Okay. It's our pleasure.
Evidence of meeting #85 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was report.
A video is available from Parliament.
Evidence of meeting #85 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was report.
A video is available from Parliament.
4:35 p.m.
Conservative
The Chair Conservative James Rajotte
I want to welcome everyone back to the 85th meeting of the Standing Committee on Finance.
I want to welcome our guests as well.
Pursuant to Standing Order 108(2), this is a study of the economic and fiscal outlook.
As you know, colleagues, two times per year we have the Parliamentary Budget Officer, so we're very pleased to have Mr. Kevin Page back before the committee today. He's joined by three of his colleagues from the Parliamentary Budget Office. We have Mr. Mostafa Askari, Mr. Sahir Khan, and Mr. Chris Matier. Welcome to all of you. Thank you for joining us here today.
Mr. Page, I'll ask you to begin with your opening statement and then we'll begin with members' questions immediately after that.
4:35 p.m.
Kevin Page Parliamentary Budget Officer, Library of Parliament
Thank you, Chair.
Good afternoon Mr. Chair, vice-chairs, and members of the committee.
Good afternoon Mr. Chair, vice-chairs, and members of the committee. Thank you for inviting me and my colleagues to speak to you today about Canada's economic and fiscal outlook.
Yesterday, as you know, PBO released two reports. The first examined the short- and medium-term outlook, and the second analyzed the performance of the Canadian labour market. In addition, just over a month ago, the PBO released its 2012 Fiscal Sustainability Report, which examines Canada's fiscal structure from a longer-term perspective.
My remarks will focus on three topics that go to the core of the PBO's mandate: the nation's economic and fiscal outlook over the medium term, the government's fiscal sustainability in the long term, and Canada's labour market performance.
The global economic outlook has deteriorated since the PBO's April 2012 economic and fiscal outlook. The recent International Monetary Fund's world economic outlook indicates that uncertainty surrounding policy-makers' ability to control the euro crisis and to avoid the fiscal cliff, i.e., automatic tax increases and spending reductions, in the U.S. are weighing on growth in advanced as well as in emerging market and developing economies.
The expected weakness in the global economy and commodity prices combined with government spending reductions and restraint are expected to weaken economic growth and job creation going forward. As a result, the PBO projects Canada's real GDP to grow 1.9% this year, 1.5% next year, and 2.0% in 2014. The weakness in near-term growth pushes the economy further below its potential, resulting in an increase in the unemployment rate in the short term.
Since the release of the PBO's April 2012 economic and fiscal outlook, private sector forecasters have revised down their outlook for real GDP growth in 2012-13, bringing it more into line with PBO's April economic and fiscal outlook. Compared to the average of private sector forecasts published in September, PBO is projecting slower real GDP growth and lower GDP inflation in 2013-14. As a result, the PBO's outlook for nominal GDP, the broadest measure of the government's tax base, is lower by $22 billion annually, on average, than the projection based on average private sector forecasts.
The PBO judges that the balance of risks to the private sector outlook for nominal GDP is tilted to the downside, reflecting larger impacts from government spending reductions and a more sluggish U.S. recovery, as well as differences in views on commodity prices and their impacts on real GDP growth and GDP inflation.
On the basis of this economic projection, the PBO's fiscal projection shows significant improvement in the government's budgetary balance from a deficit of $18.1 billion—that's 1% of GDP—in 2012-13 to a surplus of $13.8 billion—0.6% of GDP—in 2017-18. The improvement is partly due to a cyclical rebound in revenues, but can be mainly attributed to policy actions to restrain operating expenses.
Based on the outlook presented in budget 2012, the government's direct program expenses are assumed to remain essentially frozen for six years, growing at 0.2% annually, on average, which is well below the average of 6.3% observed over the last 10 years.
Given the PBO's assessment of the balance of risks to the private sector economic outlook, the PBO estimates that the likelihood of realizing budgetary balance or better is approximately 60% in 2015-16, 70% in 2016-17, and 75% in 2017-18.
