experts and economists that provides projections for state officials who craft the budget.

The council had predicted a 3 percent increase, so bumping to 4.7 percent means a lot more money. It’s an increase of about $115 million, to approximately $7.115 billion from just less than the $7 billion the council predicted in March.

Keelikolani Building that houses our State Tax Office.
The Hawaii Department of Taxation, located in the Keelikolani Building on Punchbowl Street, is expected to take in about $115 million more revenue for 2019 than previously expected. Cory Lum/Civil Beat

The problem is the forecast doesn’t mean the council thinks the state’s economy is humming along better than before.

To the contrary, in a letter to Gov. David Ige, the council attributed the new, rosy forecast to a surge in income taxes collected in April, which were higher than expected due to an increase in the state income tax rate for higher income taxpayers.

“This is not some bump in economic activity,” said Tom Yamachika, president of the Tax Foundation of Hawaii, a policy think tank. “It’s that they raised the tax rate.”

Ige has two more controversial bills on his desk that could generate even more revenue if he doesn’t veto them. One measure, which lets platforms like Airbnb serve as tax collector for the state, is projected to raise about $46 million annually, and a bill to tax real estate investment trusts could generate as much as $9 million to $10 million annually.

Carl Bonham, a Council on Revenues member who also directs the University of Hawaii Economic Research Organization, stressed that the council’s upward revision is just for one year.

“The basic view is that the economy has slowed down quite a bit,” he said.

Among the state’s more troubling economic trends is a declining population, which Hawaii has experienced for the past two years, despite a historically low unemployment rate.

“That by itself is going to slow down the growth of the economy” said Jack Syderhoud, an economist who serves on the council

Another troubling trend: It’s taking more and more visitors to generate the same economic benefits. According to data released Thursday by the Hawaii Tourism Authority, visitor spending on Oahu dipped 1.2% to $626.8 million in April despite 8.7% more visitors. The Hawaii Department of Business, Economic Development and Tourism expects Hawaii’s visitor numbers to increase to more than 10.7 million in 2022.

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