Finance Committee on Nov. 3rd, 2009

[Kevin Page]

We think there is a risk that we could lapse significant amounts of moneys this year, and we would assume that the government would roll that money forward into the next year. If we roll all that money forward, we think you could see some inflationary types of pressures in certain industries, such as the engineering industry and the construction industry, so we have expressed concern that in the context of this risk, the government may wish to explore the timelines for the program, that two-year timeframe for the infrastructure stimulus program.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. McKay, please.

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

Thank you, Mr. Chair.

Thanks to you, Mr. Page, and to your staff.

First of all, I wanted to thank you for your work over the past number of months in very difficult circumstances. We ask a lot of you, and you don't always get the cooperation you should.

I want to focus on fiscal outlook. I'm particularly concerned about the run-up of the accumulated deficit. Even between July and now, the accumulated deficit has gone up by $12 billion. My recollection of these kinds of things is that the farther out you get, the less accurate you become. Generally speaking, projections are pretty solid for a year or two, but after that it starts to run off.

In your projection of the $167 billion over the next five years, I would be concerned that you might actually be low on that number. I'd be interested in your observations.

[Kevin Page]

The projection of the accumulation of debt of $167 billion over this year and the next four years is based on an average private sector forecast. As for all those economic assumptions, we survey about 12 economic forecasters, we provide an average forecast, and we also do our own independent fiscal forecast.

We've said that we think the short-term and medium-term economic risks, and the fiscal risks as well, are on the downside, based on our sense of the uncertainty and risk out there, which we've enumerated in our documents. So in that sense, we would agree with you, sir, that the risks are on the downside. It would be....

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

Yes. The range as you get out gets further and further. Thank you for that.

I'm also concerned about these chronic deficits of $19 billion on an annual basis. It seems to me that when we were running surpluses, there was much joy in the streets when we would get to a $10 billion surplus. Now we're told that a $20 billion chronic deficit is well within our capacity, it fits within our range of GDP, and besides, we're doing way better than other countries.

I'd be interested in whether you see these chronic deficits as really simply not so much a function of the stimulus and the downturn in the economy, but also a function of policy decisions made by this government in its last two or three years.

[Kevin Page]

In our calculations of the structural balance, we say that we thought the federal balances were roughly in balance in 2007-08. As you say, sir, that rises slowly to about $20 billion in 2013-14, or about 1% of GDP.

Our view is that the stimulus in that context is temporary, not structural. For the most part, the $47 billion stimulus for 2009-10 and 2010-11 will end at the end of March 2011, so it's not going to contribute to the structural problem.

However, we are deficit financing the stimulus package, so part of the increase you see in the structural balance going forward is an increase in debt charges, which we'll see going from a little over $30 billion in the current year to closer to $40 billion in 2013-14.

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

Apparently it's all right to pass on that debt and deficit to future generations when just a few months ago it wasn't all right.

I note that if in fact the GST, for instance, had been left where it was when this government came in place, we wouldn't be running a deficit in 2008-09 and we wouldn't be running a deficit in 2013-14. Essentially you would have cut off both ends of this deficit thing.

On the revenue side, there are policy decisions taken by this government that have exaggerated the difficulties in which we find ourselves. What's even more disturbing is that on page 5 of your report you say:

It is important to note, however, that the [direct program spending] component of PBO’s fiscal projections is based entirely on Finance Canada’s forecast. Ideally, PBO would produce an independent projection of departmental expenditures.

So on the revenue side of the equation, you've made your own independent judgment. On the expenditure side of the equation, you're pretty well stuck, on direct program spending, with whatever it is the government tells you.

[Kevin Page]

It's in that context that we asked the Secretary of the Treasury Board for information on departmental reference levels for the current year and going out for the next four years.

We are quite aware that there is a risk we may not see the kind of low spending growth that's inherent in the government's projections right now. You can see direct program spending growing at about 2% in the last two years of the projection period. We've never seen numbers like that. Even in the last four years of the five-year projection you have direct program spending growth at roughly 4%, which is very low.

We've gone through all the major components of spending and we compared growth rates in those projections vis-à-vis the past 5, 10, 15, and 20 years, so we're quite aware that achieving that spending growth target will be difficult.

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chair. I will be splitting my time with Mr. Roy.

I would like to quickly get back to the issue of your budget, Mr. Page. It would seem to me that members of the Standing Joint Committee on the Library of Parliament, who are responsible for your mandate and your budget, had unanimously voted in favour of having it raised. I would like to know whether, according to you, the Speaker of the Senate, the Speaker of the House of Commons or the Parliamentary Librarian may be holding up your budget increase.

[Kevin Page]

The Speakers of the Senate and of the House of Commons are responsible for the management and oversight of the Library of Parliament. However, as I said, I am still waiting to see whether our budget will be the same as what we expected. That would mean a budget of $2.8 million. I am waiting for that information.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

Mr. Roy, go ahead.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Laforest.

You refer to future estimates. You refer to government revenue estimates and to the aging population, which could have a major impact on future government revenues.

