Sales Tax Forecast Assumptions – 2023Q2
1 Sales tax revenue growth is expected to be below historical averages for the third and fourth quarters of 2023 and most of 2024. This is due to a number of factors, including reduced consumer demand and a potential recession. While the possibility of a recession should not be ignored, continued low unemployment and tight labor markets indicate that a severe downturn is unlikely.
Our conservative growth forecast is partly due to the following risks and the impacts they may have to consumer confidence and consumer demand/consumption:
• Economics: Inflation, high interest rates, oil price shocks, instability in stock markets, and inverted yield curve impacting investment decisions
• War: Russia/Ukraine, China/Taiwan, and other geopolitical instabilities • Politics: Uncertainty over elections in 2024, changes in leadership and policies • Climate change: Severe weather events and related migrations Sales Tax Forecast Assumptions – 2023Q2
2 CA Taxable Sales of Gasoline and Diesel Assumptions:
• Recent increases in Energy Prices will create some upward pressure on many prices, especially on taxable items shipped by plane, ship, train, truck or auto. • Spending may shift from other taxable purchases like restaurants and retail. • The outlook for California gasoline prices in 2023Q4 is uncertain, but they are expected to remain high. Factors that are contributing to high gas prices in California include:
o High demand: California has the highest demand for gasoline in the United States. o Limited supply: California refines less gasoline than it consumes. o High taxes and fees: Some of the highest gasoline taxes and fees in the country. o Global factors: Global factors such as the war in Ukraine and rising oil prices. o Refinery outages: May reduce the supply of gasoline and drive-up prices. o Weather events: Severe weather events such as hurricanes and wildfires can also disrupt the supply of gasoline and drive-up prices.
o Economic conditions: A recession could lead to lower demand for gasoline. • Electrification of light vehicles is rapidly increasing. Sales Tax Revenues will begin to significantly decline in 2025 and beyond.