Finance Committee on March 25th, 2009

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you, Mr. Page and your colleagues, for appearing here today.

If Mr. McCallum can talk about his party, I might remind him that it was actually the Conservative Party that established this position in budget 2006 because we saw a need for it, and we maintain that, despite what you might hear from the suggestions otherwise. This is very important; it's critical, and even more so in these economic times we're facing. And the more information members of Parliament can get, the better job they will be able to do in representing their constituents. So we applaud your work.

There was some discussion here--and you referred to it as well in answering Mr. McCallum's question--about actually tracking how the money is going out. We have a website that will explain where and how the money flows, so it will be.... We have a website on what's going on and how our goals are being achieved in Afghanistan. I pushed hard for that. The minister thought it was a great idea, and we now have a website to follow that and follow where the money is going. So we are being accountable, and we think that's very important.

Just after your last appearance we were wondering about making sure that you got the information you requested. I put in a request to the finance department just to make sure. I had suggested that I thought you had received all the information you had requested, and at that time they said there were no further outstanding requests. I understand there is one now that hasn't been fulfilled, but there is still the question mark about cabinet confidentiality. So just for your information, whatever isn't under cabinet confidentiality will be coming.

In your March 11 report you made some comments using GDI numbers rather than GDP numbers. Could I get you to explain why you used those numbers in comparing Canada and the U.S.? You said that in the fourth quarter real GDP, the level a year ago provides a better reflection of recent trend growth, and you suggested similar performances in the two economies. As a little bit of editorializing, if I can make a comment, you said that the GDI numbers were plunging--I'm not sure if an economist needs to use that harsh language, but that's your decision--15.3%, ten times more than in the U.S.

That is a pretty strong suggestion, given the fact that our GDP numbers don't reflect that. May I ask why you used GDI numbers in that report, and in this one you seem to go back to the GDP numbers? Can you explain the difference as it's reflected in the strength of our economy? We're projecting to come out of this 30% debt-to-GDP ratio, and the Americans, arguably, aren't far short of 100%. That's a huge difference. Yet your GDI numbers are showing something different. Can you explain that to me?

[Kevin Page]

Sure. I'll address your earlier points about the websites and the information request and then I'll talk about the economic question.

First, I think the government should be applauded for the kind of transparency that we saw in the first trimester report, and particularly on the aspect of the report that went through and showed how the authorities are being updated so the money could flow. I don't think the government was really in a position to go beyond that because authorities were just being put in place, but there's some complimentary language in our reports today about that level of transparency and that level of detail.

For us, from the point of view of setting the standard, if we can maintain that standard as we move forward and we're showing the money flowing on a program-by-program level basis at that level of detail--the point Mr. McCallum raised--I think that would actually go a long way to satisfying everybody. Probably it would really be a best practice internationally in the world today. So what we've highlighted today are some potential information gaps. I think they're normal. They're information gaps not in the sense that we expect them to be in a first report but in terms of the second report. We didn't really see the indicators that you'll be using to assess either the flow of the money or the impact assessment of those programs once in place, what they're intended to achieve, but I'm sure that hopefully they will be in the next report. So we're just putting a marker down.

In terms of information requested of the Department of Finance, sir, thank you again for your support. We still have not received.... We have made repeated requests. When we provide these economic provisions and do our analysis, we make them available to you. And most of us here and certainly on this side of the table all spent many years at the Department of Finance. In fact, with me I have two of the senior directors of forecasting at the Department of Finance, Mostafa Askari and Chris Matier. But we still have not got back the information we requested. We're familiar with what is cabinet confidence and what is not cabinet confidence. The information we want has actually been published in the past and was actually made available to private sector forecasters so they can do their work. We just want that same ability to have that same information. I made that point to Mr. Rob Wright yesterday, the Deputy Minister of Finance.

Sir, I want to respond to the economic point that you raised, why did we look at GDI and GDP, and are we moving away from it today in today's report. But first, I think more importantly, there's the issue of why look at different measures. I think what we tried to do in the March 11 report is provide a broader perspective on what was happening in the fourth quarter from different perspectives. So we provided the numbers on GDP. We showed the 3.5% decline roughly on a quarter-to-quarter basis. We showed the decline in nominal GDP, which is an over-double-digit decline on a quarter-to-quarter basis in the fourth quarter. We showed the decline in gross domestic income, which really is a measure of income that takes an account of commodity price changes really through the terms of trade, which is a measure StatsCan releases, and it's released by the statistical agencies in the United States. So we gave you three indicators and we provided them all. We wanted to give a more comprehensive view. We compared that both when you look at the quarter and when you annualize and when you look at the trends over the past year. So it's very backward-looking. There is no forecast involved in that kind of perspective.

