Prices stumped forecasts: Treasury bos Treasury secretary Martin Parkinson concedes his department has struggled to keep pace with a "tumultuous" decade for the Australian economy. Addressing an economists' lunch in Sydney, Dr Parkinson said the difficulty Treasury and other economic forecasters had had was predicting the path of global commodity prices, the exchange rate and capital gains. "While our forecasts for the real economy have held up reasonably well, the same can't be said of our price forecasts," he told Australian Business Economists. Dr Parkinson said Treasury's forecasts for employment and wages had been relatively accurate, which meant that for income tax, the largest source of government revenue, they had changed little since last year's budget. However, we have been genuinely surprised by the weakness in prices over the past year. He said a sharper than anticipated fall in the US dollar prices of Australia's commodity exports, the surprisingly persistent strength of the Australian dollar and weaker than anticipated growth in domestic prices had resulted in weaker company profits across all sectors of the economy. Forecasts for 2012/13 tax receipts have been downgraded by $17 billion, with $7.5 billion of that coming from company tax and $3.6 billion from capital gains tax. Dr Parkinson noted the Australian dollar had depreciated over the past week and its trade weighted index was four per cent lower than assumed in the budget. "While welcome, this demonstrates my point, which is that the nominal exchange rate can change significantly over short periods of time and sometimes with no apparent link to a change in fundamentals," he said. In these circumstances, we believe that the best approach is to assume that the exchange rate won't change from its recent average, but highlight future movements as a risk. He also said capital gains tax receipts were expected to recover over the budget's forward estimates, but not to their pre-global financial crisis levels, which reflected a period of strong asset price growth. This was unlikely to be repeated in the foreseeable future, he said. Treasury had undertaken a comprehensive review of forecasts, overseen by an external panel, which had highlighted some positives but had also recommended areas where there could be improvement. "Some of these recommendations have already been acted on in full and those that haven't are well in hand," Dr Parkinson said. The result is continued improvement in the methodological underpinnings of Treasury's forecasts.