The composition of GDP can be as important to the fiscal forecast as the headline total, because some components are more ‘tax rich’ than others. A forecast that alters the composition of GDP can therefore have a significant impact on the public finances, even if the path of GDP itself is unchanged.
The income approach to measuring GDP, known as GDP(I), estimates the money earnt – predominantly by households and companies – from total output in the economy. Various elements of household income are key drivers of public sector receipts such as income tax and national insurance contributions (NICs). The single most important element is total wages and salaries earned by employees. Corporate profits are the key driver of corporation tax receipts.