(Host) The Legislature’s top economist told key lawmakers Tuesday afternoon that it’s unlikely that the Vermont economy is going to show much of a rebound over the next 18 months. Tom Kavet, who’s chief economist for the Legislature’s Joint Fiscal Committee, is recommending a $5 million reduction in the state’s revenue forecast for the 2004 fiscal year.
Kavet is projecting a small increase in revenues for the current fiscal year because a number of wealthy people have died in recent months boosting the state’s estate tax. Kavet is encouraged that income tax revenues are up by about 4%, but those gains are offset by a dramatic decline in corporate tax receipts:
(Kavet) “This is what precipitated the recession. It wasn’t interest rates rising, it wasn’t consumers retrenching, it wasn’t housing crashing. It was this decline in business spending that precipitated the recession, and you can see what’s happened over the last year, which is absolutely nothing. It’s just dead in the water and until this recovers, until this picks up, the whole economy is on the shoulders of the consumer. And that’s why you’re getting very tepid growth overall.”,/i>
(Host) Kavet believes that consumer confidence is declining as the possibility of a war with Iraq increases and he says this factor could hurt the economy:
(Kavet) “The problem is that consumers are taking on a tremendous amount of debt. It’s been financed in large part by the low interest rates and the refinancing that’s occurred in the housing market. Huge amounts of money have been moved to consumers through that and that’s what’s keeping the economy going. But debt burdens now are over 14%. It’s the highest it’s been in about 20 years and there’s a real question [as] to how long the consumer can hold out if the business sector doesn’t pick up.”
(Host) Despite the projections, Kavet says Vermont’s fiscal condition is the best of all the New England states.