Early in 2008, when the Canadian economy's output numbers were sagging a little bit, a lot of economists were looking at gross domestic income because they were saying that because of the high dollar and commodity prices staying high.... We were flagging that, saying this is a positive thing: it was supporting tax bases; it was supporting purchasing power. But what happened, and I think most Canadians have witnessed it, was the plunge in commodity prices, the plunge in oil prices and other commodities as well. That is reflected very much and is really picked up in that gross domestic income figure. But we wanted people to see what that looks like both from a quarter-to-quarter perspective and when you looked over the past year from a year-over-year perspective. So we made those numbers available to provide a broader perspective.

So in regard to purchasing power, because Canadians benefit so much by commodity prices, we wanted to give that broader perspective. We provide in our information, our presentation today, both--

[The Chair, Conservative, James Rajotte]

Mr. Page, could you just wrap up very briefly? Mr. Menzies' time is up.

[Kevin Page]

Information for all those measures has been provided again today, sir. So we're providing measures for the first half of the year, GDP, GNP, and GDI, gross domestic income, on a real basis.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chairman, first, as always, it's a pleasure for me to welcome Mr. Page. It is a commonplace to say “your humble servant”, but not only is Mr. Page an extraordinary servant of this House, he also always presents matters in a disarmingly simple manner, and that is of enormous help to us in navigating this maze of economic difficulties.

I want to say how happy I was a little earlier to hear my colleague Mr. McCallum clarify—I'm going to be charitable—the successive remarks of his colleagues and say that they were not always very clear with respect to the Liberal Party's intentions concerning Mr. Page's office. So I'm delighted to know their new intentions. I find it a little more difficult to decode the government's message because Mr. McCallum said that he was not sure that the three opposition parties together could impose the necessary $2.7 million so the office can continue to operate. But I am certain of one thing: the four parties together can. So it remains to be determined whether our feeling that what was supposed to be the parliamentary librarian's spontaneous reaction, to try to strangle the Office of the Parliamentary Budget Officer, was in fact something that was done with a smile and the active or passive participation of the government party. Whatever the case may be, that doesn't prevent them from supporting us in our request.

Mr. Chairman, I'm going to explain to you why the situation is so difficult for everyone. Technically, there is undoubtedly no mistake, but today our agenda states that our first witness is the Library of Parliament. Formally, that is correct, in accordance with the structures of the Parliament of Canada: the first witness is the Library of Parliament, and it states the names of the persons here present today.

Next to you are two extraordinary associates, who are always there for you and for whom I have nothing but praise. But they are also employees of the Library of Parliament. So let's consider the absurdity of the situation. I have in my hand information prepared for the House of Commons Standing Committee on Finance by the Parliamentary Information and Research Service. What do we find in it? We find a series of suggested questions; these are the terms they use. So the Library of Parliament, through its employees, all equally competent, suggest to parliamentary committee members questions to ask their colleagues. I emphasize that they are colleagues, that they have the same employer. Clearly something is not right here.

I refer to the remarks by Mr. Wallace and Mr. Menzies, who recalled, a little earlier and very rightly so, that it is the Conservatives who have not only the responsibility, but also the merit of having created the position of parliamentary budget officer. Today we heard in the House of Commons that, when the Prime Minister was leader of the opposition, he said that obeying the will of Parliament was a moral issue. He was reminded of that because, two weeks ago, Parliament adopted a number of requests concerning employment insurance with respect to which the Prime Minister—that same individual who was leader of the opposition at the time—refuses to obey the will of Parliament. So the question is whether it is a matter of successive or actual morality. In the coming weeks, time will tell. I want to recall that the Library's Standing Joint Committee will be meeting tomorrow. That's a happy coincidence. We'll be there. I hope the official opposition will act on the good intentions announced a little earlier by our friend Mr. McCallum.

I wanted to ask Mr. Page a technical question. I wanted to know whether the new figures on the deficit, the forecasts that have just been received, and that are indeed quite alarming, include increased employment insurance costs. That isn't clear in my mind, but my impression is that they are not.

[Kevin Page]

First I'll answer the questions, then perhaps Mr. Askari and Mr. Matier can add information.

For the numbers that were released today we did not, as we said, have time to do a model-based fiscal projection based on the changed economic numbers, so we used sensitivities. We have detailed sensitivities that we can look at: if the unemployment rate changes, or if GNP changes, what the impact on unemployment insurance is, or what the impact is on tax bases. We have used those sensitivities.

Primarily in the numbers that we've used.... Higher numbers were reported today, but we're looking at a deficit for 2009 of roughly, we're saying, $38 billion, compared with roughly $34 billion for budget 2009, so it's roughly $4 billion or $5 billion higher. It's pretty much the same thing for 2008. This difference primarily reflects the lower GNP numbers, which is the broadest measure we have of income to support the tax base.

