Evidence of meeting #58 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was projections.
A recording is available from Parliament.
Conservative
The Chair Conservative James Rajotte
You have 15 seconds to answer those two questions. We may have to come back to one of the questions in a further round.
Parliamentary Budget Officer, Library of Parliament
I don't think I can give just yes or no answers.
Is there a plan to get back...? With respect to whether you're looking at the Department of Finance deficit projections, the IMF's deficit projections for Canada at the federal level, or the PBO's projections.... We're seeing a declining deficit track. The deficit is falling.
We don't actually see the deficit coming all the way back to balance when you get out to 2015-16. We think more actions are required. We think there is structural deficit. The IMF says there is a structural deficit.
But again, we think the larger problem, really, from a fiscal perspective, is the problem of the aging demographic and low productivity, because that creates a fiscal gap in this country, which means that we don't have a sustainable fiscal structure, and that will complicate those discussions on federal transfer renewal.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Page.
I would remind colleagues to ask a brief question at the end so they allow the witness to answer.
Monsieur Paillé, vous avez sept minutes, s'il vous plaît.
Daniel Paillé Bloc Hochelaga, QC
Thank you, Mr. Chair.
I see that our Parliamentary Budget Officer's report still deals with a lot of access issues, with transparency and cabinet secrets. It's always the same complaint. I think you know that you can count on us to pressure our government colleagues to give you as much information as possible. By keeping things secret, they are realizing more and more that power lies in information. So, without information, there is no power. Since the Conservatives are in power, they control the information.
But you are saying that the likelihood that the budget will be balanced over the short term is nil. Your economic projections are for 2016 and you have identified the risks. Today is February 15 and there is in fact a fifth risk that has not been mentioned. It has to do with everything that is currently going on in the Arab world. This will all have an impact on the global economy. I don't want to dwell too much on this issue, but I would like to hear your opinion, if we have time.
I think you made a political choice. You are telling us that there is a long-term fiscal challenge and that the fiscal structure is not sustainable. On page 2 of your report, you say: “...Canada does not have a fiscally sustainable structure.” You are also saying that there are gaps in GDP. Then, you go into the Canada Health Transfer program. Before that, you clearly pointed out that the Canadian population is getting older. You reported that, in 1971, there were 7.8 people at working age for every person over 65, and that, in 2033, there will only be 2.5. We are lucky Mr. Wallace will still be of working age, but the working age population is in a steep decline.
You are sort of saying that the government should stop making transfers based on the provinces' needs. I am almost wondering what you are getting into. You are telling us that there is a problem with the fiscal structure, which we are well aware of, but this problem is not necessarily because of health transfers. I am wondering why you are scoring points against the provinces by saying that, if the federal government reduces health transfers to the provinces, its fiscal problem will be solved. That's all very nice, but the provinces will find themselves in a huge mess.
Why did you make this highly political choice?
Parliamentary Budget Officer, Library of Parliament
When you talk about structures, you are right to say that it's about all federal programs and revenues and not only about transfers to the provinces. It is important to clarify that.
In our 2010 analysis, we studied the fiscal sustainability. We looked at economic projections, the capacity level, productivity and the ageing population. We also looked at revenues and all expenditures.
In my presentation today, I focused on one issue in particular. Perhaps it was a mistake. It is important to say that negotiations will be held on all transfers within two years. So we have to start discussions now. The first step is to look at fiscal sustainability in general, but that doesn't mean that the only problem is the increase in health transfers.
Bloc
Daniel Paillé Bloc Hochelaga, QC
These are highly political choices, and you say so yourself. Policy measures are needed in the budget.
But, in terms of policy measures, we could have looked at all the army expenditures, for example. We might have agreed that we don't need all the army expenditures or that we should raise corporate taxes. We might have also agreed that we should raise taxes because Canada’s fiscal capacity is not used to its fullest. However, from there to zeroing in on this program, there is a difference. You seem to agree with us.
I also have another question about this. On page 2, when you refer to the challenges of the International Monetary Fund—and you are doing a good job representing its view—you say that the current budget process and the political climate give too little weight to this issue. What do you mean by “political climate”?
You are saying that the political climate prevents us from giving enough weight to this issue. At the moment, where have you seen the political climate preventing us from discussing the issue? It is on page 2.
Parliamentary Budget Officer, Library of Parliament
I am talking about the importance of having long-term estimates and projections. At the moment, we don't have analyses on fiscal sustainability issues. Perhaps there is a link between a minority government and long-term issues that will have an impact on future generations.
In 2007, the government decided that it was necessary to do fiscal sustainability analyses, but it is not possible for us to get those fiscal analyses.
Bloc
Daniel Paillé Bloc Hochelaga, QC
In your view, the political climate simply refers to our current minority government, which, by definition, is a weak government. And since it is a Conservative government, it is even weaker by nature.
Okay. I understand your analysis.
Parliamentary Budget Officer, Library of Parliament
It is not a partisan issue.
Conservative
Parliamentary Budget Officer, Library of Parliament
I wasn't making a partisan comment.
Conservative
The Chair Conservative James Rajotte
No, I know.
Thank you, Mr. Paillé.
Ms. Glover, go ahead, please, for seven minutes.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you, Mr. Chair.
It's unfortunate that my colleague would reduce this meeting to that kind of gibberish, but nevertheless, I am glad to meet you. It's the first time we've had an opportunity to meet one another, so I was anxious for today's meeting.
