Finance Committee on Nov. 3rd, 2010

[Scott Brison, Liberal, Kings—Hants, NS]

When did you ask for that information?

[Kevin Page]

Well, when we did the work on the Truth in Sentencing Act, the work started in the late fall of 2009, and as you know, we tabled the report in June.

[Scott Brison, Liberal, Kings—Hants, NS]

So you've been waiting since the fall of 2009 for the information on the costing of some of this legislation.

[Kevin Page]

Well, sir, on the Truth in Sentencing Act, the old Bill C-25, that is the case. There are a number of other bills. We haven't received any information on the other bills.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Thank you, Mr. Brison.

Monsieur Paillé, s'il vous plaît.

[Daniel Paillé, Bloc, Hochelaga, QC]

Thank you, Mr. Chair.

I am a bit uncomfortable discussing the report from Mr. Page and his colleagues, and mixing it with “salespeople” from two chartered banks and the presentation of an individual, because the forecasters have led us into sort of a stratospheric projection, in my opinion. Everyone knows that projections are to forecasters like a lamppost is to a drunk; they provide support, not light.

In the long-term, we will all be dead. Ladies and gentlemen, I also think that the projection I can make is that you are mistaken. In four or five years, we will for sure come back here and say that the figures from TD, Mr. Poschmann or the Scotiabank Group were all wrong. But that's irrelevant here. I would like to come back to Mr. Page because he represents parliamentarians and that's why we are trying to work with him.

You are actually missing information. This is very important to me because you are saying that the government manages its revenue by following its very Conservative fiscal policy and, as a result, is keeping the corporate tax cuts. Economists tell us that it will be profitable in the long term. Of course they do!

Meanwhile, the government shows us—and history tends to repeat itself—its inability to be in control of its expenditures. In addition, it does not give you access to information and that worries me.

You are saying that your assumption of growth has to be 3.2%. That's very brave of you. Not everything is wrong in your comments. There are some interesting things. But I have some questions. Since we are all dipping into the same fiscal pot, that shows us that the fiscal imbalance has never been resolved in Canada. Both levels of government are picking the same taxpayers' pockets. The current risk is in the health agreement the minister wants to resume, saying that, in the next few years, he will base it on the consumer loans index rather than the needs of the workforce. That makes no sense.

Although you have little or no information, don't you get the impression that this government is pushing the snow over to the next-door neighbour, except that the snow will not melt and the provincial governments will be facing huge imbalances that will become unmanageable?

[Kevin Page]

In my opinion, we need analyses to examine not only the fiscal sustainability of the federal government but also of the provincial governments.

In our first report on the 2010 fiscal sustainability, we have only examined the federal government. As I said earlier, in our next report, coming out perhaps in February or March, we are determined to examine the government in a consolidated manner, meaning all levels of government.

As Mr. Poschmann said, important issues have to be addressed, including the growth rate in health transfers. In the current fiscal framework, there is a 6% assumption per year; that's a big chunk of our budget, as Mr. Burleton pointed out when we talked about the 2% GDP growth rate.

So we should talk about this. Meanwhile, it is important that our office and, perhaps, the Department of Finance conduct appropriate analyses to examine the fiscal sustainability of all levels of government.

[Daniel Paillé, Bloc, Hochelaga, QC]

We represent ridings. So, in terms of the needs of the public, we can say that the growth rate will be two, two and a half, two and three-quarters, two and seven-eighths. The trend is what is important, but it won't be the same everywhere. The economic growth in Alberta won't be the same as in Quebec. So don't you get the impression that it would be a lot better if the government freed some space, handing over tax points and entire taxes? It is not enough if it just gives half or keeps three quarters. It should give the Quebec government and the other provincial governments the means to assume their responsibilities.

[Kevin Page]

Yes, I agree; the situation can change. But perhaps the most important thing is having clear analyses to determine the assumptions for the federal and provincial governments. And if it is possible to do the proper analyses on the fiscal sustainability of each province, what are the assumptions?

So, it is not only a question of making a projection; the assumption is really crucial.

[Daniel Paillé, Bloc, Hochelaga, QC]

As to statistics, don't you feel that the government or the Department of Finance is trying to prevent you from getting the right data? In the longer term, with the chopped-off census, the data will no longer be reliable.

[Kevin Page]

We are concerned about the level of transparency of issues related to operational expenditures and direct program spending. As to the Department of Finance and its officials, I have no doubt that they are quite capable of carrying out the proper analyses.

[Daniel Paillé, Bloc, Hochelaga, QC]

Of course. I agree with you, they are good people.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Paillé.

Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you to all of our witnesses.

Thank you again, Mr. Page, for bringing your very capable staff with you. We tend to focus our questions on you, so please share the wealth.

I have a very serious question for you. In your opening statement you say there's an 85% chance of probability that the budget will be in deficit in 2015-16 and an 88% chance the budgetary balance in 2015-16 will be lower than $2.6 billion.

I don't watch a lot of television, but there's one cute ad: what are the chances of me being abducted by aliens?

I'm just kidding, of course, but when you put that down in your opening statement, I thought we had to follow up with that.

My sense is, Mr. Page, that you're very close to what our economic fall update actually was. The only difference would be program spending, our track on program spending to yours. We share your fervour, if you will, to make sure we get back to balanced budgets, and we appreciate that comment. But if your projections adopted the same expense track as ours, we would be quite close. I'd be interested in your comments on that.

The one thing I did want to pick up on is that you're recommending the Department of Finance use its own economic forecast in our budget planning process, rather than using these individuals, the 15 private sector advisors, if you will, that we use. This is what we've done since 1994.

