You have one minute, Mr. Menzies.
Evidence of meeting #2 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was 2009.
A recording is available from Parliament.
Evidence of meeting #2 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was 2009.
A recording is available from Parliament.
9:35 a.m.
Conservative
Ted Menzies Conservative Macleod, AB
On page 3 in the second paragraph I think it underscores exactly what you're saying: “The adjustment for risk may be insufficient for budget planning over the medium term” and, at the end of that paragraph, “overly optimistic”.
In your work here you are factoring in the involvement of the provinces, and I tend to think that's a huge component of this. The IMF talked about all levels of government working together, and we've seen the provinces all come forward and say they're going to be part of this; they're going to help. Municipalities are saying the same thing. Do we not have to look at that as an overall package to help Canadians at all levels of government?
9:35 a.m.
Parliamentary Budget Officer, Library of Parliament
It's absolutely the way to look at it, and to look at the contributions of all governments and track their contributions toward the creation of the stimulus package so that all parliamentarians can monitor that implementation. We're effectively implementing the federal budget, but because of the leverage with the provinces we need to kind of track it on a provincial basis as well.
9:35 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you, Mr. Menzies.
We'll go to Mr. Mulcair for seven minutes.
9:35 a.m.
NDP
Thomas Mulcair NDP Outremont, QC
Thank you, Mr. Chair.
Mr. Page, it's a pleasure to see you again. I thank you for the extraordinary work you do. Like all of my colleagues who have spoken before me, I want to assure you that my party, the New Democratic Party, will provide constant support to your office. We will be taking different measures to make sure that you have the necessary resources to operate and that you will never be interfered with, muzzled, or even punished for carrying out your work. We will wait to see, following the government's fine words, if they will put their money where their mouth is. I'm not convinced that it isn't to the government's advantage to deploy different methods to keep you quiet. Later on, I will be asking a few questions on that, but I just wanted to tell you that the NDP will do everything to make sure that you are always protected in your role.
I would like to refer to page 2 of the French version of your statement. I will ask you to provide us with a breakdown of the $8 billion. Earlier, in one of your answers, you spoke of 2% to 2.5% of GDP as an indicator of all of the measures contained in Budget 2009 to stimulate the economy. The government says it is 1.9%. The NDP, alongside the economists we worked with, estimates the figure to be less than 1%, more in the order of 0.7%.
I want to refer to two points on page 2, to make sure that we are on the same wavelength.
The second point on the top of the page reads: “The government's status quo fiscal track also continues to include just under $8 billion in yet-to-be-determined fiscal savings and gains from the sale of assets.” This is purely hypothetical. It has yet to be determined how the savings will be made and the assets that will be sold. That, we agree upon. So we can agree upon the first sum of $8 billion.
However, further on, in the first long paragraph on page 2, it says: “The PBO views the Budget 2009 $39.9 billion [...]” and under the first point just beneath that paragraph, one reads the following: “Adjusting for restraint measures and maintaining current EI premium rates in 2009 and 2010, PBO estimates that the total “net” stimulus could be about 20% smaller (at $3.8 billion).”
In two instances, the amount of $8 billion is questioned. There's the $8 billion that I've just mentioned, and that you spoke of, but there is also another $8 billion that is purely hypothetical. Can we agree on that?
9:40 a.m.
Parliamentary Budget Officer, Library of Parliament
Thank you, Mr. Mulcair, for your support as well as for your very technical question.
May I answer in English?
9:40 a.m.
Parliamentary Budget Officer, Library of Parliament
Merci.
The parliamentary budget office raised some questions following the economic and fiscal statement about the transparency of certain measures that were introduced. There were some contractionary measures introduced by the government in its fall statement.
Specifically as you related to, sir, about savings from.... Actually, they were savings related to higher lapses, savings related to future strategic reviews, savings related to potential assets sales. We had asked for additional information from the Department of Finance and the Privy Council Office. I think effectively what we were told in that response was that with regard to those measures, those processes were under way. They haven't completed those processes. They're not in a position to give us information at this point in time as to why they're adjusting the fiscal framework for those measures.
I think the message we provided to those officials, which I'm happy to release here today, is that if the fiscal framework is adjusted, then it is important, it's incumbent upon our office, the parliamentary budget office, to know why the fiscal framework is being adjusted. We saw in budget 2009 some additional information about how the savings will be achieved on strategic reviews, but we did not get the other additional information. There are figures, as you say, upwards of $8 billion that we still don't have details on.
With respect to how we're handling the potential impact of employment insurance premiums when we look at fiscal stimulus, we've raised an objection in our paper--or not an objection, per se, but just an issue in terms of stimulus.
Again, we look at the $40 billion rough estimate for stimulus as being a gross measure. We looked at some of these contractionary measures that were actually introduced in the fall, and we're saying you need to net those out of your gross stimulus, because they're actually going to have an effect. You start cutting departments and you effectively will be cutting compensation as well. You're taking stimulus out of the economy.
Then on the employment insurance side, basically, we have an act. It's an act of Parliament. That means we'll keep the revenues and expenditures balanced on a year-by-year basis. This really gets to your point about the second $8 billion. The government has basically assumed that what counts as stimulus is the fact that we will not be increasing premium rates in 2010, as part of its stimulus package.
9:40 a.m.
