Finance Committee on March 26th, 2009

[Glen Hodgson]

Our forecast is very much driven by an economic model that we run four times a year. We run it every quarter. So we ran it in September, in the middle of the financial crisis. We actually did the reforecasting two weeks later.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But your number is probably going to be closer to the $90 billion?

[Glen Hodgson]

Ninety? Frankly, I can't give you a number because our forecast is not done yet, and of course the forecast is critical for revenue growth for government, assuming that spending is as planned. But it's really all the impact to the revenue side of the slowdown that we're seeing right now in investment across the country.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

The revenue growth is dependent on the economic growth, is it not?

[Glen Hodgson]

Absolutely.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So if you feel that economic growth is not going to increase but actually decrease, and it's at the bottom end, then the revenue growth of the government is going to decrease, meaning a bigger deficit.

[Glen Hodgson]

That's right.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. So--

[Don Drummond]

I'm sorry, but not the way you're postulating it: a lower deficit than the Conference Board would have forecast previously, but their forecast was way above the average before.

I don't know what he's going to lower it to, but you can't imply, as I think you just did, that their forecast of the deficit is going to be higher than the government's. They're higher than mine.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I didn't imply anything. You just--

[Don Drummond]

You don't just add--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Whoa, Mr. Drummond. I didn't imply anything. He said that the economic forecast was going to be even worse, and that meant worse than yours, okay? So we're going to see who has the worst of the worst, but I still think the government deficit is way understated. I think we're headed for a little bit more trouble than anticipated.

But having said that, and seeing how the forecasters or economists have done such a great job, I'm going to give you guys the benefit of the doubt, since we've been hearing that very little money has actually been spent to date. Let's assume this money's going to get spent, whether it's going to be in the next six months or the next twelve months. What happens if the money gets spent correctly? What happens if the money does not get spent correctly? I'll decide what I feel about whether the money will get spent correctly or not from the latest budget, but I want to know what will happen with either outcome.

[Glen Hodgson]

Parliament just approved the budget for next year, which starts in about 10 days' time.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Yes, I know that. What I'm saying is, let's assume the money is going to be spent, whether that's in six months or twelve months. After the money gets spent, what will happen?

[Glen Hodgson]

It'll provide stimulus to the economy.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Will it provide jobs? Will revenues increase for government?

[Glen Hodgson]

Of course. That's the whole point behind a stimulus package. You're adding stimulus of between 1.5% to 2% of GDP, and--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. What happens if the money doesn't get spent properly?

[Glen Hodgson]

Well, the stimulus won't be as great. That's a very simple arithmetic exercise.

We think the government is going to be challenged, frankly, in regard to getting the machinery in place to ensure, for example, that the infrastructure spending happens by summer or early fall. Whether it's $12 billion or $20 billion, when you add the provinces in, it's a challenge to get that new money out the door. We all know that's a challenge.

For example, I spent years of my career grappling with federal and provincial regulators, trying to get them to approve projects faster. You have to go through that whole project identification and approval cycle, and letting contracts and all of that has to happen. That's the challenge a lot of us have had with infrastructure spending, in that notionally it's the right thing to do, because you have very high domestic content and you have a lot of stimulus through it, but actually finding useful things to spend it on is not easy. So that--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's exactly my point.

Mr. Drummond, do you have a feeling?

[The Chair, Conservative, James Rajotte]

Very quickly, Mr. Drummond.

[Don Drummond]

We had estimates in the January 27 budget of what the economic impact would be. In our forecast, we've embedded two differences. First, we don't have the overall impact as large. Secondly, we have the timing quite a bit different. We have much less impact in 2009 and more in 2010.

That's just based on the natural history of this, particularly, as Glen mentioned, on the infrastructure, and particularly for some of the infrastructure, for very good reasons. It's tripartite finance with provinces and municipalities, and it's just not going to start tomorrow. There are lags to that. It's not a criticism of government or the fault of government; that's just the reality. So as for a fair bit of the stimulus that was in the budget referring to 2009, I don't believe it will come until 2010, but it will come, and it's part of the reason we do forecast a return and an economic return to growth in 2010.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So what happens if there's--

[The Chair, Conservative, James Rajotte]

I'm sorry, Mr. Pacetti. We're over time here.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.