Although the PBO projects the government's structural balance to improve from a deficit to a surplus position over the medium term, assessing whether a government's fiscal structure is sustainable requires looking over a longer horizon to take into account the economic and fiscal implications of Canada's aging population.
In its 2012 fiscal sustainability report, the PBO concluded that the government's fiscal structure was sustainable over the long term given recent policy changes, which include the reduction in growth to the Canada health transfer, CHT, beyond 2016-17, reductions in direct program expenses, and the increase in the age of eligibility for the old age security, OAS, program.
The PBO estimated that the government would have sufficient fiscal room, amounting to 1.4% of GDP, to reduce taxes, increase spending on programs, or some combination of both, while still maintaining fiscal sustainability.
The PBO is pleased to note that last week Finance Canada published a report on Canada's aging population and long-term fiscal sustainability. Finance Canada's report confirms the PBO's analyses of the federal fiscal structure presented in its September 2011 fiscal sustainability report, as well as its January 2012 assessment of the CHT renewal, as well as its September 2012 fiscal sustainability report.
That is, prior to the government's December 2011 change to the CHT, the Canada health transfer, the federal fiscal structure was not sustainable, as federal debt relative to GDP was projected to rise unchecked over the long term. The PBO noted in its January 2012 assessment that as a result of the reduction in the growth rate of the CHT, the federal fiscal structure was rendered sustainable. Furthermore, the PBO's January 2012 assessment did not incorporate the government's program spending reductions and restraint, or the increase in the age of eligibility for the OAS, the old age security program.
In its labour market report, the PBO provides a richer perspective on the performance of Canada's labour market by analyzing a broad set of labour market indicators, comparing current levels to PBO estimates of their underlying trends, exploiting longer time periods, which include previous recessions, and comparing Canada's recent performance to a large group of advanced economies.
Most of the key labour market indicators in Canada have improved significantly from their recessionary lows, but they remain below the PBO's estimate of their underlying trend values. PBO analysis also suggests that the labour market in the current cycle has generally fared better relative to past economic cycles in the 1980s and 1990s. Looking abroad, Canada's labour market is currently out-performing the U.S. and some European countries and scores above average among the G7 and OECD countries.
The PBO is pleased to note that Finance Canada is now publishing its estimates of the government's structural, or cyclically adjusted, budget balance on a public accounts basis in its annual fiscal reference tables. Consistent with the PBO's estimates, Finance Canada's estimates now indicate a relatively small but growing structural deficit over the period 2008-09 to 2011-12.
Further, to improve budget transparency and accountability, the PBO continues to strongly encourage the Government of Canada to publish: historical estimates and medium-term projections—i.e., five years ahead—of the economy's potential GDP, accompanied by the methodology and assumptions relied upon to arrive at such estimates; medium-term projections of the government's structural, or cyclically adjusted, budget balance, accompanied by the methodology and assumptions relied upon to arrive at such projections; and the fiscal sustainability analyses of the provincial-territorial government sector that it has prepared in the past, which the Auditor General noted in his recent report.
Thank you again for inviting us here. We would be happy to take your questions.
Thank you, Mr. Chair.
4:40 p.m.
Conservative
The Chair Conservative James Rajotte
Thank you for your presentation, Mr. Page.
We will start with Ms. Nash. You have the floor.
4:40 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Welcome, Mr. Page, and your team, to the finance committee once again.
I remember when you were here in the spring. At that time you talked about the government's austerity measures and the impact you predicted they would have as a drag on economic growth. I know the members opposite on the Conservative side were very aggressive in their opposition to that, but I note that in fact more sources, more analysts, tend to be agreeing with the predictions that you made. It must be hard to be out in front on these projections. Even the IMF is saying now that they underestimated the impact of austerity measures and the drag that they would have on growth. First of all, I want to thank you for your fine work on this.
I want to ask you about your job as Parliamentary Budget Officer. You have had a very difficult time, and that has been a very public situation, getting access to basic information to be able to do your job. Can you tell the committee about the legal situation concerning the exercising of your mandate right now?
4:45 p.m.
Parliamentary Budget Officer, Library of Parliament
At the moment, the PBO operates within its mandate as specified in the act of Parliament, which says that we can provide independent analysis on the economy, the nation's finances, the estimates, and costing. At the present time, we are working within that mandate.
