Finance Committee on March 25th, 2009

[Sahir Khan, Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

When we look at asset divestiture, the reason additional information is useful is that there is a time lag when you are looking to present for sale and are examining the market opportunities for these assets. As Mr. Page said, this is part of the challenge of trying to book these revenues in the fiscal framework before clear identification.

We have requested that the government provide some of these details. Not everything can be provided, because there are confidential elements to these transactions. However, we are able to look at these things in confidence and provide parliamentarians with some sense of the yield there might be, from a consolidated revenue fund standpoint.

Your point is correct, in that there are time lags to implementation. Particularly when you're looking at having them apply in a particular fiscal year, having more information about the nature of the asset and the potential transaction process could be useful to identify when the benefit might hit the fiscal framework.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I appreciate the concern about confidentiality, but we were told yesterday it was not a question of.... That was not raised. It was quite bluntly said: we don't know what those assets are; we have not undertaken a review of what they might possibly be.

As a more blunt way of asking, is it realistic for the government to have booked $2 billion worth of revenue on asset sales in 2009-10, given your knowledge of the current government's finances and the budget?

[Kevin Page]

We need a list, but I would think, based on what we know now and just from the nature of disposition, that it doesn't sound very realistic. There is a high risk that it would be hard for it to materialize.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Kramp, please.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

Good afternoon, gentlemen.

I'm looking at your prepared text, Mr. Page, where you talked about the effectiveness of this government's operating of the economic package. Let me quote you from page 4, where you say:

...but let me be clear, this statement on its own does not necessarily imply that more stimulus is required. As a small open economy, Canada’s recovery depends not only on the actions policymakers are taking to provide accommodative fiscal and monetary policies, but also depends crucially on global economic and fiscal developments.

You say, “Indeed, no reasonable assessment can be made until these measures have been implemented and more time has passed”.

I would like to refer, just for a comparative thought that you might offer here, to a comment from a recent IMF report, which states that the IMF “supports the large, timely, and well-targeted fiscal stimulus in Budget 2009”. It states:

The stimulus package is appropriately sized—well above the Fund’s benchmark of 2 percent of GDP. It is also prudently based on a worse economic outturn than private sector forecasts. With sizeable infrastructure spending and permanent tax cuts, it is weighted toward items that are most effective in stimulating demand. Its steps to boost the safety net will protect Canada’s most vulnerable, and training enhancements will facilitate reallocation of displaced workers...The mission also welcomes the move to cut external tariffs, which is in line with Canada’s long-standing commitment to trade liberalization and openness.

It finishes off by stating:

The IMF supports the strong fiscal package announced in January, which was large, timely, and well targeted, and it will buoy demand during the downturn. The focus now is appropriately on implementing that package.

With your comment and now the comments from the IMF, my question to you is.... As you've stated as well, it really is just a little too early to comment on the effectiveness of the government's stimulus action for 2009. Isn't is reasonable to take either some solace or some comfort in the statements from the IMF that they have placed on Canada's economic situation right now? In other words, don't you feel there is at least a little cause for optimism, or a level of confidence, or a level of hope?

[Kevin Page]

Absolutely. I think our comments and the comments of the IMF are similar with respect to the stimulus nature of the package that was put forward.

Again, I think the IMF report was a very glowing report on Canada's situation relative to other countries. What we also see in the IMF report as well, though, and again in a global context, is that the global economy is much weaker and the U.S. economy is much weaker. Canada will be impacted by that. As we've noted in the report, it was wise that the government added additional prudence for 2009 and 2010 in the budget projections. We needed that.

Effectively, what we've seen today, consistent with the IMF's new global update, which is a contraction, a recession, in 2009 globally, is that we've used up that prudence. In fact, we've gone beyond the prudence in the numbers. I think it's fair to say, and even the IMF would say it, that because of the global situation there's even greater downside economic risk. But the policy report from the IMF was very glowing.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

I'm a little bit concerned. Basically, these clichés, like confidence is the essence of all success, attitude is everything, etc.... I'm a little bit concerned about having a self-fulfilling prophecy with the possibility of doom and gloom. I have an interesting quote here from a few years back. This happened to be back in 1985. It states, “Nervous consumers don't make for a strong economic recovery. The solution, we believe, is for the federal government to avoid any panic rhetoric.” It goes on, “Alarmist statements about the federal deficit may be useful for the purposes of frightening the public.” It goes on, of course.

