Evidence of meeting #25 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was analysis.
A recording is available from Parliament.
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
Yes. Actually, we all make mistakes. We make our share of mistakes.
The issue for consideration, we're saying, is would you consider...? For example, in the 2011 budget we know Minister Flaherty looked at the average private sector forecast and he wasn't satisfied. He said he needed more prudence. He added $10 billion effectively to nominal GDP and the key tax base--
4:50 p.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
I think that was extremely valuable, given what we now see in the world, given the overspending that has happened in some other areas of the world that's now put them at risk, and we're not going to be immune to that.
But I do want to refer to a Globe and Mail article that did say that the government, 9 times out of 15, was more accurate than the PBO was. I commend you for your efforts, but I'm certainly glad we did go to look at a variety of places to try to come up with an average.
I do have one other question. Earlier you said the June budget economists' forecasts are now unrealistic. That's what you said. Correct me if I'm wrong, but were you not using similar economic forecasts in your spring forecasts? So are yours also unrealistic? I think it's a choice of words that is wrong, and I would suggest you might want to use words like “need to be updated”, which is normal. Snapshots need to be updated, wouldn't you agree?
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
Again, I think what we are trying to do is provide a planning framework for you. It's for you to decide what is realistic. You're getting different data points. You had a range of data points. The average private sector's forecast, as you say, is an average of 15. Some of them do only short-term forecasts. Very few of them actually do longer-term forecasts. It's for you to decide what is realistic.
As we look forward, we will be watching Minister Flaherty as we move to Budget 2012, how much more prudence he will be adding in, effectively moving away himself from the average private sector forecast, to make sure he can hit his targets. We think he will be adding more prudence. We wouldn't be surprised.
4:50 p.m.
Conservative
4:50 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Following on that discussion, Ms. Glover mentioned the $10 billion risk adjustment put in the June budget. Earlier today you said that the downgrading of the GDP projections has been approximately $50 billion. You're saying it's approximately $50 billion in terms of...?
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
That's correct, in terms of nominal GDP, on average, over the five-year period.
4:50 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
So that's five times the $10 billion risk adjustment figure in the June budget.
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
That's correct. It again reflects additional information since June, the significant slowdown in the U.S. economy, a recession that seems to be under way in Europe right now, significant credit problems. So it's additional information that now enriches the planning framework that wasn't there in June.
4:50 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you.
The government is still saying it will balance the budget by 2014. On the current track, when do you believe the government can balance the budget?
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
Based on our projections right now, we're still showing a small deficit of $7 billion in 2016-17, so we don't actually get to total budgetary balance at the federal level over our medium term. From my point of view, as we look at the data, we see a cyclical balance that more or less is eliminated, a structural deficit that's more or less eliminated. The fact that we're talking about something less than 0.5% of GDP, for most economists--again, we're talking about a $2.1 trillion economy--it's close enough to balance to satisfy most people. We are within that kind of difference; it's quite small.
4:50 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
In your report today you've provided some advice to Parliament and to parliamentarians. You say:
Transparent fiscal policy means full disclosure of analysis, information and risks. Parliamentarians may wish to ensure full disclosure of the measures covered by the Strategic and Operating Review to be implemented in Budget 2012.
You also say:
...parliamentarians may wish to request that the Government provide full disclosure of departmental plans associated with Budget 2010 operational restraint measures....
Are you saying that that information has yet to be provided to Parliament?
4:55 p.m.
Parliamentary Budget Officer, Library of Parliament
With respect to the first measure, the strategic operating review, I guess in the context of pre-budget consultations and as advice in your pre-budget report, to get full disclosure would be very important. It's important for us, because as we project forward and we look at the amount of spending in the medium term and we look at these growth rates, it's very low. It's almost unprecedented to have sustained five-year projections of total program spending under 3% and direct program spending under 2% over a sustained period of time. We're going to be building in more additional restraint under that kind of context.
The more details we can see around it, the more we know what will be the impact in terms of fiscal risk and what will be the service level risk.
In terms of 2010 budgetary measures, we still don't know how departments are managing, particularly that third year. So we're getting information almost on an ex post basis.
In terms of the crime adjustment numbers--even the numbers the government has put ou--my office cannot go to a budget, either in Budget 2010 or 2011, and see basically what has been the adjustment in Minister Flaherty's fiscal framework for the additional expenditures for the tough-on-crime agenda, so to speak.
