Finance Committee on Nov. 3rd, 2009

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

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

We'll go to Monsieur Laforest.

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

Thank you, Mr. Chair.

Mr. Page and members of your team, good morning.

First, I want to thank you for the work that you do. It is extremely important and in keeping with your mandate, which is to inform the public and parliamentarians in a non-partisan way of the exact state of public finances. In this regard, your mandate is extremely important, particularly in Quebec, given the various presumed or confirmed scandals within government. Your team works completely at arm's length, and it is extremely important to continue to do so.

You answered the question I wanted to ask you in part, that is, whether or not you had access to all the information you need to do your job properly. Would your reports be more specific if you had access to more information? Do you feel that some information is not being conveyed to you and that that prevents you from doing good work?

[Kevin Page]

Thank you for your question and your support, Mr. Laforest.

The Parliamentary Budget Officer has a budgetary problem, like Canadians in general.

It is true that if it were possible to obtain more information from government on revenue estimates and infrastructure expenses, we could provide you with better analyses. I hope that in time we will be able to improve the level of confidence and prepare better analyses for you.

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

Regarding the infrastructure program or the economic recovery plan, we know that a number of countries have adopted economic stimulus measures. In the United States, broad-based programs were implemented. With respect to the information available on program effectiveness and transparency about actions taken and results achieved, are you able to draw a comparison between the information we receive here and what is available there?

[Kevin Page]

Our team prepared an overview of 15 OECD countries. We obtained results for 11 countries. The best practices are to be found in the United States on issues of transparency for economic stimulus measures. Clearly, there is a gap between Canada and the United States in terms of transparency. As I've stated, it is important for the next quarterly report to contain information on commitments as well as expenditures for each quarter.

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

I find the work that you do extremely important. For the first year of your term, you were to receive a budget of $1.8 million and in the second year, that would increase to $2.8 million. Your term has been extended, and you are receiving an increasing number of requests from parliamentarians.

Did you receive that increase? If not, will you still be able to continue to do your work as effectively and independently as you have so far?

[Kevin Page]

I thank you for your question.

Clearly our mandate is broad: we carry out economic and fiscal analyses, cost estimates and expenditure reviews. Our team needs the $2.8 million budget. I'm expecting good news in that regard.

We work with a $1.8 million budget. If we cannot get the $2.8 million budget, it will still be possible for us to continue preparing economic and fiscal forecasts and to review the impacts of programs like those related to infrastructure. Several members of my small team remain on assignment, but that will soon come to an end. This is a critical time for our office.

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

It makes no sense that the government should be unable to increase your budget so that the public may receive relevant information and so parliamentarians may continue to get your estimates and your reports, which are extremely important and effective. I referred to democracy earlier on. Given what we are experiencing today, in other words, a $57 billion deficit this year, it is important for you to have access to the budget. Someone is making a mistake somewhere along the line.

Thank you.

[Kevin Page]

I thank you, Mr. Laforest.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Laforest.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you, Kevin.

I feel that I can perhaps call you by your first name. We see you often enough that we're almost on a first-name basis now.

Thanks to your colleagues who've joined you here this morning.

I might suggest that you need to have a chat with whoever does your scheduling. I understand that from here you run right to a Senate committee hearing. You should space those out a little bit to give yourself a breather in between.

You absolutely do good work and we do appreciate it at this committee. We look at some of the critiques of what we're doing, and I think everyone understands that we're caught up in a global recession, and we're doing the best we can. I see your comments that we appear to be emerging from a difficult recession and the average private sector outlook is stabilizing, although uncertainty remains, and I guess that's the key: uncertainty.

When I talk to my constituents, they're not so hung up on the numbers as they are about the outcome. They ask if we're going to see an end to this recession and they ask if this government has a plan. I think what we see reflected in all of these reports and in your analysis of the report is that there is a fragile movement toward recovery.

Mark Carney, Governor of the Bank of Canada, in answer to a question the other day, said that:

...definitions of recession and recovery based simply on GDP are a little unrepresentative. There are broader factors like industrial production, unemployment, etc. I think in the fullness of this experience of the recession and the recoveries, and the amount of time it takes for economies to return to their previous path of potential growth, it is likely that Canada will return to its path of potential more quickly than the other crisis-affected economies, including the two European countries you mentioned. But that's something one sees over the fullness of time, and that's what ultimately will matter.

The key is “and that's what will ultimately matter”.

Do you agree with the governor's comments, Mr. Page?

[Kevin Page]

Well, I prefer to provide our own independent view. You can see whether it lines up with the governor's comments.

