Finance Committee on Nov. 3rd, 2014

[Scott Cameron]

Certainly. Let me see how to approach this.

You approve the estimates on a cash basis. When finance is preparing its forecasts, it has an adjustment that it makes to put that on an accruals basis. We haven't been provided with information to assess that, but it has appeared that over the last four or five years, every year there has been a surprise in how much the spending is coming in relative to what has been approved by Parliament. There's always some room there. It arises from the incentives that departments have. When they're spending throughout the year, the consequences of overrunning budgets are much harsher than of under-running budgets, so naturally every year you get an underspend and finance it. When it forecasts direct program expenses, it accounts for that.

Each year there has been a greater amount than what has been forecasted by Finance Canada. We would like to do our own forecast of DPE but we haven't yet been provided with the information. That's been rejected, I believe, from requests that we've made to get how this reconciliation between the expenditures appropriated by Parliament and what actually goes out based on the public accounts...as you said, and how that gets reconciled in the budget outlook. We would like to look at that issue more closely, but we would have to find other ways to do so.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

I would just thank the witnesses a second time for coming.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Van Kesteren, for seven minutes, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Chair.

It's good to see you again.

This is fascinating stuff. Every time you come in, I think we learn more. This really is an interesting department you run. I think we're all learning as we go. Of course you are our teachers for the most part, but much of this you can bring down to a level most people can understand.

I wonder maybe if, through my line of questioning, I can do that.

I'm going to go to you, Mr. Askari. Why is the global growth, the GDP, so stagnant? What's going on?

[Mostafa Askari]

That's a very good question, sir. In fact, typically six years after a recession we should be in a situation where the global growth has sort of stabilized and there is really no issue.

There are a number of risks and issues that have caused this sort of instability in global growth, and we see the IMF has revised down its global growth projection in its most recent publication.

One of the issues identified by the IMF actually is that a number of countries in Europe and in North America, very early on after the recession, had started to significantly reduce their government spending. The fiscal drag that was created both in Europe and in North America did not allow the normal business cycle to come back and provide—

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Let me interject for a second. Is that factual, or is that maybe an opinion? I hear both sides of that equation

I'm thinking about a country like France, for instance, that wouldn't dare to do what you suggest. As a matter of fact it has even increased and raised its taxes, and its GDP is not growing.

I'm thinking of a country like Germany that has strict fiscal measures. It is seeing an increase.

Is that a theory, or can you say emphatically that's the reason?

[Mostafa Askari]

No, in fact it's a reality. In Europe the fiscal budget compression obviously was recommended by the European Commission.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

But the Americans really haven't curbed their spending. As a matter of fact, they have increased their spending. They have doubled their debt in six years from $8 trillion to $16 trillion.

Isn't that running...? I'm not here to argue. I'm just trying to understand this thing because, where I come from—and I would dare say all of us have come from here, especially I'm speaking now of the older generation—you didn't get into debt to get out of debt.

Now I understand there is a theory that says if governments spend more, they can kick-start the economy.

Is that kind of what you're saying?

[Mostafa Askari]

Typically, sir, during any recession period, one of the major players in the economy, which would be government, can actually help by boosting spending or reducing taxes to kick-start the economy.

Just in response to your question whether it's a theory or a reality, the International Monetary Fund actually in its annual publication of “Fiscal Monitor”, which looks at the fiscal situation in different countries, has a measure that shows how much fiscal drag exists for each country. Even in the most recent publication of “Fiscal Monitor” that it released in October, it shows for Europe and North America still there is a bit of a fiscal drag.

Even now at the end of the thing there is still a fiscal drag, and that fiscal drag started very early on, about 2010, and continued. So that's one of the factors.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I guess I'm just looking for a country you can point to and say it's working there. I look at Japan, for instance. It has started its quantum whatever, and it has just poured trillions of dollars into its economy again. There is an upsurge in its stock market, but it is still struggling with that same low growth.

Can you point to a country? And please don't say the United States, because we haven't got enough time here. We could discuss that for a while.

Let me go to something else very quickly though. Where does the current rate of debt to GDP in Canada stand right now?

[Mostafa Askari]

About thirty...

[Scott Cameron]

Federally....

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

That is 31%?

[Mostafa Askari]

Yes, 31% or 32% is right.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

The government has said that it would like to see a comfortable level of about 25%.

I think you did a pretty good job of explaining how, when our GDP rises, we can borrow more money. When will we be at 25% at our current stage and the rate we're going at this point? What would you suggest?

[Mostafa Askari]

I think that by the end of the full projection period, in 2019-20—

[Scott Cameron]

We're close—

[Mostafa Askari]

—we are almost 25%.

[Scott Cameron]

Yes, the 2020-21 fiscal year.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Just so that folks understand what we're doing then, we are able to spend more money as a government. In essence, we're going into debt but because our economy is growing, the debt isn't that scary.

Mr. Cameron, is that fair?

[Scott Cameron]

I'm just trying to think. It depends on how the balance sheet stuff plays out and the capital spending plays out. I don't think we're going into debt further, but it is decreasing faster as a share of GDP than it would be—

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

It gets a little bit complicated, but I think we understand what you're saying.

Very quickly, you would agree though that this is a recent phenomenon where governments.... I'm not only saying governments spending money to get out of debt, but controlling the economy by monetary measures is recent, isn't it? We haven't seen a time where governments have kept the interest rate at near zero and have kept inflation at 2%. This is fairly recent. This is not something that's been practised, let's say, in our generation.

[Mostafa Askari]

That's a result of the very deep recession that created a huge excess capacity in the economy and that's why inflation has remained low and the Bank of Canada was able to maintain interest rates at a very low level, of 1% now.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Just wrapping up very quickly, we've done relatively well as a country when we look at where our debt has increased from 6.50% to possibly 8%, and to have had the results we have.

Do you agree?

[A voice]

Yes.