Finance Committee on Feb. 15th, 2011

[Mike Wallace, Conservative, Burlington, ON]

--but you don't comment on whether the private members' bills that we keep sending you--which I think are part of your responsibility--are funded or have any background to them, which we also, as parliamentarians, have a responsibility for.

The final comment I'd like to make is that I do agree with you that we are losing a little bit of control here. But is it your mandate to comment, or is there something we need to do to get you to look at the settlement or estimate process so that members of Parliament do a better job of analyzing the actual spending?

[The Chair, Conservative, James Rajotte]

Mr. Page.

[Kevin Page]

There are a number of points there. I'll be quick.

When we provide these projections, we also provide risk analysis, so we provide these--we call them fan charts--probabilities based on historical track records of the average private sector forecast. What will this mean as we project, both for nominal income and for the fiscal balance? What will it mean going forward? These ranges are actually provided in your chart package today. That's how we deal with kind of the highs and the lows of uncertainties around an average private sector forecast.

If this committee gave us specific questions, such as, what if growth were one percentage point higher or one percentage point lower, could we translate that into a forecast, or what if interest rates were...? We'd be very happy to do that for you, sir.

Also, sir, I think it's fair to say we've done a lot of work for you and other members of Parliament, which is available on our website, on private members' bill costing. We don't write legislation, so we can only cost if the legislation is specific. In the same way, we can only comment specifically and provide tests of reasonableness on crime legislation or what have you if we see the methodologies and assumptions underneath it. Otherwise, we will provide an original data point.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

We'll go to Mr. Pacetti, please.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chair.

Thank you, Mr. Page, for coming. I'd just like to remind Mr. Wallace that if there are any bills that require a monetary outlay, they require a royal recommendation, so I wouldn't be too worried about that.

Mr. Page, in English, on page 2, you talk about the fiscal gap. Specifically, you talk about the health transfer. Just so I get it right, you start by saying that the health transfer is projected to be about 4.2% per year on average, so that would mean a fiscal gap of 1%, but then you go on to say if it continues to grow at 6% per year, the fiscal gap goes to 1.9%.

Can you translate that into English, please? What does that mean? Why would it be 4.2% on average and then go to 6%?

[Kevin Page]

Certainly. In the work we did on fiscal sustainability, we did sensitivity analysis around certain key variables. Some dealt with immigration. Some dealt with productivity, and some dealt with specific spending components like health care. For health care, I think we ran three different scenarios. In one we assumed 6%, so what if health care transfers continued to grow at 6%? Again, we're talking about Canada's potential growth rate, because of aging demographics and weaker productivity, falling below 2% as we move out to the long term.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Sorry, our time is limited. So you're saying, just in a hypothetical situation, if it would go from 4.2% to 6%, you would lose about 0.9% as a fiscal gap?

[Kevin Page]

That's correct, sir.

Again, we also do calculations for...if you wait 10 years to take the fiscal actions, what will be the additional costs to close the fiscal gap?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So for the 2% just in health care, again, as my other colleagues were saying, why just specifically concentrate on health care? Assume the whole fiscal budget was increased by 2% above projected. What would that cost in fiscal gap?

[Kevin Page]

Sir, there's a direct link between aging demographics and health care. There's quite a bit of analysis that we did on fiscal sustainability. We did the same type of analysis for old age security--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

No, I understand that, but I think the risk is not just in health care. As I was saying, I think it could be in other areas as well, in military spending or whatnot. It could be in immigration, as you said. So if we take an overall 2% risk factor, how much would that be for the fiscal gap?

[Kevin Page]

Sorry, I--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So I guess the amount spent is, what, about $200 billion or $230 billion?

[Kevin Page]

Sir, our current expenditures are about $250 billion, rising over the next five years.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay, it's $250 billion, so let's say we add an extra 2%.

[Kevin Page]

Two per cent to spending growth for health care?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

The same way that you did the analysis for health care, where the projected amount went from 4.2% to 6%. Let's say there would be an increase of 1.8% on the total budget.

[Kevin Page]

Well, sir, I think implicitly that calculation is provided in our numbers. So you're basically moving the fiscal gap from 1% of GDP to almost 2% of GDP.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So it's a whole one per cent?

[Kevin Page]

It's a whole percentage point, so if you go five years out and you're talking about an economy and a nominal GDP in terms of about two trillion dollars, you're talking about $20 billion in terms of sustained fiscal actions to close that gap.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay.

Now, maybe for more of an economics lesson, when we talk about growth, we're talking about all these 0.5% numbers and 1% or 2%. But we see in the Fiscal Monitor that the revenues are up 7.7% in the last eight months. Why is it not 0.5% and why is it not 2%? Why is it all the way up to 7.7%?

[Kevin Page]

Well, sir, we had a significant, significant recession in 2009, when the overall economy collapsed by 2.5%. We're seeing a significant rebound on the revenue side, when you look at the Fiscal Monitor for the first eight months of the year. Again, that's a positive sign.

I think the deficit for the first eight months of the year is running at roughly about $26 billion, compared to $36 billion the year before. So the deficit is coming down, even though we're having--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But shouldn't it be correlated to GDP growth? Shouldn't it be correlated to the 0.5% or the 2% or a maximum 3%?

[Kevin Page]

Again, sir, I think most of the growth we're seeing in the Fiscal Monitor--for example, say, from November to March--is taking place in personal income and in corporate income. We are definitely seeing operating profits for certain companies come back quite significantly--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So that's happening by accident.

On the other side, the expenses are out of control. Going back to the example I was giving, even 1% or 2% in overspending is going to cause an additional burden on the fiscal debt, I guess. Is that what we have to be careful of? Is it on the expense side?