4:55 p.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Would you be willing to provide to the committee a more granular and detailed list of the data that we ought to be requesting as part of the pre-budget report? Because the report will be to the Minister of Finance, to the government, perhaps we can use this opportunity to ask the government for a more detailed and granular analysis of budget figures in terms of its projections.
4:55 p.m.
Assistant Parliamentary Budget Officer, Expenditure and Revenue Analysis, Office of the Parliamentary Budget Officer, Library of Parliament
We'll be releasing a report tomorrow that looks at the quarterly financial reporting of the departments, and, in advance, you'll note that some departments do report the impacts of the Budget 2000 freeze. So there are some high water marks, and it could be very helpful for parliamentarians if that could be applied uniformly. That would certainly inform deliberations and debate.
4:55 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you, Mr. Brison.
I'm going to take the last round, as the chair.
I understand, Ms. Glover, you just wanted to correct a point or...?
4:55 p.m.
Conservative
Shelly Glover Conservative Saint Boniface, MB
I'd like to correct.
As I was talking—of course, I'm so passionate—I made a mistake. I think I said 4,000 and 4,800. It's 14,000 and 14,800. So we went up by 800 in prisons, not the 2,200 that was projected. But I think I said 4,000 and 4,800m and I meant to say 14,000. So 14,800 is our current prisoner population and it was projected to go up 2,200.
4:55 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Mr. Page, I wanted to return to the issue of forecasting, and you and I have talked about this before. Actually, I'm not that hard on forecasters, because I don't know if I see it as issues of mistakes; rather I see it as changing conditions. If you could go back two years, you couldn't say if there was going to be an Arab Spring, or tell if Japan was going to have the natural disasters it has had, or predict the impact on the economy of those events. That is very hard to predict. So forecasting is a very difficult field.
But I want to return to the issue Ms. McLeod first raised. And Ms. Glover's point, in terms of moving it out from the Department of Finance seemed to me—it was done by a former government—to be a good idea: to do the average of private sector forecasts. To make sure I'm clear on it, are you recommending that the department, in addition to that, do its own forecasting? Or are you recommending that it not do that, not take an average of private sector...but reverse that earlier decision and bring forecasting back within the Department of Finance?
5 p.m.
Parliamentary Budget Officer, Library of Parliament
I think if the Minister of Finance and the Deputy Minister of Finance look at this economic outlook and they look at an average private sector forecast—again, they're just simple averages of headline numbers, real GDP, nominal GDP, inflation, and the unemployment rate—they ask, from their point of view, if that is realistic. Can we hit our targets? Should we be planning the government's finances to that?
If they feel it seems not realistic in terms of balance, in terms of risk, then I think they should provide an independent forecast.
Again, it doesn't mean to say we can't. We can do the calculations, as we've done for the first three years of our office, where we say here's what a fiscal forecast looks like based on an average private sector forecast. They can continue to do that. I don't think it prevents them from providing their own independent view. We know they have very strong economists with economic potential in that department.
5 p.m.
Conservative
The Chair Conservative James Rajotte
Can I get your reaction? If you were advising the minister, how many times per year would you update your forecast? I think, frankly, updating on a continual basis, with all the changing conditions, two or four times per year.... I would not recommend that the government continually update its projections, because I think you're almost going to confuse Canadians more than actually inform them.
In your view, how many times should they present it—twice per year or four times per year? What is your view?
5 p.m.
Parliamentary Budget Officer, Library of Parliament
Honestly, I think what we have now effectively works, for the most part, with an economic update, five-year projections, and an update with the budget on the economy. I think as well, with the fiscal and monetary...the release of that information by the government, are we on track, are we not on track? For the most part, that's probably sufficient in terms of frequency, but it's in service of you folks.
5 p.m.
Conservative
The Chair Conservative James Rajotte
Okay. I appreciate that very much as well.
I did want to draw attention to your statement about the strategic and operating review providing the same level of detail afforded in the 2009 fiscal stimulus plan. Before committee, you've commended that in terms of the amount of detail provided to parliamentarians, and I appreciate you raising that again. I agree with you that that is a good model.
You did a very important report with respect to sustainability, and you've talked before the committee about health care as well. In your report, and also before committee, you've commented on provincial levels of debt as well. I wanted to give you the opportunity to comment on that. You've talked about the 2014 accord and the negotiations leading up to that.
The federal government, in my view, is in a much better position fiscally than many of our provinces are. I wanted to give you an opportunity to talk about some of your concerns with respect to provincial debt.