But on your opening point, Mr. Menzies, in terms of the numbers, the outcome, and what it will feel like for many Canadians in different parts of the country, I would say, as I highlighted today in my speaking points, that when the economy is operating well below its potential.... We estimate that in the third quarter of 2009 we're about five percentage points below where we'd be if the economy was fully employed and if we had a sense that capital were fully employed. It's well below its trend rate.

When you compare that with where we were in the 1980s when we had a severe recession, which is when I started my public service career, there's a lot of pain out there in terms of loss of output. As you've noted, when you look at industrial production numbers, they're down, in double-digit ranges in real terms. If you look at unemployment in the goods sector or industry, it's down 8% relative to an average of 2%.

So if you are in those towns that are affected.... For instance, sir, I grew up in Thunder Bay, and I see some of my old friends who have lost their jobs in the forestry industry and are concerned about whether or not those are coming back. So how it feels depends sometimes on where you're at.

In terms of the fragility of the outlook and when we might get back to our potential, our own numbers suggest—and I think they're quite consistent with what the OECD and the IMF suggest—that it will be something more like the end of 2013 when the economy will be back at its trend level, which is a bit longer than what you alluded to regarding what Mr. Carney said to you just a few days earlier, sir.

When you look at the IMF's analysis of what happens to economies after financial crises and the debt bubbles we have and all the de-leveraging that takes on, you tend to see more of a U-shaped type of recovery. That's consistent as well with analysis done by professors at Harvard and at the University of Maryland as well, who have examined this over many different countries' experiences.

If you look at our output gap and the projections that are in our report today, the private sector is basically saying it will be more like a V-shaped recovery. Even with the economic recovery in 2013, in our report it actually looks more V-shaped than U-shaped. If you look at the output gap experience in the 1990s, it looks like a much more U-shaped experience.

It's in that context, sir, that we say the risks are more on the downside, that this could last a little bit longer, and that we could see growth much closer to trend growth rates in 2010, which is where some of the private sector forecasts are, at around two and a half per cent as opposed to well above trend, which I think is where the Bank of Canada is for 2010.

We'll have to wait and see, but that's certainly where the uncertainty and risk lie.

[Ted Menzies, Conservative, Macleod, AB]

Good. Thank you.

I'm sure you won't be surprised if I go to your comments about the coming fiscal challenges posed by an aging population. I've been very involved of late in working with pensions and the intergenerational issues we're facing. I'm pleased to see that you're going to take a serious look at these.

We all realize that we are going to be facing a demographic challenge in the very near future—I, for one, am from the beginning of the baby boom—and that it will impact our economy in the long term. I'd be very interested in where you go with that. What is your report actually going to focus on?

[Kevin Page]

Sir, the report that we will release between now and probably late January or February, when we typically get a budget, will look at longer-term economic and fiscal projections. We'll actually look forward, even in a 50-year time period, using different assumptions for demographics, productivity, and labour input. We'll look at the fiscal impacts of that aging as well.

Again, when we talk about this, what we're trying to do for you, sir, is to give you a context around some of the fiscal challenges that we face, and not only in the medium term, as we're saying today in pointing out that we're looking at having a small structural deficit. Also, to really get at it and assess whether that small structural deficit is sustainable, I think you have to project forward and see what the impacts of aging are going to be, because aging will slow labour supply growth, which means that revenues will be down. Aging will also put upward pressure on those old-age security payments, as you know very well, sir, from all the work you've been doing, and it will put pressure on health-care related expenditures.

We'll lay that out under different scenarios. It will give you the context to decide what types of fiscal targets we need, what some of those policy challenges are, and how we bring the two together, which is really the interesting debate that you folks weigh in on. But we'll give you that context.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Menzies.

Mr. Mulcair, go ahead.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you very much, Mr. Chair.

It is now my turn to say that I am delighted to welcome Mr. Page and his team to our committee meeting.

I do not want to spend too much time reiterating comments made by my Bloc and Liberal colleagues, but I must say that last spring, when the time came to determine our priorities, we felt that a boost was your priority. You could not discharge your duties pursuant to the mandate assigned to you by Parliament, in other words, to work in the public interest, if you did not have the resources you need.

So if an army travels on its stomach, your office travels on its wallet. If you couldn't have your employees there, you couldn't do your job, and the rest of it we could fight about afterwards.

I am outraged, truly, that the Parliamentary Librarian continues, despite the unanimous will of Parliament, to try to stifle your office. It is scandalous, contempt of Parliament, and we intend to tell him so on the first possible occasion.

I would like to start by referring to the famous Accountability Act, whose title is ill-chosen. It should have been referred to, in French, as the Loi sur l'imputabilité. Apparently, from now on, it is the deputy ministers who are accountable. There is some discussion as to whether or not infrastructure spending is being done by the book.