What we've noted here today is that we're looking at a much weaker labour market—as you've noted today, sir. Our unemployment rate on average is going to be about a full percentage point higher for 2009. According to the private sector forecasters, we're seeing employment, which in the budget forecast was down about 0.5% in 2009, down now about 2% on a year-over-year basis in 2009.

I'll ask Mostafa and Chris whether or not there's some upside risk to the deficit numbers we presented here as a result of the fact that we have not done a full model-based scenario, particularly related to the issue of a weaker labour market.

[Mostafa Askari, Assistant Parliamentary Budget Officer, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

I think I would just confirm what Mr. Page said. We used the sensitivity numbers, which should reflect—

[Thomas Mulcair, NDP, Outremont, QC]

The higher EI?

[Mostafa Askari]

—all the shocks to the system. This is not a detailed forecast; this is just applying a rule that the Department of Finance has provided. If we were to do a full fiscal projection, the numbers probably would have been somewhat different.

[Thomas Mulcair, NDP, Outremont, QC]

In closing, Mr. Chairman, I wish to express again our full confidence in the institution of the parliamentary budget officer and the individuals here present.

I wish to remind the parliamentary librarian of Parliament's clear will. We often talk about the letter of the law, but we must also consider the spirit. It is true that we had to determine where to fit this new institution, and that was assigned to him. And I'm choosing my words carefully: we put our confidence in him by treating him with all due respect. This is an instrument that enables parliamentarians to do their work better. I often have occasion to take people to the Library of Parliament. I find that our librarian does a very good job taking care of his maps, drawings, sketches and books. However, he must understand that this is a matter of trust. He is not the director of the budget officer. The budget officer is doing a public job and must have the independence and the necessary budget to perform the role assigned to him by the unanimous will of Parliament.

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Mulcair.

We'll go now to Mr. McKay, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

Thank you, witnesses.

I certainly would be one to support the transfer of Mr. Mulcair to the Library of Parliament committee.

[Some hon. members]

Oh, oh!

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm sure Mr. Page would feel much more secure in his desire to improve his budgetary prospects.

Usually there's a rule of thumb with respect to nominal GDP. The government's revenues fall according to nominal GDP. What kind of rule of thumb applies to a one-percent drop in nominal GDP?

[Kevin Page]

We don't have that handy, but we'll get you the number very shortly.

Let me add that in what we have presented in our tables today on nominal GDP we've both shown the percentage changes, shown what was put in quite wisely by the government—a prudence factor, which we've identified—and shown it in absolute dollar terms in our budgetary table. So you can see the absolute figure and will see that it's roughly $30 billion lower for 2009 and roughly the same amount for 2010. The effective tax rate on that is about 15%, in terms of its impact on revenues overall.

In terms of the elasticity, Chris will comment.

[Chris Matier, Senior Advisor, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer, Library of Parliament]

The sensitivities provided in budget 2009 are on pages 232 and 233. To take a rough approximation, if they were equivalent reductions in the volume and on the price side, as a simple average you'd probably end up with something around $2 billion in the first year for a 1% decline in nominal GDP. But the composition of that reduction matters crucially. If the reduction stemmed entirely from a reduction in real GDP, the impact would be probably around $3 billion or $3.5 billion. It's crucial to know what's driving the reduction in nominal GDP.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So you're projecting, at least in that quarter, something on the order of a 15% reduction in nominal GDP. It's not the same going forward, but that's enormous.

[Kevin Page]

Actually, no, it's not. The average number of nominal GDP, I think, is a 4.4% decline for 2009—isn't it, Chris?

[Chris Matier]

Yes. It's almost a $30 billion decline in the first year, and about $35 billion in the level of nominal GDP in the next year. That's slide 15 in our presentation.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Slide 15, yes; I'm looking at it. You have $38 billion in 2009-10 and $35 billion in 2010-11.

One thing that has always concerned me is that when you see the unemployment rate accelerating and the level of employment decelerating, you get a double-whammy effect: you have a citizen who's no longer contributing taxes and you have a citizen who's drawing, in some cases at least, EI. Have you calculated into your revenue projections that double-whammy effect?

[Chris Matier]

I would hesitate to call them projections, because these are using not our own fiscal sensitivities, and this really isn't a new projection, but just a rough calculation to provide an idea of how things would be compared with budget 2009. The fiscal sensitivities that Finance Canada provides would directly and indirectly capture those impacts, from the labour market.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm a little lost on the to-ing and fro-ing with the Department of Finance. Are you getting that data in a timely fashion?

[Chris Matier]

We are not being provided with the underlying details of the projections in the budget that would correspond to, let's say, the level of employment. The unemployment rate is being provided, but key variables, such as corporate profits and wages and salaries, which matter crucially for tax revenues, have not been provided to date. And that's exactly the type of information that we would use.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So even the numbers—