It's not that I want to age someone, but the individual who happened to make those statements, of course, was the current Liberal finance minister, Mr. McCallum.

[The Chair, Conservative, James Rajotte]

Okay. Question, please.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Do we, as parliamentarians, agree with this notion? Do you believe we should use some caution with the alarmist statements at this time?

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Page, please.

[Kevin Page]

It's certainly our mandate to present this sort of economic and fiscal information before you, based on averages of private sector forecasts, and what it means fiscally. That's basically, for the most part, what we're doing. We do talk about risk.

From a policy perspective, in terms of bolstering consumer confidence, what we're hearing as well from the International Monetary Fund, I think, is that we're going to need to deal with this global financial system before our confidence will truly come back in a sustained way. If we can do that, I think confidence will be there, sir.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. McCallum again.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

First, on the economics a little bit, it's somewhat ironic that the government side, when we were discussing this, was wanting to combine your appearance with that of Don Drummond and others, to sort of counterbalance the effect. But I'm not sure they knew what they were asking for, because as I recall, Don Drummond is significantly more pessimistic than you are, and we will be hearing from him tomorrow.

My question is this. If you combine the two years, the budget deficit is approximately $64 billion, and yours is approximately $73 billion. And as I recall, Don Drummond's is $80 billion or more. Yet you have a very negative growth outlook, at least for the current quarter, and also nominal GDP. I seem to recall that for Don Drummond, approximately $1 billion of this year's deficit was because of additional EI payments, and $2 billion next year. I think you've been asked this in certain ways, but I didn't catch the answer, so here is a double question.

Is one of the reasons for the difference between you and Don Drummond the fact that he has included additional EI benefits and you have not? And more generally, given your rather pessimistic growth outlook, why is Don Drummond a lot more pessimistic on the deficit than you are?

[Mostafa Askari]

Just for clarification, Mr. McCallum, the quarterly number we show on slide eight is our own estimate, PBO's estimate, not the basis for the fiscal projections we provided. The fiscal projection we provided in this document is based on private sector average forecasts.

[John McCallum, Liberal, Markham—Unionville, ON]

So if you used your own growth projections, your fiscal deficit would be bigger?

[Mostafa Askari]

It probably would have been worse, but we haven't done a full fiscal projection for the full year. So this is just for us, just the first half of the year. It is based on monitoring of indicators that are available. So if we were to apply this throughout the year, obviously the numbers would be worse than what the private sector average shows.

[John McCallum, Liberal, Markham—Unionville, ON]

You presumably have read the TD analysis. Can you give us an idea in general terms of why your deficit is $73 billion and theirs is $82 billion, I believe?

[Mostafa Askari]

Again, we apply only fiscal sensitivities that we are provided by the Department of Finance, whereas TD has gone, I assume, with full projections based on their assumption about EI, other assumptions in terms of share of corporate profits relative to personal income—the other factors that may affect the fiscal projection. We have not done that in this document.

[John McCallum, Liberal, Markham—Unionville, ON]

Yes, Mr. Page.

[Kevin Page]

Chris, do you have Don's number? He's more pessimistic.

[Chris Matier]

In terms of nominal GDP growth, I think Mr. Drummond's projection for 2009 is in line with what we have. I think it's a decline of 4.4%, but in his projection he's also taking views or changing views on the underlying, let's say, the income composition. So the corporate profits might be quite a bit weaker than he had, whereas when we're using fiscal sensitivities, the underlying assumption is that the reductions are spread across proportionately. So the two.... I'd say it's not a fair comparison to compare a projection versus a shock minus control estimate.

[John McCallum, Liberal, Markham—Unionville, ON]

So in some sense maybe you'd agree that even though we're at the stage of the cycle where corporate profits, which are highly sensitive, are dropping like a stone, his more detailed analysis might make his larger deficit projections closer to the mark. Is that a fair statement?

[Chris Matier]

I would think so. In our presentation we've tried to flag the downside risk to our projections, and I would imagine that if we did do a fully independent projection, based on our monitoring for the first half of the year, we would have significantly lower nominal GDP growth than even Mr. Drummond.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you. He'll be here tomorrow anyway to give aid and comfort to the government, so we'll ask him that question. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

We'll go to Mr. Wallace, please.