You said that 395,000 jobs have been lost over the last two years. These were very well-paying jobs in the manufacturing sector. At this point, the majority of jobs created in Canada pay far less than those of the manufacturing sector, and they are often part-time positions. So, the tax rate and government revenues would certainly be less than they would be had the 395,000 well-paid jobs in the manufacturing sector been kept. Indeed, those people would be paying higher taxes.

Today, we are seeing—and economists are telling us so—that the jobs that are being created do not pay as well. It seems as though we would have to live with an increase in these types of jobs and a continued drop in well-paying manufacturing sector jobs.

Are you able to tell us whether government revenues over the next few years, based on personal income tax rates, will increase or whether, on the contrary, they will continue to drop? In my opinion, the more well-paid jobs lost, the less taxes collected, that is obvious. If you replace 395,000 jobs or one million well-paid jobs by one million jobs at a lower tax rate, it makes a huge difference to revenue.

[Kevin Page]

I thank you for your question. Clearly, the recession has a major effect on the manufacturing sector in terms of production as well as job numbers.

There has been a lot of research done, not only in Canada but in other countries, on when you have these difficult recessions. I think it's fair to say that at least on a world basis this is the most difficult recession we've had since the Great Depression. It has had a hard impact on Canadians, unfortunately, and particularly in this recession on our manufacturing sector, where you see jobs down by almost 10%.

That has an impact when you have capacity utilization rates in the industrial sector that are less than 70%. You're not working anywhere near capacity for a period of time. That's one of the reasons why our output gap is so deep. It will take a number of years--until 2013--for it to come back. Because it will take time.

In terms of bringing back those jobs and the quality of jobs, that will be a struggle. Even in most projections of the economists, you will not see the unemployment rate come down to a structural level of 6% to 6.5% beyond the medium term. That is not necessarily very abnormal for recessionary experiences.

We are looking at premium rate increases under the employment insurance program. In our assumptions, as noted in our study, we assume that after the first two years there will be increases of 15¢ for each year, so we're really talking about a 60¢ increase out to 2014. That will amount to roughly $700 per job, which is significant. That is simply the way the legislation has been written right now, but it is something to be mindful of as well.

[The Chair, Conservative, James Rajotte]

Vous avez trente secondes, monsieur Roy.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thirty seconds is not enough.

[The Chair, Conservative, James Rajotte]

Merci, monsieur Roy.

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

Thank you, Mr. Page, for being here today.

Mr. Khan, it's nice to see you again. You've been in my office lately.

Before I get to your report, I have a question regarding Bill C-288, which is a private member's bill that has been sent to this committee. I've asked your office to do a review of its financial issues. I'd like to know how much it's going to cost us if it's implemented. And what type of timeframe do you need to get that work done? I know we've talked about that.

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

Thanks, Mr. Wallace.

Since we received the request in September we've been working pretty diligently on this and working with a number of the members of this committee to get at the details underlying a number of figures. We received a message from the Department of Finance two days ago indicating that they are preparing a response to provide the assumptions underlying the department's costing.

Once we receive that and have an opportunity to go through it, they've offered to have further discussions. If those go relatively quickly--and there will be a review process, of course--we're really trying to get it done before the end of November, which is the timeframe that you and others have indicated would be most useful to the committee. We are doing our best to meet that timeframe. It is really dependent upon when we get the information.

[Mike Wallace, Conservative, Burlington, ON]

The reason I ask is that there is a steering committee meeting, and I think we should ask for an extension on that bill's timeframe so that we can get the information as a group and discuss it properly. That's all I wanted to know about it.

Just out of curiosity, I note that you seemed to be able to turn around information for our Liberal friends on unemployment programs quite quickly this summer, and it's taking a few months for this. What's the difference? Why were you able to do it quickly for the Liberals, but not for us?

[Kevin Page]

Well, sir, we don't look at it in a partisan way like that. If you look at the availability of information, we had amazing help from the chief statistician at Statistics Canada to get us the kind of EI information we needed. Fortunately, the database underneath that program is quite substantial on the labour market with the surveys that are done and shared with Statistics Canada, so that was a big difference. We got information very quickly.

[Mike Wallace, Conservative, Burlington, ON]

Thank you very much.

Would you say, Mr. Page, that our paying down of $37 billion worth of debt over the last number of years helped Canada, going into the recession, to be in a better position than, say, our neighbours south of the border?

[Kevin Page]

Sir, I think the work done by this government and the previous government in terms of bringing down debt made an enormous difference in strengthening our balance sheets and has brought a lot of resilience to our economy.

[Mike Wallace, Conservative, Burlington, ON]

I have a question for you on your report, which I appreciate. On page 3, you say that “the level of nominal GDP based on the September PBO survey is very much in line” with Canada's finance department.

So in actual fact, if I look at chart 1-3, based on your survey.... Your survey is not your own model. You're surveying 12 private sector folks, I think you said, the same group that the finance department is likely surveying, or close to it. Our GDP growth outlook numbers are actually better than what you estimated in the July report. Is that correct? Am I reading that right?

[Kevin Page]

If you look at what we're saying, in our survey that we conducted in late September and early October, the nominal GDP over the five years is effectively the same from the survey we conducted in July.

In terms of modest differences in our forecast, maybe Chris will provide the comparisons between the PBO projections, based on the latest survey, with the ones that Minister Flaherty released in his fiscal update in September.