Thursday, September 27

Government Finances II - Grovelling Apology

Yesterday I posted on the Government Finances for June. I included the raw monthly data, a 12 month rolling total and a 25-term Henderson moving average. My objective with the latter two was to get an understanding of the trends that might lurk behind a very noisy series.

I suspect I failed. And that I failed badly!

It looks like the noise in the data (and the extraordinary expenses in June) overwhelmed my attempts to discern a trend.

We will start my grovelling apology with the Henderson Moving Average for Company Tax. The first chart is with the data to May 2012. The second chart draws on the data to June 2012 (as published yesterday).



What we are looking at here is all artifact. Sorry about that. Let's look at the same series, but this time using a seasonal decomposition (again with May first then June).



There is still some movement in the trend line between May and June, but this time at least it is not a completely different story. Still, we are not out of the woods. Look at the noise in the seasonally adjusted series.

Even these trends from the seasonal decomposition can be misleading. The next two charts - the first to May, the second to June - compare the trends for total expenses and total revenue.



Which is it? Are we on the verge of a Budget surplus or are the horns of our dilemma growing further apart? What ever the outcome ends up being, it is highly unlikely that the June data will be seen in retrospect as proof of a complete turnaround when it came to balancing the Budget.

As they say in the classics, if you torture the data for long enough, it will tell you anything.

Dear reader, I apologise for subjecting this data to excessive torture.

2 comments:

  1. It seems like you've just presented a great demonstrating of boundary problems, especially when applying any smoothing to the data.

    Moral of the story? Know your data! (Especially how it is collected and manipulated)

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  2. Indeed.

    And it may be a few months before the data settles down. We had exceptional items in the June expenses. We will have new tax arrangements in the July revenue.

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