Last week, I was able to show that you had been handed a huge stack of unprocessed documents, without a synopsis or summary, nor the electronic means to access the documents. In concrete terms it is quite obvious, if we turn to this Accountability Act. The electronic version must exist, because the deputy minister has a legal obligation to create such systems. Am I wrong?

[Kevin Page]

You're absolutely right. Under the Financial Administration Act deputy ministers do have responsibilities for moneys flowing out the door, responsibilities for making sure that Treasury Board polices are being followed and that the financial statements are strong, clear, and transparent.

We're aware that electronic versions do exist. We speak to the municipalities on this issue, so we know they're inputting it into the database.

Quite honestly, we're focusing on infrastructure because, again, we are a small team and we think it's a very important part of the stimulus program that will contribute to growth down the road. In addition to the information that we're trying to get now, which is the preliminary information, I think we need to get the progress reports, quarter by quarter as well, electronically, so we can analyze for you the impact that it is having on output and jobs.

[Thomas Mulcair, NDP, Outremont, QC]

Another thing that's provided for in the accountability act--section 16.4, if memory serves--is that all procedures and policies of the Treasury Board have to be followed on both ends. So if we're talking about billions of dollars in public spending on infrastructure, the recipients must also respect and be in conformity with a long series of procedures and policies to make sure that they've done everything right.

With the reams of documents you received last week, are you able to make an evaluation and determination of that? How can you do the job we're asking you to do by statute? It's the will of Parliament: the statute creating your office is the will of the Canadian people through Parliament. How can you do that job? Do you have the information to allow you to make a proper determination as to whether or not the recipients are also in conformity with all of those procedures and practices, as they must be?

[Kevin Page]

Again, just to back up a little bit, our focus as legislative budget officers is to provide you with our best independent analysis of what the impact may be of that type of spending on output and jobs. We are well aware, because we're all public servants, of what those Financial Administration Act responsibilities are and what kind of information should be made available to both the deputy minister and minister of transport and infrastructure.

But I think the Auditor General would be better placed, in a retrospective sense, to assess whether or not the Treasury Board policies or Financial Administration Act policies in general are being followed. Our focus is to get this information so we can get a sense of how the stimulus is impacting the fragility of the economic recovery. Infrastructure is important there. I think most economists are quite supportive of the fact that we are spending significant amounts of money on infrastructure.

[Thomas Mulcair, NDP, Outremont, QC]

I take the point, and it's well made, but at the risk of insisting on this, it's a bit of a chicken-and-egg problem, because we're asking you how much of this stimulus money is actually getting out and if it is producing the effects on the economy. You were given reams of documents which putatively show that all of this money has gone to various municipalities, but if indeed those policies and practices have yet to be met, and if indeed the municipalities, as we suspect, have not necessarily met those yet, these are just announcements.

As Le Devoir pointed out on its front page today, at a cost of $7,000 an ad for millions and millions of dollars across Canada, we're boasting about the government's spending, but is it not the case that we can't really know if that money can flow if those criteria have not been met? In other words, it's a condition precedent, a condition sine qua non, to any spending that those criteria and procedures and practices be followed. Is it not?

[Kevin Page]

It is, sir. We think the design of the infrastructure stimulus program is such that we know one of the criteria is that there will be progress reports to show not only whether money has been committed, but the flow of activities until the final cheques are signed off. We're hopeful that over the next number of months we can continue to look at these progress reports.

We're also hoping--and this speaks to Mr. Laforest's question--that, like the Americans, the government will start showing not only commitments, which are kind of the first stage of engagement, but will also start showing the disbursements, the activities, both on a cash or on an accrual basis, that are impacting on a quarter-to-quarter basis.

We're hopeful, but you're absolutely right: the Financial Administration Act means that level of information is there. We're hopeful that maybe in the fourth quarter report we'll start to see evidence of the disbursements.

[The Chair, Conservative, James Rajotte]

You have 20 seconds.

[Thomas Mulcair, NDP, Outremont, QC]

There have been very serious allegations of collusion, namely in the city of Montreal, but also in other cities in Quebec. I understand that on occasion you refer us to the Auditor General or to other agencies like the Competition Bureau. Nevertheless, do you not think that, to shed light on the matter, as billions and billions of dollars are being shovelled out of government coffers, it would be appropriate to have increased vigilance and that all rules, not only those of the federal Parliament but also those related to the Competition Act and so forth, be overseen to ensure there is no collusion and that no one is trying to come up with a way to spend too much on municipal infrastructure projects?

[The Chair, Conservative, James Rajotte]

Very briefly, please, Mr. Page.