Parliamentary Budget Officer, Library of Parliament
Our assumption is that this would be effectively negating a tax increase. So by holding premium rates constant, which the government is doing.... And we actually support that. We think it's a wise measure to do at the time, so we're not against the measure, but we think it's an amount of money that's there that shouldn't be counted as stimulus. You're just holding the premium rates constant.
So we're highlighting that, and when you add those two together, sir, you're quite correct, you reduce the gross estimate of federal stimulus from about $40 billion to about $32 billion. The two together, over the 2009-10 and 2010-11 period, is about 20%.
9:40 a.m.
NDP
Thomas Mulcair NDP Outremont, QC
Under the terms of the act, your office is supposed to have access in a timely and guaranteed fashion, to all economic and fiscal data. According to your website, you have made four requests to deputy ministers to provide you with information.
Did you obtain the information you were looking for from these people? Under the provisions of the Parliament Act of Canada, the Parliamentary Librarian has already written that your office would need $2.7 million to operate properly. Will you be receiving that amount?
9:45 a.m.
Parliamentary Budget Officer, Library of Parliament
Very briefly, then, the parliamentary budget office was planning on a budget of $2.7 million for 2009-10. It's very important that we get the original planned money. Our understanding is that this money has been set aside in the fiscal framework. Particularly in a time period when you're going to need oversight support, the kind of support we're providing now, it's important that this budget be confirmed.
Thank you very much for the question.
9:45 a.m.
Conservative
9:45 a.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Thank you, Mr. Page, for your presentation.
I echo Mr. Menzies' comments that it behoves us all to be fairly humble about projections these days. I had the Library of Parliament run what the economists said in January of 2008 versus what actually happened over the course of 2008, and in the last quarter the variation was between a 4% and 5% error. That's an enormous amount of money, $50 billion to $60 billion or so.
The whole concept of stimulus is all the rage these days. It seems to me that all kinds of things get dumped into the idea of stimulus. There seems to be real stimulus and then there seems to be faux stimulus. There's a ranking for the productivity of a tax relief--generally corporate, goes to personal, goes to consumption--in terms of its multiplier effects for the economy. Is there a similar ranking, agreed upon among economists, as to the quality of stimulative effects and how they compare--for instance, the stimulative effect of tax relief versus other forms of what is being called stimulant?
So just as a general question, are all the things that are called stimulus in fact stimulative to the economy?
9:45 a.m.
Parliamentary Budget Officer, Library of Parliament
That's a very good question, and obviously a very timely question, because as you said, governments around the world are looking at stimulus packages now and there seems to be a broad consensus. What Canada is doing now, and as is noted in the budget, is very consistent with what the International Monetary Fund is asking both in terms of size of package and actually, in some cases, even on a principal basis: timely, temporary, targeted, and diversified. So I think the government is trying to follow best practices in that sense.
In terms of the more analytical question about looking at what's behind various—economists use these terms—multiplier-style effects, whether it's on the tax side or on the expenditure side, often those measures are created using econometric models, using past experience. You're almost right there, so you need to throw a flag up. When you look at those relative multipliers, which are actually highlighted in annex 1 of the budget, there is full transparency from the point of view of the finance projections, but they are based on past experience.
As you noted, sir, as well, in 2008, which was an incredible year—actually we've never seen a year quite like this before—no one predicted that we would have some of the banking failures that we saw in the United States in the fall of 2008. So we're in a different environment right now.
But again, as to what's behind the stimulus measures on the revenue side, most economists are looking at the incentive effects and leakage effects. By incentive effects, is it money that will actually stimulate demand, not just in dollars that are put back into the economy but stimulate future demand? If you reduce capital taxes, for example, it may encourage future investments, which will stimulate productivity.
9:45 a.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
And on the expenditure side, which is what I'm kind of driving the question towards, what is the stimulative effect, for instance, of a direct investment in infrastructure such as roads, and so on, versus the stimulative effect of putting some money into a university? Is there econometric modelling for that?
9:45 a.m.
Parliamentary Budget Officer, Library of Parliament
In terms of the multiplier, I'm going to start the question and then ask either Chris or Mostafa to help me with the answer.
The rankings show that you tend to get more bang for your bucks, so to speak, if you put it in infrastructure-style investments, because they will create future productivity enhancements, for the most part. So in the examples you proposed, whether it's infrastructure-style urban roads transfers versus schools, both have long-term kinds of effects, productivity effects. Both are expected to have a multiplier greater than one. The numbers that are shown in the Department of Finance are in the 1.5 range.
We also have automatic stabilizers. Employment insurance is an example of an automatic stabilizer. When the economy weakens, people have the benefit of these programs.
It's pretty much guaranteed that people who find themselves unemployed are going to be using that money, so at a minimum we know that it's going to be replacing it one for one. But you don't get the long-term stimulative kind of effect that will give you a multiplier higher than one.
Chris and Mostafa, would you like to add to that?
9:50 a.m.
Conservative
February 5th, 2009 / 9:50 a.m.
Mostafa Askari Assistant Parliamentary Budget Officer, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer, Library of Parliament
I have just one quick point on construction and infrastructure. Typically, because there is less leakage—most of the money is spent domestically—it normally has a higher multiplier than some other spending. In terms of spending on universities, essentially the difference is that the effects of that may come over a longer period rather than the short term.