With respect to the information we have received or not received in the past, it varies from file to file. There have been times on certain files where we received very good information. At other times, we have received less-good information.
With respect to budget 2012 and our efforts to get additional information and make it available to all parliamentarians, there's certainly been some progress, which we've reported on our website. We've received information from a number of departments on spending, less information on employment, and less information on service levels. We've reached a point where I think we need clarity with respect to our mandate. I think there's a difference of opinion, so we will proceed in that fashion. We will proceed to try to find clarity.
4:45 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
We support you in your quest to find clarity. It's been difficult for parliamentarians to find clarity on the impact of the government's budget changes and what they actually mean for the Canadians we represent.
I also note that you are nearing the end of your mandate. Can you clarify for us what the process will be for choosing the next Parliamentary Budget Officer? Have you been approached by the government for recommendations? Do you know what's going to happen when you complete your mandate?
4:45 p.m.
Parliamentary Budget Officer, Library of Parliament
It's true that my mandate, my five-year appointment, will be up in March 2013. There is a process in the act that deals with replacing the Parliamentary Budget Officer, or finding a new candidate. It's also possible that I could seek an additional term.
The Parliamentary Librarian and the deputy head of the Library of Parliament, where I work, put together a process. Three names are advanced, effectively, to the Governor in Council, and then a choice is made. That is the process that is going on. There have been some discussions with the Parliamentary Librarian to start that process. I'm not aware that it's officially started at this time.
4:45 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Are you concerned that the position may be vacant if there is not action soon to initiate the process for finding a replacement?
4:45 p.m.
Parliamentary Budget Officer, Library of Parliament
If the process were started now, I don't see why they couldn't find a very capable, knowledgeable, experienced candidate. I think there are probably three others around this table right now who would love to do the job. If we start the process soon, I think people will come.
4:45 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
The government has talked a lot about the gun registry and how much it would save Canadians to get rid of it, and now we're having difficulty getting these numbers out of the government. Is that something your office is examining, and if not, could you do it?
4:45 p.m.
Parliamentary Budget Officer, Library of Parliament
We have not been asked, but certainly we could talk about what such a process could look like and how we would put together such a costing. We'd be happy to talk to you about that.
October 30th, 2012 / 4:45 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
Thank you, Chair.
I want to thank you, Mr. Page, for being here this afternoon. When we're talking about the economy, what we're going through, and the global recession and the implications, your insight is always valuable.
I'm going to get your insight on the U.S. economy and the implications it will have for Canada. The U.S. economy's facing some serious fiscal challenges. It's going to require some painful steps to deal with them. Would you agree that while fiscal consolidation may have short-term pain it is necessary in the long term for the economic health of the U.S.?
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
I think the whole world is waiting to see some type of fiscal plan, medium term or longer term, from the United States. As was highlighted in my remarks and highlighted by the International Monetary Fund in its world economic report, that type of uncertainty is actually having a global impact. I would agree that if it is possible sooner rather than later for the Government of the United States to put together a longer term fiscal plan; the world would be a much better place. Yes, fiscal consolidation in the U.S. would act as some type of drag, but it would have to be balanced against the massive uncertainty of having deficits in the neighbourhood of 8% to 9% of GDP every year.
4:50 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
You see the lack of direction in the U.S. as having more impact than the consolidation would have?
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
I think at the present moment the uncertainty with respect to the so-called fiscal cliff in the United States, and in Europe as well, is having a negative impact on investment around the world.
4:50 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
How do you view the quantitative easing three that the U.S. has brought in and how would those implications impact on Canada? How do you see them affecting Canadian businesses and Canadians?
4:50 p.m.
Parliamentary Budget Officer, Library of Parliament
I'm sorry, could you repeat the question? I didn't hear it. I apologize.
4:50 p.m.
Conservative
Randy Hoback Conservative Prince Albert, SK
On the quantitative easing three that the U.S. has brought out, I guess I'm looking for the implications back here in Canada of that type of program and how it will affect us.