In the last budget there was a spread of $100 billion in projected GDP. We're down to a $50 billion spread. So volatility is very important when we're looking at those kinds of spreads.

This forecasting process—gathering information, if you will—was recommended by Ernst & Young in 1994. O'Neill Strategic Economics reaffirmed the method in 2005, and the method has actually been supported by the IMF. What are your reasons for suggesting this should be done only within the Department of Finance and that we shouldn't be speaking to the experts outside the department?

[Kevin Page]

Thank you.

Sir, we don't have a model that we could use to see what the probability is that you would be abducted by aliens.

[Voices]

Oh, oh!

[Ted Menzies, Conservative, Macleod, AB]

Can you work on that?

[Kevin Page]

I'd like to just pick up seriously on three of the points you made: one on the area of risk, one on the closeness of our projections vis-à-vis the Department of Finance, and the third one around the issue of independent forecasts.

Actually, I think the one that's probably most important is the issue of risk and how we deal with that--putting aside the issue of the model for whether or not we'll be abducted by aliens. It's important to know—and I think Mr. Paillé raised this issue as well—that economists aren't mystics. There was a quote in the paper today from Mr. Galbraith, saying that economists do forecasts not because they know, but because they're asked to.

[Ted Menzies, Conservative, Macleod, AB]

I think they get paid to. Hopefully they get paid for it too.

[Kevin Page]

No, sir, I didn't mean it in that context.

I think why the PBO does these forecasts for you and why we do reconciliations and all the analysis around it is so that you can have a rich planning environment, so that you can debate the policy and priorities, short term, medium term, and long term. That's why we do these forecasts, and there are always doubts.

When we do these fan charts that look at probabilities and distributions--it's something that is being done in different parts of the world, such as in the U.S., in the U.K. now, and central banks do it around inflation--basically what we're doing, sir, is we're looking back. What's been the track record of private sector forecasts on the average forecast? We have sixteen years of information. We have four surveys a year. What's our track record to predict, one, two, three, four, five years out? We want you to know that, sir, because this is part of the richness of the environment you're dealing with. That's just our ability to forecast. We're being honest in that sense.

Then I think you should ask us what our judgment is on the risk. How are you dealing with the issues of a potentially weak U.S. economy? People have talked about that here today. Currency risks--people have talked about that here today in the context of QE2, quantitative easing 2, etc. Issues of sovereign credit risk, issues of household debt.... How are you adjusting that distribution of probability of outcomes? That's all we're doing there. So we're trying to give you a rich environment.

To put a number on where the deficit's going to be in 2015-16, as I think Derek said here today...the difference between $5 billion, $10 billion, or $15 billion in a $2 trillion economy is not really the issue. In putting the point of view, he's debating what should be the policy of priorities.

Again, we don't have a model to predict whether or not we'll be abducted by aliens, but it is important to understand the risk that is out there and our ability to track these things and project forward.

Number two, you're quite right, sir, that there's very little difference between the Finance numbers. If you just look at the budgetary balance, in fact, if you break it out and look at revenues and expenditures over the five-year track, on the revenue side it's negligible. On the spending side you highlighted the big differences in operating spending. There are some differences on public debt charges. But all told, if you add it up over five years, you're probably talking about a little more than $30 billion, cumulative in terms of debt, so it's not a big difference.

Again, for us that's not the most important issue. You want to understand the risks that surround those numbers. We want you to understand whether it is cyclical or whether it is structural. Do we have a fiscal structure that's sustainable? So when we make these points, sir, we need more analysis. It's only in that context that you can debate those issues.

In terms of independent forecasts, I made that comment—somebody asked me the question. This should be the policy. I'm not the Minister of Finance. He has a very tough job. I'm not a deputy. But I think there's a certain rigour—and I think these folks know—when you do an independent forecast. When you break out the economy, what's happening in this quarter or that quarter? You do the medium term. It is helpful to do that. There's something lost when you lose that rigour. We don't want to lose what we do. We work with the average private sector forecast. We want to keep that. It's fine for the Department of Finance, if they wanted to have their own view. I think PBO should have its own view eventually some day, too, in terms of the economy, and come to these sorts of meetings and basically deconstruct that view for you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

Thanks, Chair.

[The Chair, Conservative, James Rajotte]

Mr. Mulcair, you have the floor.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you very much, Mr. Chair.

I will first go to Ms. Webb since I was taken aback by her earlier comment. She said:

“Our industry has learned to cope with a 95¢ U.S. dollar....”

If I may, I would like to read her a quote from Statistics Canada dated August 16, 2007:

The Canadian economy doesn't have “Dutch Disease”...the Dutch case involved the discovery of a new resource, while Canada's recent trend stems from the integration of emerging nations...

In 2009, just two years later, Statistics Canada did a 180-degree turn. In a document called “Trends in Manufacturing Employment , Statistics Canada said the following:

...employment in manufacturing experienced a clear downward trend with successive annual losses of at least 3% from 2005 to 2008.

So, two years later, their analysis was completely different:

In these four years, more than one in seven manufacturing jobs were lost. These losses resulted in the rapid erosion of the share of manufacturing jobs in the economy...

We are even told that 322,000 jobs disappeared in Canada during that period.

Is that how our industry learned to cope, by losing 322,000 jobs? Is that your analysis? Is that the Scotiabank's official position on this, that this was coping, losing 322,000 jobs?

[Mary Webb]

First of all, it's my opinion, not the Bank of Nova Scotia's.