I've really focused on the things you've said here this morning in your statement. I do note that you talk a lot about the long-term and not the short-term fiscal challenges. Yet when I look at some of the things you've said in the past...for example, earlier this year you told the Toronto Star that a Department of Finance study on economic stimulus indicated business tax cuts were not the best way to support job creation. You also note that the economic multiplier is not as strong as other types of stimulus. However, the Department of Finance study also said a number of things about long-term capability and sustainability. As you've said in your own presentation today, the long term is very important.
I think you've already said here today that you believe that policies have to support long-term economic growth. The Department of Finance's study indicated business taxes are one of the best policies to pursue over the long term. Would you agree with that statement that business taxes and the reform that's suggested are a good way to benefit the long-term economic growth of this country?
Parliamentary Budget Officer, Library of Parliament
Actually, I'm not familiar with exactly which Department of Finance study dealing with business taxation you are referring to. In the comments that you alluded to, I think you're talking about--
Conservative
Shelly Glover Conservative Saint Boniface, MB
I might be able to help you. Do you want me to quote it so it makes it a little bit easier? The Department of Finance study said the following:
Corporate income tax measures have a limited impact on aggregate demand over the periods displayed in the table but have among the highest multiplier effects in the long run. This is because they increase the incentive to invest and accumulate capital, which leads to a higher capacity to produce goods and services.
Do you agree with that?
Parliamentary Budget Officer, Library of Parliament
Well, I agree in the context of an economy and a fiscal situation that is sustainable. I think when we look at taxation issues, particularly business taxation, what most economists will focus on is the potential impact on investment of reducing taxes and what the increase in investment would do to increase productivity and whether it would lead to future job growth.
I think when you do these sorts of studies it's important to balance out whether you have a sustainable fiscal structure. In the context of what we're talking about today--and the IMF has said this--we have a structural deficit. We do not have a sustainable fiscal structure.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Please forgive me, Mr. Page, but I'm uncertain as to why you won't answer my question and you are bridging into something else. I'm asking a fairly simple question, and I'd really like an answer, rather than bridging to something else that you're more interested in.
Do you believe that corporate tax cuts will help us in the long run? It's a pretty simple question. It's regarding economic growth. That's what I'm talking about.
Parliamentary Budget Officer, Library of Parliament
Madam, when you frame that, are you assuming that we have fiscal balance in the long run? I need to know what your fiscal assumption is, because again, what we're talking about is trying to increase investment. You can increase investments by lowering taxes; I agree with that. You could also have a negative investment impact by creating a fiscal crisis by increasing your debt-to-GDP ratio, because you also have a negative impact on your capital structure. You need to balance.
If you're assuming we have a sustainable fiscal structure and we lower business taxes--is that good for investment?--the answer is yes.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you.
And that would be my argument, and not only my argument, but it's actually the argument of a number of economists that you rely on for information and that the government obviously relies on for information.
I want to go to a different question.
We've seen a lot of surprisingly strong economic data in recent weeks in Canada, and I'd just like to highlight that. Canada's merchandise trade surplus in December hit the highest surplus in months and months, with strong growth in exports. Employment increased by 69,200 in January, which is the strongest in months. Canada's GDP grew by 0.4% in November, which is the largest monthly gain since March 2010. And many economists have been revising their projections up because of this strength. Indeed, we saw last Friday that trade data was strong enough that the Bank of Montreal upgraded its fourth-quarter forecast for Canada to 3% from 2.3%, as well as next year's expansion, to 2.8% from 2.7%.
Since there have been some revisions upwards, I'm wondering if you plan to revise your projections up as well.
Parliamentary Budget Officer, Library of Parliament
Well, actually, Madam, we take our projections from the private sector forecasts. As I said in my opening remarks, we work with private sector forecasting. Just like the Department of Finance, we translate those economic assumptions into fiscal forecasts. We do monitoring with respect to the fourth quarter and the first quarter just for our own purposes.
We think the fourth quarter will probably turn out somewhere in the neighbourhood of 2.5% growth in overall GDP. I think what you alluded to in terms of the increase in exports is very positive to them, and we hope it will be sustained.
Conservative
Shelly Glover Conservative Saint Boniface, MB
Thank you.
I'm going to read through the lines again. Because everybody else is projecting up, you're anticipating you're going to be projecting up too, because you rely on what they say.
Parliamentary Budget Officer, Library of Parliament
Well, yes, we use the average private sector forecasts, just like the Department of Finance, and then from that we prepare fiscal projections and we do risk analysis around that. So if the average private sector forecast goes up because we saw a stronger fourth quarter, we will take those assumptions into account when we produce our fiscal projections.
But again, just on a deficit term, in our projections today, which we talked about, we're saying the deficit will come in just under $40 billion, well below $56 billion in 2009-10--so, again, a $40 billion deficit projection, just under, for 2010. The deficit is falling. When we look at the Fiscal Monitor—we have eight months' worth of information—the deficit is coming down. Even though we have a big stimulus package, it is coming down because the economy is getting stronger.
Conservative
Shelly Glover Conservative Saint Boniface, MB
As a new parliamentary secretary on this committee, I look forward to working with you. I do have a request, if you would allow me.
I was a spokesperson for the police service for some time. I found it very difficult, as a spokesperson, to have people release things to the media that involved my portfolio or my issue, and then I would get asked about it very quickly without even having access to whatever it was the media had access to. I would ask, as a courtesy, so that we can have a great working relationship, if you plan on releasing reports publicly, that you not release it through specific reporters first, because I'm going to get asked the questions quickly. If you could just release it publicly to everyone at the same time, that would make it very good as far as a relationship goes, and it would make it a lot easier to respond to questions once I've read the report.
So thank you for that.
